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DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY

VISAKHAPATNAM, A.P., INDIA

PROJECT TITLE
MODE OF DETERMINING EXISTENCE OF PARTNERSHIP ACT

SUBJECT

LAW OF CONTRACTS - II

NAME OF THE FACULTY

P. JOGI NAIDU

ASSISTANT PROFESSOR

NAME OF THE CANDIDATE

TULUGU SAI MALAVIKA

2019LLB071

SEMESTER – 3RD

ACKNOWLEDGEMENT
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“Gurubrahma Guruvishnuh Gururudevoh Maheshwarah |

Guruhsakshat parabrahma tasmai shriguraveh namah||”
“Guru is a representative of Brahma, Vishnu and Shiva. He creates and sustains knowledge while
destroying the weeds of ignorance. I salute such a Guru.”
This research paper has been made possible purely because of one such guru, Prof. Jogi Naidu.
He has been successful in changing the lives of numerous students with whom he has come into
contact through his lectures. I am but one of those hundreds. Professor’s contribution was
undoubtedly the single largest that has gone into the making of this paper. I would also like to
acknowledge the role played by the three pillars of strength sustaining my life- God, family and
friends.

TABLE OF CONTENTS

SYNOPSIS……………………………………………………………………………………3
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ABSTRACT………………………………………………………………………………....3

OBJECTIVE OF STUDY……………………………………………………………………..4

SIGNIFICANCE OF STUDY………………………………………………………………….4

SCOPE OF STUDY…………………………………………………………………………..4

RESEARCH METHODOLOGY……………………………………………………………….4

INTRODUCTION……………………………………………………………………………...6

CASE ANALYSIS…………………………………………………………………………….10

ROSS V PARKYNS………………………………………………………………………..10

MUHAMMAD JUSAF V PRIMSHAMAD AND OTHERS……………………………………..14

SHEIKH TAJAMMUL HUSSAIN V SHEIKH AHMAD ALI AND ANR…………..17

RAGHUNANDAN NANU KOTHARE V HORMASJI BEZONJI BAMJI……………20

MA SEIN V MAUNG BA HMU AND OTHERS…………………………………….24

SYNOPSIS

ABSTRACT

“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. Persons who have entered into
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partnership with one another are called individually “partners” and collectively a “firm”, and
the name under which their business is carried on is called the “firm name”. The project deals
with the mode as to what are the essential to determine whether a deed is a partnership or not?
The definition which is given in the Indian partnership Act, 1932 is as follow: - In determining
whether a group of persons is or is not a firm, or whether a person is or is not a partner in a
firm, regard shall be had to the real relation between the parties, as shown by all relevant facts
taken together. The project will discuss about section 6 of Partnership act and how the court
applied the particular section in various cases and to understand how the determination of
partnership is based on the partnership deed, facts, circumstances and intention of the parties.
The project will analyse the five Cases related to the determination of partnership. In which we
will analyse how the court interpreted the definition of partnership and applied in different
circumstances.

OBJECTIVE OF STUDY
The objectives of study are as follow: -
• To get the clarity of concept of consideration.
• To acquire knowledge on the project topic.
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SIGNIFICANCE OF STUDY
The significances of study are as follow: -
• By doing research work to get concept clarity of subject.
• The understand the method to determine the partnership during contract.
• To get the better understanding of the subject.

SCOPE OF STUDY
The scope of this research work is limited: -
• To the section 6 of Indian partnership Act, 1932.
• To the concept of mode used to determine partnership in Indian Law and English Law.

RESEARCH METHODOLOGY
The research methodology is of Doctrinal Type Research.

INTRODUCTION

The Indian Partnership Act, 1932 was enacted in 1932 and it came into force on 1 st day of
October, 1932.1 The previous Partnership Act, found in Chapter XI of the Indian Contract Act,
1872, was superseded by the present Act. The Act is not comprehensive. The goal is to establish
and amend the Partnership Act.2

1 Sec 1 of Indian Partnership Act.

2 See Preamble to the Act.
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The principles of the partnership were first brought under the Indian Contract Act, 1872 under
section 239 to 266 in an arranged form based on the usage and custom of traders and commercial
people of India according to English principles of law. With the development of trade and
commerce in India, it was felt that these sections were insufficient and hence a need for separate
partnership act was felt. Thus the Indian Partnership Act came up containing the partnership laws
were revealed; these were based on the rules including in the report of the Indian Law
Commission presided over by Lord Romilly in 1866.

NATURE OF PARTNERSHIP ACT

Partnership is a type of business organization in which two or more individuals work together to
carry on a business jointly. It is advancement over the 'Sole-trade sector' where a single person
carries on his own business with his own money, expertise and effort. In such a type of business
organization, a larger business needing more capital investment than available to a sole trader
should not be considered because of the limited resources of only one person involved in the
sole-trade business. From the other hand, in collaboration, a number of people could combine
their resources and energies and could launch a far larger company than each of these partners
could individually have. The responsibility is shared between separate partners in a relationship
in the event of a loss.

SCOPE OF PARTNERSHIP ACT

A partnership’s reach is primarily a question of the partners' purpose. There is no constraint on

the exercise of the powers which it wishes to exercise at any time, with the exception of
restrictions on unlawful, unethical or dishonest actions which are equally applicable to
individuals.

1. A partnership may itself be a participant of another company if it is consented to

by the partners of the respective firm.

2. If it appears that the contract has been either authorized or ratified by all the
parties, there is usually no further doubt as to its validity. The cases where the
issue of the legitimacy of the partnership contract occurs are those where one
partner has concluded the contract without his co-partners having clear authority.
As for their implied reach partnerships, he could split into the non-trading and
trading groups. In cooperation of any kind, certain forces may be exercised by
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partners. A partner can also retain an attorney who protects the company's
interests.

Section 4 of the Partnership Act defines the term partnership as “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. Persons who have entered into partnership with one another are called
individually “partners” and collectively a “firm”, and the name under which their business is
carried on is called the “firm name”.3

The amendments made are little more than verbal and make no change in what is essential to the
constitution of a partnership, though it has been observed that, if anything, this section has the
effect of widening the definition of partnership, as originally under section 239 of the Indian
Contract Act, it was inter alia necessary to agree to combine property, labor and skill.4

Section 3 of the partnership act contains three elements, which follows;

1. There must be an agreement entered into by all the persons concerned;

2. The agreement must be to share the profits of a business; and

3. The business must be carried on by all or any of the persons concerned acting for
all.

In the case of CIT v. G Parthasarthy Naidu, was a case that raised the issue of whether two
companies with the same partners should be viewed as a single firm for tax assessment purposes.
The Court held that the components of the term 'partnership' and, subsequently, 'company'
consist of (a) individuals, (b) undertakings carried on by all or any of them acting on behalf of all
persons, and (c) an arrangement between those persons to carry on such undertakings and to
share their income.5 It is the relationship that constitutes the collaboration between those
individuals. The bond is embedded in the agreement between them.

Section 4 (2) of the act says that there must be an agreement, This element relates to the
voluntary contractual nature of partnership, as distinguished from non-contractual partnership
relations, such as a Hindu joint family. The problem of whether an agreement exists or does not

3 https://indiankanoon.org/
4 Birdichand v Harakchand, (1940) 190 IC 613 : (1940) AN 211.
5 CIT v. G Parthasarthy Naidu, (1999) 236 ITR 350 (SC): (1998) 8 SCC 487.
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exist is that it must be answered in relation to the terms of the Indian Contract Act, 1872. 6 An
individual who has signed a partnership agreement cannot plead that he has signed benami for
someone else and can avoid responsibility.7

However, if, on the date of initiation of the partnership, the parties to the agreement have not
agreed, it cannot be assumed that they have become partners. 8 Where a society was registered
under the Societies Registration Act, but such registration is invalid, the invalidity of the
registration does not make the members partners.9 The basis of a partnership is a partnership
agreement; it also communicates the other ingredients that describe the partnership, defines the
undertaking agreed to be carried out, the individuals who will actually carry on the undertaking,
the shares in which the proceeds will be distributed, and some other considerations that
constitute such an organic arrangement.

It is permissible to claim that a partnership agreement establishes and defines the partnership
relationship and thus identifies the organization. If that conclusion is correct, it is only a further
move to argue that each partnership agreement can constitute a separate and separate partnership
and, accordingly, a separate and separate undertaking.

A separate agreement between the same partners to carry on another business and share the
profits therein may be followed by an agreement between the partners to carry on a business and
share the profits therein. Two separate partnerships and, thus, two separate firms could be the
intention. Or primarily to expand a relationship originally formed to carry on one business, to
carry on some other business. It's all going to depend on the partners' purpose. With regard to the
terms of the arrangement and all the surrounding circumstances, including proof of the
interconnection or interconnection of management, finance and other events of the respective
undertaking, the partners' intention will have to be determined.

The Supreme Court in Gannmani Anasuya v. Parvatini Amerendra Chowdhary,10 drew out some
parameters for determining the interests inter se between the partners in business: “If the assets
of the joint venture were created by the said immovable property, the same will be the index for
deciding the shares owned by the parties to the joint venture. The requirements for the

6 See the Indian Partnership Act, 1972, section 3. As to who are competent to contract, see section 11 of the Indian
Contract Act, 1872.
7 Shankar v. Shankar, AIR 1956 Bom 165.
8 Shardaprasad Gokul Prashad v. Nomanbhai Shamsuddin, AIR 1937 Nag 68: (1937) 169 IC 95.
9 Re State of Madras, AIR 1958 Mad 394.
10 Gannmani Anasuya v. Parvatini Amerendra Chowdhary, AIR 2007 SC 2380.
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determination of the share of co-entrepreneurs are typically the degree of the participation made.
In the lack of terms and conditions that have not been reduced to writing for the joint venture, it
will be necessary for the parties to perform how they deal with business relations.”

6. Mode of determining the existence of partnership

In determining whether a group of persons is or is not a firm, or whether a person is or is not a

partner in a firm, regard shall be had to the real relation between the parties, as shown by all
relevant facts taken together.
Explanation 1: The sharing of profits or of gross returns arising from property by persons
holding a joint or common interest in that property does not of itself make such persons partners.
Explanation 2: A person’s receipt of a share of the profits of a business, or of a payment based on
earning profits or different from the profits earned by a business, does not in itself make him a
partner with the persons engaged in the enterprise;
And, in particular, the receipt of such share or payment

aa. by a lender of money to persons engaged or about to engage in any business,

bb. by a servant or agent as remuneration,

cc. by the widow or child of a deceased partner, as annuity, or

dd. by a previous owner or part owner of the business, as consideration for the sale of the good
will or share thereof,
does not of itself make the receiver a partner with the persons carrying on the business.
Profit sharing is not definitive and does not constitute a partnership in itself. The question of
partnership is the question of intent to be determined on the actions of both the parties and all the
circumstances surrounding it.

To constitute a partnership relationship, there are many components. Some of which are, a
mutual agency between parties must exist, meaning one party acts as another's agent, and vice
versa, there should be sharing or benefit as well as loss sharing.

The creditor-debtor relationship has often been mistaken as a partnership relationship. It is very
effective to research the case law associated with the determination of partnership in order to
recognize the partnership relationship.

ROSS V PARKYNS
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Citation: (1875) L.R. 20 Eq. 331.

Judgment By: Sir G. Jessel

Principle Involved: Partnership, Agent and Principle, Underwriting, Agreement to share profits

FACTS OF THE CASE

The defendant, Sir George Parkyns began to conduct business in his own name as an underwriter
at Lloyd’s of which the defendant was a member on 6th May, 1863.

On the 6th of August, 1864, a written agreement was entered into between the Plaintiff, James
Russell Ross (who was not then a member of Lloyd’s), and the Defendant, whereby it was
recited that the Defendant had been engaged as an underwriter in Lloyd’s, and that it had been
agreed that the underwriting account in the name of the Defendant, which commenced on the 6th
of May, 1863, should be continued for three years from that date upon the terms and conditions
thereinafter mentioned. These conditions, so far as material, were as follows:

(1.) That the underwriting account which commenced on the 6th day of May 1863, shall continue
for the period of three years from that date, and shall be carried on in the name of the said Sir
Thos. Geo. Augustus Parkyns, and that the subscriptions shall be made in his name only. That the
policies, losses, and averages shall and may be signed and settled respectively by the said Sir
Thomas George Augustus Parkyns, or by the said J. R. Ross as his agent.
(2.) That the said James Russell Ross shall apply the whole or such part of his time and attention
to the said business as may be required for conducting the same.
(3.) That proper books of account shall be kept of and relating to the said underwriting business
by the said James Russell Ross, obtaining such assistance from time to time as he may find
necessary, subject to the approval of the said Sir Thomas George Augustus Parkyns, the expense
of such assistance to be borne by the said underwriting business. That true and particular entry
shall be made in such books of account by the party keeping the same of all such transactions,
matters, and things as are usually written or entered in books of account kept by persons engaged
in concerns of a similar nature.

(4.) That the said books of account, together with all securities, letters, and other things which
from time to time shall concern the said business shall remain and be kept and preserved at the
counting house where it shall be agreed by the said parties to conduct the business from time to
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time, and that each of the said parties shall have free access to inspect, examine, cast up, and
copy the same without any hindrance or denial of or by either of them.
(5.) That the said J. R. Ross has been paid and allowed a salary or sum of £150 per annum by the
said Sir Thomas George Augustus Parkyns since the said 6th day of May, 1863, and shall
continue to be paid or allowed the said salary or sum of £150 by the said Sir Thomas George
Augustus Parkyns in each and every year during the residue of the said term of three years, by
equal half-yearly payments.
(6.) That the gains and profits of the said business, after deducting all expenses attending the
same, shall be divided between the said parties in the following proportions, namely: The said
Sir Thomas George Augustus Parkyns shall be entitled to and have four fifth parts or shares
thereof, and the said James Russell Ross shall be entitled to the remaining one fifth part or share
thereof. And it is hereby expressly agreed and declared that in case in any one or more years of
the term during which the said business shall be carried on the same shall not yield any profit,
but a loss shall eventually accrue to the said Sir Thomas George Augustus Parkyns thereupon
during such one or more years, that he shall alone bear and pay the said loss, and the said J. R.
Ross shall be entirely exempted from bearing or paying any part or proportion thereof, and any
profit arising from the business of any one year shall not be set off against or be reduced by the
loss in any other year of the said term, but the account for each year shall be closed and settled as
one distinct and separate account.

ISSUE INVOLVED
Whether a certain agreement made between the plaintiff and defendant is an agreement
for hiring and service or an agreement for a partnership?

CONTENTION OF BOTH PARTIES

Counsel for Plaintiff: Mr. Roxburgh & Mr. Bradford
The plaintiff contended that the agreement between plaintiff and defendant to share the profits
and losses in a business of underwriters fulfils the essentials for partnership. Even though true
that the share of loss to be borne by the Plaintiff was measured by the profits he had received.
But it does not affect the principle.

Counsel for defendant: Mr. Chitty & Mr. Kekewich

The Defendant, referred to Mollwo, March & Co. v. Court of Wards in which the court held that
to determine existence of partnership, court should look into the terms of the agreement.
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OBSERVATION OF COURT
The court observed that mere participation in profit is inter se create a strong evidence of
partnership but in the cases of Cox v. Hickmen, 11 Mollwo, March & others v. Courts of Wards, 12
it is held that to determine whether the relation of partnership does or does not exist must depend
upon the whole contract between the parties, and that only mere sharing of profit is not
conclusive. Sir G. Jessel, then looked into the agreement made between plaintiff and Defendant.
The observation of M.R. is as follows
The first observation was that the is not a single word about partnership in it from beginning to
end. They are the mercantile man and if they were going to be partners, they should have
mention about it in the agreement.
The first clause of the agreement says that Plaintiff is to be the defendant’s agent. Second clause
provides that the Plaintiff is to apply the “whole or such part of his time and attention to the
business as may be required for conducting the same.”
The third clause which reads as “That proper books of account shall be kept off and relating to
the said underwriting business by the said James Russell Ross, obtaining such assistance from
time to time as he may find necessary, subject to the approval of the said Sir Thomas George
Augustus Parkyns.” The court said that did anyone ever see such a thing in partnership articles? I
do not say that such a thing is impossible, but it is very unlikely that one partner would keep the
books and accounts.
The 5th clause provides that Ross is to be paid by Sir Thomas Parkyns a salary of £150 per
annum in each year. The court said that the term ‘salary’ is what you pay to a servant which is a
fixed sum per annum. The term salary is not applicable between partners. By the term salary it is
implied that one is a servant. The salary in this case is not a sum paid from gross profits of
business but from Parkyns own pocket. That is very evident to determine that Ross was a partner.
The terms in clause six are “that if loss shall accrue to Parkyns,” which does not say “if the
business shall be carried on at a loss,” which means Parkyns is alone to suffer loss.

JUDGEMENT
The court held that the whole of the agreement from beginning to end clarifies that Parkyns is
the owner of the business and that Ross is his servant. It is not a partnership contract at all, but a
contract for hiring and service.13

11 (1860) 8 H.L. 268.

12 (1872) L.R. 4 P.C. 419.
13 Ross v. Parkyns, (1875) LR 20 Eq 331, 335.
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S. 6 (2) Explanation 1

The mere fact that a person is entitled to a share in the profits does not make him a partner,
because the real relationship may be one of debtor and creditor.14
In the case of Mollow, March & Co. v. Court of wards,15 As follows, A Rajah entered into a
contract with a partnership company. The Rajah was to earn a share on the net income of the
partnership company in consideration of the advances. Large powers of control over the business
were given to him for his protection, but no power to direct transactions. It was held that the
contract was not of partnership but of loan and security between a debtor and a creditor.

MOHAMAD JUSUF V PIRMSHAMAD AND OTHERS

Citation: AIR 1922 NAG 67

Judgement by: Justice Dhobley
Principle Involved: Creditor- Debtor

FACTS OF THE CASE

The plaintiff’s suit was for the recovery of the price of the goods purchased from his shop by Taj
Mahommad, who was the original defendant in the suit, and on whose death, the present
respondents were made defendants as his legal representatives. The defence, which prevailed in
the Courts below, was that there, were more than twenty partners in the plaintiffs shop and, that
as it was under S.4(2) of the Indian Companies Act, 1913, in unlawful partnership, no suit could
be maintained on its behalf. The plaintiffs reply was that the persons who were considered to be
his partners in the shop were in reality his creditors or servants, getting a certain share in the
profits in lieu of the interest on the amount advanced or of wages for the services to be rendered.
As stated above, both the Courts below were of opinion that the relationship between the plaintiff
and these persons was that of partners in the shop. They, therefore, concurred in dismissing his
claim.

ISSUE INVOLVED
Whether the agreement between parties is that of partnership or a creditor-debtor?

14 Mulla, partnership Act, pg. 2.

15 Mollwo, March & Co v Court of Wards, (1872) Sup Vol IA 86: (1872) 4 PC 419.
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CONTENTION OF BOTH PARTIES

Counsel for plaintiff: M.B. Kinkhede and G.S. Lule
The plaintiffs contention was that the persons who were considered to be his partners in the shop
were in reality his creditors or servants, getting a certain share in the profits in lieu of the interest
on the amount advanced or of wages for the services to be rendered.
Counsel for Defendant: D.T. Mangalmurti
The contention was that there, were more than twenty partners in the plaintiffs shop and, that as
it was under S.4 (2) of the Indian Companies Act, 1913, in unlawful partnership, no suit could be
maintained on its behalf.

OBSERVATION OF COURT
The court to deal with the case has divided the agreement in two classes.
(1) Between the persons who were to work in the shop as servants, and
(2) Between those who had advanced money for it.
While dealing with part one, the creditor’s agreement. the finding of the lower Courts is that they
were entitled to certain shares in the profits of the business and were also responsible for losses
according to those shares. The oral evidence in the case does not support this conclusion. The
Courts below drew this conclusion on the strength of the written agreements entered into
between the creditors and the plaintiff and also on the probabilities and the surrounding
circumstances of the case.
The court then examine the agreement, there was no express and specific agreement that the
persons advancing the money for the shop was to share in the losses, but it was said by the court
that reading all agreements as whole the agreement to share losses can be presumed. And the fact
that all these persons were Mohammedans and that amongst them no interest is charged on loans
advanced.
The court said that generally the money lenders accept a share of profit but not liable for losses.
The most important term of the agreement that these persons had no right to take any part in the
running of the plaintiff’s shop or to question his account books. The plaintiff was running the
shop solely. The profit given to those creditors was not at any particular rate but at the rate which
the plaintiff thought proper.
The court has cited the case of Bipul Chandra Gupta v. Hazi Nasib Ali,16 which is like that of
present case.

16 (1909) 13 C.W.N. 638.

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“the agreements were not executed by all the alleged partners in favour of all of them, but these
were between the plaintiff on one side and the alleged partners on the other. The others were not
directly interested in the management of the plaintiffs shop either personally or through their
agent. Though the agreement was written on one piece of paper, it amounted to individual and
separate contracts between the plaintiff on one side and each of the creditors on the other.”
There was no agreement of any kind between the creditors inter se and there was no mutuality
between them. The same condition is applicable in present case.
While dealing with second part the court said that there is no doubt a Clause is there in
agreements between servants and plaintiff to the effect that servants would be responsible for the
losses too, but the context and the place where the clause occurs would show that they were to be
liable for losses only in the case these were the result of their negligence. The portion of
agreement quoted by Court,
“It is settled that I should receive as pay for my labour Rs. 0-10-6 ten annas six pies share of the
profits. I shall go wherever you send me and shall do whatever you ask me to do without your
permission. I shall not go to my native place. If I go to my native place without your permission I
shall not take any share of the profits of the Company. If the Company suffers any
loss, which God may forbid, I shall pay the same. I shall go to my native place after disposing of
the goods entrusted to me and realising the price of goods advanced on credit. If there be any
deficit I shall make good the same. you may appoint another man in my place. The expenses you
incur, the damages in respect of the goods and the unrealized amounts will be paid by me from
my private property. If you find any fault with me you can dispense with my services and I shall
have no right to any share in the profits....”
The court observed from the above mention terms that these conditions show that the person
entering into this agreement could not be a partner, but a mere servant, though paid by a share in
the profits, if his liability to pay the losses is clearly in respect of the losses occasioned by his
neglect or default. They are getting profit only for the business entrusted to them and have no
connection with shop.

JUDGEMENT
For the first part the court held that the agreement between plaintiff and other persons was not of
partnership. The court concluded in the way that The use of the word ‘partner’ or ‘partnership’ in
the agreements does not necessarily show that there was a partnership. The parties may call
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themselves partners, but if it appears that one party is to do nothing more than advance money to
the other and is to be re-paid by a share of the profits, they must be treated as creditor and debtor.
For the second part the court held that that the plaintiff had no partners in his shop and that the
persons held by the lower Courts as being his partners were either his creditors or servants.

TAJAMMUL HUSSAIN V SHEIKH AHMAD ALI AND ANR.

Citation: AIR1937Oudh438
Judgement By: High Court of Oudh
Principle Involved: family business- partnership; mode to determine existence of partnership.

FACTS OF THE CASE

This is a first appeal arising out of a suit for partition against the decree of our learned brother
Nanavutty, J., in the exercise of the Original Civil Jurisdiction of this Court. It is common
ground between the parties that Sheikh Azam Ali, the ancestor of the parties, opened a shop for
the sale of furniture by the name of Azam Ali and Co. some 75 years ago. On the death of Sheikh
Azam Ali, his two sons, Wilayat Ali and Abid Ali, carried on the business of the firm. Wilayat
Ali died in 1904, leaving two heirs, a son, Sheikh Ahmad Ali, who is plaintiff 1 in the present
suit, and a daughter, Mt. Ahmadi Begum. Abid Ali died childless in 1926 leaving a widow,
Mohamdi Begam, and his nephew, Sheikh Ahmad Ali, plaintiff 1, as his heirs. Mt. Mohamdi
Begam died in 1928, leaving a brother, Wajid Husain, as her sole heir. Soon after the death of
Mt. Mohamdi Begam, Wajid Husain brought a suit for partition of the share inherited by him
from his sister. This suit was decided by means of a compromise, as a result of which, Wajid
Husain was allotted a 2 annas share in the firm and other properties in suit. On 8th July 1928,
Ahmadi Begam executed a deed of gift in respect of her 2 annas and 8 pies share in favour of her
son, Sheikh Tajammul Hussain, defendant, and her daughter, Mt. Qaisar Jahan Begam, plaintiff
2 in the present suit. The plaintiffs brought the present suit for partition of their share in the
properties detailed in Schedule A attached to the plaint which included the stock-in-trade,
outstandings and cash, etc., of the firm which since some time subsequent to the
death of Sheikh Azam Ali began to be styled as Azam Ali and Sons. The court decided in the
favour plaintiff. The appeal filed by defendant is that that the legal relationship between the
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parties in respect of the properties in suit was that of partners, and not of co-owners, and that the
present suit for partition was, therefore, not maintainable.

ISSUE INVOLVED
Whether the legal relationship between the parties in respect of the properties in suit was
that of partners or of co-owners?

CONTENTION OF PARTIES

Appellant: The Appellant(defendant) argued that the property in suit is of partnership and for
that a suit for dissolution of partnership to be file not a suit of partition of property therefore the
suit is not maintainable.
Respondent: the contention of Respondent (Plaintiffs) was that properties owned jointly by the
members of the family of Azam Ali who are parties to the present suit and that the shop called
Azam Ali and Sons is a business jointly owned by both the parties, and is not a partnership
concern governed by the provisions of the Partnership Act (9 of 1932).

OBSERVATION OF THE COURT

The court said that as regards the business of the firm, it is not disputed that the business has
been carried on continuously, since the shop was opened by Sheikh Azam Ali, and is continued
up to the pre-sent day. It is also agreed and the fact is further borne out by the account books of
the firm that the members of the firm have been receiving a fixed amount from the income of the
business and that all the house properties and the village property in suit have been purchased out
of the income of the business which the members of the firm have allowed to accumulate.
The court reiterated the facts that “Abid Ali and “Wilayat Ali during their lifetime used to take
Rs. 150 per month each from the income of the business. After the death of Wilayat Ali, his son
and daughter used to realize the sum of Rs. 150 in place of their father. Since the death of Abid
Ali, his widow, Mohamdi Begam, began to realize Rs. 200 per month and Sheikh Ahmad Ali,
who inherited a 6 annas share from Abid Ali besides the 5 annas and 4 pies share which he had
inherited from his father, began to take Rs. 1,133-5-4 per month. Similarly, Mt. Ahmadi Begam
began getting Rs. 266-10-8 per month and since the execution of the deed of gift by Ahmadi
Begam, this amount has been distributed between the donees, Tajammul Hussain getting Rupees
177-12.5 and his sister Qaisar Jahan Begam Rs. 88-14-3 per month.”
 P a g e | 18

According to the definition of partnership defined under section 4 of Indian partnership act,
1932, 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. The definition laid down two essential elements.
(1) The existence of a business carried on by all or any of them acting for all; and
(2) An agreement amongst all the persons concerned to share the profits of the business.
The court observed that the existence of the furniture business carried on by the firm Azam Ali
and Sons is not disputed and that is also not disputed that this business has been carried on, since
the death of Azam Ali, first by his sons, Wilayat Ali and Abid Ali, and after their death by
Sheikh Ahmad Ali on behalf of all the joint owners. Sheikh Tajammul Hussain has also been
working in the business. At first-he used to work as a servant on a salary of Rs. 100 a month, but
since the execution of the deed of gift in his favour by his mother, he ceased to get the salary,
and has been getting a share out of the income.
The rejected the contention raised by Respondents i.e. Section 5 of Partner-ship Act says that the
relationship of partnership arises from contract and not from status, and on the provisions of
Section 6 to the effect that the receipt by a person of a share of the profits of a business does not
of itself make him a partner with the persons carrying on the business.
The court said that Section 5 of the Act in express terms provides that the members of an
undivided Hindu family carrying on the family business as such and a Burmese Buddhist
husband and wife carrying on business as such are not partners in such business but but the case
of a Mahomedan appears to us to be quite different. When Sheikh Azam Ali died, his heirs did,
no doubt, inherit the business as tenants-in-common but did not automatically become partners.
But when they continued to carry on the business and to share the profits, the necessary inference
must be that they entered into an implied, if not express agreement to become partners of the new
firm. The position was similar at the deaths of Wilayat Ali, Abid
Ali and Mohamdi Begam and at the time of the execution of the deed of gift by Ahmadi Begam.
These instances clearly reflect a relationship of partnership.

The court has cited case of Bux v. Samuel Fitz & Co., Ltd,17 Where the following observation has
been taken.
When the sole proprietor of a firm dies, his heirs certainly inherit the stock in-trade, the
outstanding dues and even the goodwill, but such heirs do not ipso facto become partners of the
firm. When there was a sole proprietor, there was no question of a partnership which must be
between more than one person. On the death of the sole proprietor his heirs do not
17 AIR 1926 All 161.
 P a g e | 19

automatically become partners of the old firm but merely heirs to the assets of the deceased.
Before a partnership can come into existence, there must be an express or implied agreement
between the heirs that the old firm should be continued. This agreement might be inferred from
the fact that the firm was allowed to carry on business even after the death of the sole
proprietor. But in the absence of any such evidence it would not be just to presume that the heirs
of the deceased proprietor became partners of the new firm.

The court gave emphasis on the case of Shukrulla v. Zohra Bibi,18 where it is observed that the
law does not recognize a so-called Mahomedan joint family as a legal entity, and that any
analogy drawn from the joint Hindu family system for the determination of the rights of
individuals supposed to belong to a so-called Mahomedan joint family is misleading.

JUDGEMENT
The court held that by analyzing the facts of the case it is quite clear that both the element of the
partnership mentioned under section 4 of the partnership act has been satisfied and the suit for
partition is not maintainable.

RAGHUNANDAN NANU KOTHARE V HORMASJI BEZONJI BAMJI

Citation: AIR 1927 BOM 187

Judgment by: Amberson Barrington Marten, Kt., C.J. and Norman W. Kemp, J.
Principle involved: Section 239 of Indian contract act-Partnership between solicitors-Solicitors’
Firm-Admission of a solicitor as a partner in the firm.

FACTS OF THE CASE

The plaintiff and defendant, who are two experienced solicitors of the High Court of Bombay,
deliberately enter into an agreement of July 31, 1915, under which they expressly agree that they
shall be partners in the said firm of Nanu, Hormasiee and Company and shall practice as
attorneys under the said name and firm. The partnership is to be for one year, and on its
determination the defendant is to cease to have any claim or interest in the firm and its
outstanding, the property, name goodwill thereof. Further, the plaintiff and defendant gave a
general notice as follows:

18 AIR 1932 All 512.

 P a g e | 20

We beg to inform you that we have admitted Mr. Hormusji Bezonji Bamji (the defendant) into
partnership with us from this date. We shall continue to carry on our business under the same
style as before. Mr. Bamji will sign as below. This was on July 1, 1915.
After that for several years the defendant was left in sole conduct of business, mainly because it
appears that the plaintiff was ill. The plaintiff admits in his evidence at p. 129 of Part 1 that the
defendant after he became a partner could sign for the firm, could pass receipts for the firm,
operate on the banking accounts, and could give an undertaking on behalf of the firm in all
matters attended to by him. He could give an undertaking in my absence on behalf of the firm.
These are all matters which a partner alone can do. This does not constitute the management of
the firm and of the firm’s business. In 1920 it appears that the plaintiff took a more active part in
the business. But troubles arose, and about August 1921 the parties dissolved partnership.

Accordingly, in his letter of July 28, 1921, the plaintiff wrote to the defendant: I propose sending
out notices to the profession and others about our dissolution as from the 1st proximo. I am really
very sorry the dissolution which could have been arranged smoothly, peacefully, quietly, and in
the interest of both of us has to be done in this way.
Then follows, on August 1, 1921, a notice of dissolution which runs: The undersigned
Hormasjee Bezonji Bamji having, as from this day ceased to be a partner of the firm of Nanu
Hormasjee and Co. Mr. Raghunandan N. Kothare will continue the business under the old name
of Nanu, Hormasjee and Co. at the above address. That notice is signed by both the alleged
partners.

ISSUE INVOLVED
Whether there is a relation of partnership involved between the parties when they came
into agreement to a solicitor firm?

CONTENTION OF THE PARTIES

Plaintiff: they argued that there is not a agreement of partnership even though the term of
agreement define them as partners. They have also contended that the major essential in a
partnership relation is sharing of profit they did not agree to share the profits of the business
between them, and consequently they did not satisfy the definition of partnership in Section 239
of the Indian Contract Act.
 P a g e | 21

Defendant: The defendant’s arguments was on the line that the agreement entered between the
parties is clearly mention that they have entered into a relation of partnership for a year which
eventually extended till the date of dispute which in other terms called as partnership at will.

OBSERVATION
The court observed that the original agreement was only for one year and no further document
was executed: and presumably, the parties afterwards continued at will on the terms of original
agreement. If then it was originally a partnership, it became a partnership at will as from August
191C. A statement in a document that nothing therein contained is to constitute the relationship
of partners, will not necessarily prevent the parties from being partners in the eyes of the law. So,
too, a mere statement that the parties are to be partners will not necessarily constitute them
partners in law. Further, although two persons may, as here, hold themselves out to be partners
and be liable to third parties accordingly, yet it does not necessarily follow that they would be
partners inter se.

The court rejected the contention of plaintiff by stating that under Clause 3 of agreement the
defendant in lieu of his share of profits in the business was to be paid Rs. 500 a month which
means per month 500 will be irrespective of profit or loss. Similarly, the defendant was not to be
responsible for any losses. Then as regards the furniture, library, stock-in-trade all that is to
remain the property of the plaintiff. Further, upon the determination of the partnership the
defendant was to cease to have any claim or interest in the firm and the outstandings, the
property, name and goodwill thereof. That clause would seem to imply that up to that date he had
an interest, although on the dissolution all those assets would pass to his partner. The final clause
contains a provision for arbitration “if during this partnership any dispute shall arise with
reference to this agreement or partnership hereby created. it is clear from this clause alone that
the parties thought they were creating a partnership.
Coming to losses the court said that it is not essential to constitute a partnership that the partners
should agree to share the losses. It is depending upon the parties and terms of the agreement and
in that present case the plaintiff agreed to bear all the losses. But that does not affect their
agreement with any third party. The will be liable for third party. The partners may agree that on
the determination of their partnership, the assets are to bo dealt with in a particular way and that
for instance all the assets are then to belong to partner A. in the case of solicitor firm apart from
money or finance, goodwill has very substantial value.
 P a g e | 22

While answering the question of sharing of profit Hon’ble justice reiterated that “My personal
view is that partners can agree to share, those profits in any way they like. They may agree to
share them equally. They may also agree, in my opinion, that one partner is to receive a fixed
annual or monthly sum in lieu of a sum varying in accordance with the profits actually earned.
Take this case for instance. Would not the difficulties pointed out by the plaintiff disappear here,
if the agreement had been drafted in this form, that out of the profits of the partnership the
defendant should be paid a preferential Rs. 500 a month, but that if and in so far as the profits of
the business should be insufficient to pay that sum, then the plaintiff would pay the deficiency to
the defendant out of his own pocket? I do not think- any objection could have been taken to such
an agreement, if it had been entered into, as not coming within the express words in Section 239.
But, in my opinion, that is what the parties have substantially agreed on here when they said that
“in lieu of his share of profits “the defendant was to get a particular fixed sum. In other words,
the defendant thus became a salaried partner which is an expression we are quite familiar with
not only in England but also in Bombay.”
The hon’ble court concluded by saying that, Looking at the matter as one of common sense, it is
to my mind almost absurd to think that two experienced solicitors of our High Court should enter
into a formal agreement to become partners, and then so far as the outside world goes and so far
as the correspondence between them goes, act as partners for some six years and give the usual
notices of dissolution and yet be told at the end that they were entirely mistaken as to their true
legal position, and that they did not know the elementary principles which go to constitute a
partnership, although that was a matter on which they would be presumably advising their clients
frequently. I am glad to think that I am not driven by Section 239 to adopt that conclusion, and,
therefore, the answer is affirmative.
Justice Norman W Kemp concluded in the way that I would like to observe, further, that the
practice, as is well known here with reference to attorneys who are employed on a salary and are
not partners in solicitors’ firms, is that any letter written by any such salaried attorney is signed
in the name of the firm with the superscription of that attorney. It is admitted in this case that the
signatures were not in that form. That clearly suggests that the parties to this suit intended that
the defendant should be considered as a partner. Then there are other acts which suggest that
they were partners, and amongst these are the following: - On one occasion the defendant raised
the salary of the staff. If the defendant were a manager no doubt he might have the power of
dismissing or appointing members of the staff, but I consider that when you came to the question
of raising salary that would be a matter which he would have to refer to one of the partners.
 P a g e | 23

Again the defendant brought moneys into the firm. It is true most of the moneys were brought
into the firm as loans prior to his becoming a partner but it appears that subsequent to his
becoming a partner he lent moneys to the firm but without interest. That to my mind is not what
a servant of the firm would do. Then there is the fact that this agreement is drawn by attorneys
who are presumably legal experts.

JUDGEMENT
The court held that the agreement came into existence between both the parties is an agreement
to come into a business of partnership and henceforth both the parties are partners.

MA SEIN V MAUNG BA HMU AND OTHERS

Citation: AIR 1936 Rangoon 383.

Judgement by: Dunkley, J.
Principal involved: section 6 of Indian partnership act, 1932.

FACTS OF THE CASE

There were appeals arise out of two suits, Nos. 324 and 325 of 1934, of the Subdivisional Court
of Mandalay. The suits were of the same nature and the parties thereto were the same, except that
defendant 3 in suit No. 324 was Maung Ba Khin, and in suit No. 325 was Maung Po Kyin. The
two suits were heard together, and evidence was recorded only in suit No. 325, and a single
judgment for both suits was delivered. The two first appeals in the District Court of Sagaing
were disposed of by a single judgment.
The plaintiff-appellant Ma Sein is the sole heir of her deceased husband U Tun I. According to
the plaintiffs, she and her husband carried on a business of timber traders jointly as Burmese
Buddhist husband and wife, the actual business being done, as is usually the case, by her
husband. The plaints set out that defendant-respondent 1, Maung Ba Hmu, was U Tun I’s servant
or agent, that defendant-respondent 2, Maung Ohn Shwe, and defendant-respondent 3, Maung Ba
Khin in one suit and Maung Po Kyin in the other, were Ba Hum’s servants; that defendant-
respondent 4, Maung Gon, was a broker who conducted the sale of the timber in suit, and that
defendant-respondent 5, U Nyo Sein, had purchased the timber in suit through Maung Gon from
Maung Ba Hmu. In suit No. 324 the plaintiff-appellant asked for a judgment and decree for 132
logs of timber or their value, Rs. 2,155, and in suit No. 325 she asked for a judgment and decree
for 180 logs of timber or their value, Rs. 4,650. She alleged that this timber belonged to her
 P a g e | 24

deceased husband and herself, and that it had been brought down from the forests, where it was
felled, by respondent 1 with the aid of respondents 2 and 3, to Mandalay, where it was placed in
charge of respondent 4 and was subsequently sold to respondent 5. The suits were therefore suits
for damages for conversion. The defence of defendant-respondent 1, Maung Ba Hmu, was an
allegation that he and the deceased U Tun I and one Aung Myat, who was the half-brother of U
Tun I, had traded in partnership as timber-traders until the year 1930, when U Tun I retired from
the partnership, and he and Aung Myat and two other relatives of U Tun I and Aung Myat, Po
Tun and Po Hit, had continued the business in partnership. He also alleged that he had traded in
timber on his own account, and he asserted that the timber in suit belonged in part to this
partnership and in part to himself. Respondents 2 and 3, Ohn Shwe, Po Kyin and Ba Khin,
admitted that they had worked under Ba Hmu and had extracted this timber and brought it down
to Mandalay; but they denied any liability to the plaintiff-appellant on this account. Defendant-
respondent 4, Maung Gon, alleged that he was temporarily in charge of the two rafts into which
the logs were formed, and that the rafts had been kept in his custody until the timber was sold; he
denied any liability to the plaintiff-appellant. Defendant-respondent 5, U Nyo Sein, admitted
having purchased the timber, but alleged that he purchased it in good faith without any
fraudulent or dishonest intention.

ISSUE INVOLVED

Whether there was a relation of partnership exist between appellant deceased husband and
respondent?

PROCEDURAL HISTORY
District Judge has on first appeal that there was a partnership between “U Tun I, Ba Hmu and
others” carrying on business as timber-traders with two property hammer-marks; that this
partnership continued until the death of U Tun I; that all the logs in suit belonged to the
partnership, and that in any event, if there was a conversion of the timber, respondent 1 Ba Hmu
alone was liable and the other respondents were not liable.

CONTENTION OF PARTIES
Counsel for Respondent: E. Hay
The only question which has been raised in these second appeals is whether Ba Hmu succeeded
in establishing that he was a partner of the deceased, within the definition of “partnership” as
contained in Ss. 4, 5 and 6, Partnership Act. Admittedly, the alleged contract of partnership was
 P a g e | 25

never reduced to writing and consequently the burden was upon Ba Hmu, who asserted it, of
proving that such a partnership existed. On behalf of the respondents, it has been contended that
the question whether there was such a partnership or not is a question of fact which has been
decided by the two lower Courts in favor of the respondents and which therefore cannot be re-
agitated on second appeal.
Counsel for appellant: Clark and Beecheno
On behalf of the appellant, it is urged that the question of partnership is a legal inference to be
drawn from the proved facts and is therefore a matter of law.

OBSERVATION OF COURT
The court while answering the contention of respondent said that Under S. 5, Partnership Act,
partnership is a legal relationship arising from contract, and when, as in this case, there is no
deed of partnership setting out the terms of the contract, the question whether that legal
relationship existed between the parties has to be inferred, by consideration of the provisions of
S. 6, Partnership Act, from the facts as to the manner in which the business, in which the parties
were concerned, was conducted and as to their relationship with one another in connexion with
that business. It is a legal conclusion to be drawn from the findings as to the simple facts, and the
correct inference to be drawn from the proved facts, as to the relationship of the parties towards
one another in the business, must be a matter of law. The court cited the judgement of
Luchmeswar Singh Bahadoor v. Sheik Manowar Hossein7, in which it was held by their
Lordships of the Privy Council that a second appeal will lie on a finding of adverse possession,
when such finding is a mixed question of law and fact depending upon the proper legal
conclusion to be drawn from the findings, as to the simple facts.
Now the court looked into the matter of partnership relation. The court said that it is not
convinced with the fact that on first appeal the judgement by district court that there is a relation
of partnership as the facts provide by him do not suffice to establish that there was a partnership,
within the definition thereof contained in Ss. 4, 5 and 6, Partnership Act. S. 4, lays down that
‘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; and S. 5 lays down that “the relation of partnership
arises from contract.” In S. 6 it is provided that in determining whether a group of persons is or is
not a firm, or whether a person is or is not a partner in a firm, regard shall be had to the real
relation between the parties, as shown by all relevant facts taken together, and the explanations
to this section show that the receipt by a person of a share of the profits of a business does not of
 P a g e | 26

itself make him a partner with the persons carrying on the business, or that the sharing of profits
arising from property by persons holding a joint or common interest in that property does not of
itself make such persons partners.
District court judge apparently based his decision, that respondent 1 and U Tun I and certain
other persons were partners, on the curious consideration that partnerships of a similar nature
existed for trading in timber among other persons residing in the same village as U Tun I.
The court observed that he only able to find out that “there was a partnership between U Tun I,
Maung Ba Hmu and others carrying on business with the ‘I’ and ‘Hmu’ property marks.” The
use of the words “and others” shows that a partnership was not established, for under S. 5,
Partnership Act, the relation of partnership arises from contract, and it is illogical to hold that a
contract existed when the names of the persons who were parties to the contract cannot be
ascertained with certainty. Moreover, respondent 1 set up in his written statement that his
partnership with U Tun I was dissolved in the year 1930, but both the lower Courts have found
that the partnership was only dissolved by the death of U Tun I, and this finding in itself would
appear to be sufficient ground for holding that respondent 1 had failed to substantiate his
defence.
After analysing the evidence presented by respondent 1 court give inference that It appears from
his evidence that Po Tun and Po Hti, two of the alleged partners, were in receipt of salaries from
U Tun I and, therefore, clearly were U Tun I’s servants. Ba Hmu and Aung Myat were given
such money as they required for their personal expenditure when they demanded it from U Tun I.
This has been set up as showing that U Tun I did from time to time hand out part of the profits to
them, but such an indefinite relationship as this is common where an elderly Burman of means is
carrying on a business with the aid of younger relatives, who do most of the actual work while he
provides the money. It is quite an ordinary thing in such cases that the principal’s dependants
should not be paid regular salaries but should obtain from their principal money demanded by
them for their maintenance, so long as their demands are reasonable. No inference of partnership
can arise from such an ill-defined relationship. I am not prepared to say whether the relationship
between the principal and such persons is that of principal and agent or master and servant, but I
am quite clear that it is not that of partners.

JUDGEMENT
 P a g e | 27

The court held that the partnership alleged by respondent 1 has not been established, the timber
must have belonged to U Tun I, and therefore now belongs to the plaintiff-appellant as his sole
heir.