Indian Partnership Act Indian Partnership Act 19321932

DefinitionDefinitionSec 4 – “Partnership is the

relation between persons who have agreed to share the profits of business carried on by all or any of them acting for all.

Contd-Contd-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’s name.

EssentialsEssentialsThere must be a contractBetween two or more personsWho agree to carry on a businessWith the object of sharing profitsThe business must be carried on

by all or any of them acting for all (i.e., there must be mutual agency)

Duration of PartnershipDuration of PartnershipPartnership at will – No provision

regarding duration of partnershipParticular partnership –

Partnership formed for a specific venture

An essential characterAn essential characterIn case of partnership, no

separate legal entity is created. A partnership is merely an

extension of mutual understanding {Association of individuals}

Modification – Taxation –firm separate entity for taxation purposes

Test of PartnershipTest of Partnership1. If there is an express contract

– The real relation is ascertained from the terms of the partnership contract.

2. If there is no express contract – The real relation is ascertained from all the relevant factors such as contract of parties, books of accounts, statements of employees etc

Kinds of PartnersKinds of PartnersActual or active partnersSleeping or dormant partnersSilent partnerPartner in profit onlySub partnerPartner by estoppel or holding

out

Minor as a partnerMinor as a partnerCannot be a full fledged partner –

Since a minor is incapable of entering into a contract, an agreement by or with a minor is void ab intio. Since partnership is formed by agreement a minor cannot enter into partnership agreement.

Contd-Contd-But with the consent of all the

partners can be admitted to the benefits of partnership◦Partnership must be in existence

before a minor can be admitted to the benefits

◦There cannot be a partnership consisting of all minors

◦If a minor is made a full fledged partner under the terms of the partnership deed the deed would be invalid

Rights of a minor admitted to the benefits of Rights of a minor admitted to the benefits of partnershippartnership

Entitled to receive his agreed share of the property and of the profits of the firm

Not entitled to take part in conducting the business of the firm

liabilities of a minor admitted liabilities of a minor admitted to the benefits of partnershipto the benefits of partnershipHe is liable only to the extent of

his share in the profits and property of the firm

Not personally liable to third parties for the debts of the firm

He cannot be declared insolvent.

Contd -Contd -On attaining majority, the minor

must decide within six months whether he would or would not like to become a partner in the firm and give public notice of his decision. If he remains silent and fails to give such notice, it will be presumed that he had elected to be a partner of the firm

Contd - Contd - Where the minor chooses not to

become a partner◦His rights and liabilities continue to

be those of a minor up to the date of his giving public notice

◦He is entitled to sue the partners for his share of the property and profits in the firm

Rights of partners Rights of partners Rt to take part in the conduct of

the businessRt to be consultedRt to Access the books of

accountsRt to Share in the profitsRt to Interest on capital Rt to Interest on advancesRt to indemnity

DutiesDutiesAbsolute duties

◦ Duty to carry on the business to greatest common advantage

◦ Duty to be just and faithful inter se◦ Duty to render true accounts◦ Duty to provide full information◦ Duty to indemnify for loss caused by fraud◦ Duty to be liable jointly and severally◦ Duty not to assign his interest

Contd - Contd - Qualified duties

◦Duty to attend diligently to his duties◦Duty to work without remuneration◦Duty to contribute to the losses◦Duty to indemnify for willful neglect◦Duty to use firm’s property

exclusively for the firm◦Duty to account for personal profits

derived◦Duty not to compete with the

business of the firm

Doctrine of implied authorityDoctrine of implied authorityEvery partner is the agent of the firm for the

purposes of the business of the firm.The authority of a partner means the

capacity of a partner to bind the firm by his act.

This authority may be express or implied.Expressly conferred by an agreement –

express authorityNo partnership agreement or where

agreement is silent – implied authority

Contd - Contd - Flows from the legal relations of the partnersFounded on the principle of agencySubject to following conditions –

◦ Act done by the partner must relate to the normal or usual business of the firm.

◦ Must be done within the scope of the business◦ Act must be done in the name of the firm, or in

any other manner expressing or implying an intention to bind the firm

Contd -Contd -Acts within the implied authority

◦Engaging servants for partnership business

◦Selling the goods of the firm◦Borrowing money on the credit of

the firm◦Settling accounts with persons

dealing with the firm

Contd -Contd -No implied authority

◦Submit a dispute relating to the business of the firm to arbitration

◦Enter into partnership on behalf of the firm

◦Acquire immovable property on behalf of the firm

◦Transfer any immovable property on behalf of the firm

Implied authority and third Implied authority and third partiespartiesExtension and restriction of a

partner’s implied authority (sec 20)– Partner’s in a firm may by contract between them extend or restrict the implied authority of any partner.◦Firm continues to be liable to a third

party for any such act which falls within the scope of the implied authority of the partner

Contd -Contd -Effect of admissions by the

partner (Sec 23) – Any admission made by the partner concerning the affairs of the firm is a sufficient evidence against the firm provided the said admission or representation is made in the ordinary course of business. ◦If admission or representation is

made beyond the scope of the authority the firm will not be bound by it.

Contd - Contd - Effect of notice to acting partner

(sec 24) –Notice to a partner who habitually acts in the course of the business of the firm any matter relating to the affairs of the firm operates as notice to the firm except in case of fraud.

Liability of partner for acts of firm (sec 25) – Every partner is liable for all the acts done while he is a partner

Contd -Contd -Liability of the wrongful acts of the partner –

(sec 26) Firm is liable to the same extent as the partner

Liability of the firm for misapplication (sec 27) – A firm is liable to make good the loss where-◦ (a) a partner acting within the scope of his

apparent authority receives the money or property from a third party and misapplies it:

◦ (b) the firm in the course of its business receives money or property from a third party and the same is misapplied by any of the partners while it is in the custody of the firm

Registration of the firmRegistration of the firmRegistration of firms is not

mandatoryTime – Registration may take place

at any time during the continuance of the partnership firm.

Procedure – An application in the prescribed form along with the prescribed fee has to be submitted to the registrar of firms of the state in which any place of business of the firm is situated.

Effects of non registrationEffects of non registrationNo suit can be filed in a civil

court by firm against third parties.

No suit can be filed a partner against the firm or other copartners.

The firm or the partners cannot make a claim of set-off or other proceedings based upon the contract.

Dissolution of a partnership firmDissolution of a partnership firm

Modes of dissolution of the Modes of dissolution of the firmfirmBy agreementBy noticeOn happening of certain

contingencies◦death of a partner◦Adjudication of the partners as

insolvent Compulsory dissolution

Contd - Contd - Dissolution by court

◦Grounds Insanity of partner Permanent incapacity of partners Misconduct Transfer of interest Persistent breach of agreement Continuous losses

Consequences of dissolutionConsequences of dissolutionContinuing liability of partners after

dissolution(with regard to winding up affairs of the company)

Continuing authority of partners for winding upRight of partners to enforce winding upLiability to share personal profitsReturn of premiumRt where partnership contract is rescinded for

fraudRight to impose restrictions