CENTRAL UNIVERSITY OF SOUTH BIHAR
SCHOOL OF LAW AND GOVERNANCE
ASSIGNMENT: CONTRACT- II
TOPIC: DEFINITION, NATURE, FEATURES OF PARTNERSHIP
SUBMITTED TO: SUBMITTED BY:
Dr. ANURAG AGARWAL PRINCE KUMAR
Assistant Professor [Link].B (3rd Semester)
School Of Law And Governance CUSB2313125076
Central University Of South Bihar Central University Of South Bihar
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ACKNOWLEDGEMENT
I would like to express my special thanks of gratitude to Dr. Anurag Agarwal who gave me this
golden opportunity to do this wonderful project on the topic of Partnership Act. This project
also helped me in doing a lot of research and I came to know about so many new things.
Additionally, I owe thanks to my parents , my friends and seniors whose insights guided me,
unraveling the optimal methodologies crucial for task accomplishment. This cooperation and
healthy criticism came in handy and useful with them. Any oversights or errors within this work
prompt my sincere apologies.
I would like to thank all the above-mentioned people once again for extending their wisdom,
guidance, and assistance without which this project may not have been a success.
Lastly, heartfelt appreciation is owed to my mentors whose meticulous review bestowed
invaluable suggestions and feedback. Their inputs significantly enhanced both the substance and
caliber of this paper.
Thanking You,
Prince Kumar
CUSB2313125076
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TABLE OF CONTENTS
SERIAL NO. CONTENTS PAGE NO.
1. INTRODUCTION 04
2. DEFINITION OF PARTNERSHIP 05
3. BACKGROUND OF PARTNERSHIP 06-07
4. NATURE OF PARTNERSHIP 07-09
5. FEATURES OF PARTNERSHIP 09-10
6. ESSENTIALS OF PARTNERSHIP 10-12
7. CASES 12-13
8. CONCLUSION 14
9. BIBLIOGRAPHY 15
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INTRODUCTION
Partnership results from a contract and is governed by the Partnership Act 1932. The partnership
is also governed by the general provision of the Indian Contract Act on such matters where the
Partnership Act is silent.
It is expressly mentioned that the provision of India Contract Act which is not repealed will be
applicable on Partnership until and unless such provision is in contrary to any provision of
Partnership Act, 1932.
The rules of contract regarding the capacity to contract, offer, acceptance etc will also be
applicable to the partnership. But the rules regarding the status of minor will be governed by the
Partnership Act, 1932.
Since Section 30 of the Act talks about the position of the minor. Partnership cannot be done
with minor but it can be done for the benefit of minor 1. In Mohori bibee vs Dharmodas Ghose2
case, contract with minor is void ab initio.
Partnership Act is a special contract because of – special statutes for the formation, function and
procedures; are sensitive that they cannot merge into the other contracts; are of special nature
(requires special protection of parties i.e. protection of trust,finance); ultimately protects the
interest of the parties.
It was in the year 1932 when a separate law of Partnership was passed, before that all the matters
about the Indian Partnership were dealt with by a chapter in the Indian Contract Act, 1872.
Some of the reasons for the repeal of chapter 11 of Indian Contract Act,1872 – prevailing
circumstances of that time when they were repeated; nature of the contract act itself i.e. not only
based on the legal requirements but also some other elements. Partnership Act requires
collaboration of numerous person.3
1
The Partnership Act, 1932 ([Link])
2
Ilr (1903) 30 Cal 539 (Pc) - Minor's Agreement Landmark Case
3
Avtar Singh 12th edition
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DEFINITION OF PARTNERSHIP
According to Section 4 of the Indian Partnership Act, 1932 defines “partnership”, “partner”,
“firm” and “firm name”. Partnership refers to 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 individually called “partners” and collectively
known as a “firm”, and the name under which their business is carried on is called the “firm
name”.4
Section 239 of the repealed chapter XI of the Indian Contract Act, 1872 defined partnership as
“the relation which subsists between persons who have agreed to combine their property, labour
or skill in some business and to share the profits thereof between them”.
Partnership has not been found easy to define. Eminent Jurists and authors have defined the term
in various ways. According to Kent, “partnership is a contract of two or more competent persons
to place their money, effects, labor, and skill, or some or all of them, in lawful commerce or
business, and to share the profit and bear the loss in certain proportions.”
Further, Pollock defined partnership as “the relation which subsists between a person who has
agreed to share the profits of a business carried on by all or any of them on behalf of all of
them”.5The definition of partnership adopted in section 4 of the Act is the same as suggested by
Pollock with a small variation. It underlines the fundamental principle of mutual agency e.g. the
partners when carrying on the business of the firm are both the agent as well principals.6
CASE: Pooley VS Driver7
Justice Jessel, M.R. criticizes that the combination of these labour, skill,capital are mere
ingredients of the Partnership and they are not necessary for the formation of the Partnership.
They are subsidiary to the formation of Partnership. In every Partnership, there shall be labour,
skill is not a universal rule. He criticizes the definition of Kent who mandate the requirement of
labour, skill, capital.
BACKGROUND OF PARTNERSHIP
4
The Indian Partnership Act, 1932
5
Dr. Ashok K. Jain, Contract II (Ascent Publications, 8th edn., 2019)
6
INDIAN PARTNERSHIP ACT, 1932: DEFINITION, NATURE AND TYPES | ([Link])
7
(1877) 5 Ch D 458 (English case)
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A general rule of interpretation is the task of consolidating the many common law rules largely
formulated in the eighteenth and nineteenth centuries was performed by Sir Frederick Pollock
who first drafted the Partnership Bill in 1879, and amended it several times which resulted in, the
Partnership Act, 1890, and proved to be one of the most successful pieces of legislation in
English Law.
In India the first attempt was made in 1872 to reduce the law relating to Partnership in writing. In
this year the law relating to partnership was reduced into writing in XIth Chapter (sections 239-
266) of Indian Central Act. This Act was mainly based on the reports of Indian Law
Commission, 1866 which was prepared on the basis of sections of English Law.
But subsequently with a view to develop modern law of partnership separately these sections
were repealed and a separate Act namely, the Indian Partnership Act, 1932 “(Act IX of 1932)
was enacted. Sections 239-266 of the Indian Contract Act, 1872 (9 of 1872)” were repealed by
section 73 of the Partnership Act, 1932.
The present Act called the Indian Partnership Act, 1932 extends to the whole of India, except the
Jammu and Kashmir. The Indian Partnership Act was enacted in 1932 and it came into force on
1st day of October, 1932, except section 69, which shall come into force on the 1 st day of
October,1933 8. The present Act superseded the earlier law relating to Partnership, which was
contained in Chapter XI of the Indian Contract Act,1872. The Act is not exhaustive. It purports
to define and amend the law relating to Partnership.9
A Partnership arises from a contract, and therefore , such a contract is governed not only by the
provisions of the Partnership Act in that regard , but also by the general law of contract in such
matters, where the Partnership Act does not specifically make any provision. It has been
expressly provided in the Partnership Act that un repealed provisions of the Indian Contract Act ,
1872 , save in so far as they are inconsistent with the express provisions of this act , shall
continue to apply.
8
The Indian Partnership Act, 1932 (Section 1)
9
Preamble to the act
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Thus, the rules relating to offer and acceptance , consideration , free consent , legality of
object ,etc, as contained in the Indian Contract Act are applicable to a contract of Partnership
also. On the other hand , regarding the position of minor , since there is specific provision
contained in Section 30 of the Indian Partnership Act , the minor’s position is governed by the
provision of the Partnership Act.10
It’s not comprehensive legislation. It is aimed at defining and amending the law of partnership.
A partnership arises from a contract and thus the partnership agreement is not only governed by
the provisions of The Indian Partnership Act, 1932 in that context, but also by general contract
law in cases where no specific provision is made under The Indian Partnership Act, 1932.
The Indian Partnership Act, 1932 expressly provides that unrepealed provisions of the Indian
Contract Act, 1872, remain in force except in cases where it is inconsistent with express
provisions under this Act. The provisions of the Indian Contract Act also apply for a partnership
contract, hence the provisions on offer and acceptance, consideration, free agreement, legality,
etc. On the other hand, the minor’s position is governed by the provisions of The Indian
Partnership Act, 1932, a special provision is contained in Section 30 of the Indian Partnership
Act, 1932.11
NATURE OF PARTNERSHIP
Partnership is a form of business organization where two or more persons come together for
jointly carrying on some business. It has different kinds of venture from the other forms of
business. It is an improvement over the “Sole-trade business”, where one single individual, with
his resources, skill, labour, capital and effort, carries on his own business.
It shares the responsibilities and duties of business and basically shares the rights of different
person in partnership are specific.
Due to the limitations of the resources of a single person being involved in the sole-trade
business, a larger business requiring more investment and resources available to a sole-trader,
10
Indian Partnership Act,1932 ([Link])
11
What is the scope and nature of The Indian Partnership Act, 1932? ([Link])
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cannot be thought of in such a form of business organization. In a Partnership, on the other hand,
several persons could pool 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 also the burden gets
divided amongst various partners in a partnership12.
It is less complicated than other formats of business such as company. Mutual trust is applied or
implicated. It is not a separate legal entity. It is based on Principle of Agency. It has dual position
of Principal and Agent i.e. partners hold dual role or responsibility of principal and as well as
agent. One partners works in behalf of other partners , it is known as Constructive Liability of
Principal.
The new Companies Act has prescribed the maximum number of members in the case of a
partnership firm not to be more than 10013. As per the previous Companies Act, 195614, the
maximum limit in the case of partnerships was 10 and 20 for banking business and other
businesses respectively. The minimum number of partners is 2. In the case of private companies,
the maximum limit has been increased by the new Companies Act, 2013 from 50 to 200.
There is however no maximum limit on the number of members in a public company and,
therefore, any number of persons can hold shares in a public company. The minimum number of
members in the case of a public company is seven and in the case of a private company are two.
In the case the parties intend to opt for a much larger business, they can go for the company type
of business organization.
Imagine, there is one public company having 1,00,000 members and each member has
contributed Rs.10 for the business. This can be helpful and a better option from varied angles for
running a business. It also possesses the longevity of the organization and its [Link], in
companies, the liability of members (shareholders) is limited whereas the partnership provides
unlimited liability to every partner.
12
Indian Partnership Act,1932 ([Link])
13
The Companies Act, 2013, ss. 241, 188.
14
The Companies Act 1956, s.11.
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In certain respects, a partnership is a more suitable form of business organization than a
Company. For the creation of partnership, all we require is just an agreement between parties
whereas, in the case of a company, one faces a lot of procedural formalities which are time-
consuming too. Even at the time of the dissolution of the business, partnership requires a mere
agreement but a company follows a set of regulations that are somewhere hard to adhere to for
every individual. Because of these distinct advantages of a partnership over a sole-trade business
and certain advantages even over a company, it is a very popular form of business organization.15
FEATURES OF PARTNERSHIP
It is an act contains 8 chapters, 74 sections, 1 schedule & general rule.
[Link] Not exhaustive —
The Partnership Act is not an exhaustive Code of the Law of Partnership. The Act itself admits
this fact in its declaration in section 3. It equally superceeds the provisions of The Indian
Contract Act, 1872.
2. Provisions of Partnership Act will prevail over The Indian Contract Act,1872 —
The contract act is contractual relationship similar as Partnership Act but there is certain special
rule provided in Partnership Act. Special rule will prevail over Contract Act.
3. Joint and Several Liabilities —
If loss occurred or suffered by other member due to the negligence of any one member. Then the
member will be held liable. But negligent partner will take responsibility done by negligent
person. And if against any partner can sue any of the partner and that partner cannot deny it that
it isn’t his liability.
4. Registration of firm ----
It is optional not mandatory. In any Partnership there is necessity of Registration for carrying out
a business then we will have to register. And if not necessary then we may not register ,it will be
15
INDIAN PARTNERSHIP ACT, 1932: DEFINITION, NATURE AND TYPES | ([Link])
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illegal, so in this way it is optional. Without Registration we can carry out business but have
certain disability restriction i.e. cannot file suit or have restriction on filing suit.
5. Retrospective effect ----
that unless there is something in the Act itself to provide an effect, its provision can’t be given a
retrospective effect. It is nowhere mentioned in this Act expressly or impliedly that it should be
given retrospective operation. While 74(9) expressly provides that the Act shall not be deemed to
affect any right, title, interest, obligation, or liability already acquired, accrued or incurred before
the commencement of the Act.
ESSENTIAL OF PARTNERSHIP
According to Section 4, the following essentials are necessary to constitute a ‘Partnership’. They
are ---
[Link] should be an agreement between the persons who wants to be partners – Section
16
5 of the Indian Partnership itself makes it clear that there must exist an agreement between
partners to work together and share profits amongst them. Partners may make such an agreement
either orally or in writing. If it exists in written form, we refer to such an agreement as a partnership
deed. Such written or oral agreement between partners must ensure that they are clear on their status
as partners of their firm. This includes details pertaining to their work as partners, the firm’s
businesses, their profit and loss sharing ratio, etc.
It is to be noted that Partnership must not be created by any status. E.g. The members of HUF
will not be considered as the partners, also if husband and wife are carrying on any business,
then they will also be not considered as partners unless there is an agreement governing them.
The requirements of the same have been specified by the Supreme Court in CST vs K.
Kelukutty17. It has been clarified by the courts’, section 4 itself uses the word “Who have
agreed”. Therefore families carrying on business will not be governed by Partnership provisions.
16
The Indian Partnership Act, 1932 (Section 5)
17
(1985) 4 SCC 35
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The interests of partners in the firm are governed by the rules of Contract for which they have
entered.
2. The purpose of creating partnership should be carrying on of business –The existence of a
business is an essential feature of partnerships. There can be no formal partnership under the
Partnership Act if the partners carry out charitable activities. Section 218 says that business includes
any trade, profession or occupation. What is essential is that the firm must work with the intention of
earning profits. A partnership may even exist in a single venture business. It is the carrying on
business in a particular way, which constitutes a valid partnership. The court in Khan vs Miah
19
has ruled as to what will qualify as a business entity in case of a partnership.
3. The motive for the creation partnership should be earning and sharing profits -- A
partnership does not exist unless partners share the profits of their firm. A person who works for the
partnership business without having a share in its profits may be an employee, but not a partner. It is
noteworthy to point out that the law only requires the sharing of profits amongst partners.
Consequently, all partners need not share losses as well. In 1860 when there were no acts pertaining
to the governance of partnership provisions then sharing of profits was regarded as the most
important test in determining the validity of a partnership which was also ruled in Cox vs
Hickman20.
4. The business of the firm should be carried on by all of them or any of them acting for all,
i.e., in mutual agency -- A partnership firm’s business may be conducted either by all partners
together or by one partner acting on behalf of all others. We commonly refer to such a peculiar
relationship between partners as the principle of [Link] principle means that all partners
are agents for each other. The decisions of one partner taken in the ordinary course of business will
bind other partners as well. All partners are liable for acts of the firm individually and severally.21
18
The Indian Partnership Act, 1932 (Section 5)
19
(2000) 1 WLR 2123
20
(1860) 8 HLC 268:30 LJCP 125:3 LT 185(HL)
21
Nature and Essentials of Partnership under Indian Partnership Act, 1932 ([Link])
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CASES
In Tarsem Singh v Sukhminder Singh22, the Supreme Court held that it is not necessary under
the law that every contract must be in writing. There can be an equally binding contract between
the parties on the basis of oral agreement, unless there is a law which requires the agreement to
be in writing.
The relations inter se , among the promoters of a company , are not the same as the relations
between partners. Persons entering into contract are not , on the authority of Keth Spicer Ltd v
Mansell, necessarily to be viewed as partners. However , if they perform a large number of acts
as part of the promotion , the court might come to a different conclusion.
In Ross v. Parkyns23, Jessel ,M.R., stated the law as follows : “ It is said (and that there is no
doubt ) that the mere partcipation in profit inters se affords cogent evidence of partnership. But it
is now settled by the case of Cox v. Hickman ,Buller v. Sharp that although a right to participate
in profits is a strong test of partnership , and there may be cases where upon a single presumption
, not of law , but of fact , that there is a partnership , yet whether the relation of partnership does
or does not exists must depend upon the whole contract between the parties , and that
circumstances is not conclusive. ”. the law as stated above has been restated in this section. The
section also indicates the manner in which the general principle to be applied to a particular
circumstances. The question whether the relation of partnership does or does not exist, “ must
depend on the real intention and contract of the parties.
Explanation I - 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.
In Haji Isa, Haji Noor v. Saru Bai24, Justice VVN Bose held that taking the facts into
consideration that all inheritance of business only some of the embers carried on that. It is not
22
(1998) 3 SCC 471 ,Para 13
23
(1875) L.R. 20 Eq.331,335
24
(1938) Nag 324 HC
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possible unless the members agree with each others. Hence it can be held that there was a
implied partnership.
In Pratibha Rani v. Surat Kumar25, the Supreme Court observed that entrustment of jewellery
(shridhan i.e. given to her at the time of marriage) by wife does not create any partnership even
if the husband was making business use of that shridhan. The court that Partnership requires
dominion of partners over the property for the purpose of partnership. Here, in this case there
was no such evidences as to creation of dominion to the husband. There is no such specific act
on the part of wife regarding that. Mere entrustment does not create any right in husband to use
the property without wife’s consent.
CONCLUSION
Partnership is one of the oldest forms of business relationships and it is also a special kind of
contract, which is created out of an agreement. The joint efforts of all the partners result in the
successful accomplishment of tasks and can be easily afforded.
25
(1985) SC 628
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Partnership is very important because in day to day activities we enter into partnership
agreements and by making partners big goals are achieved with the help of joint and more
number of people. Division of work leads to increase in efficiency at work among different
partners.
The Indian partnership act of 1932 provides for a general form of partnership which is the most
prevalent form in India, but, over time the general form of partnership has lost its charm because
of the inherent disadvantages in it.
The most important is the unlimited liability of all partners for business debts and legal
consequences, regardless of their holding, as the firm is not a legal entity.
BIBLIOGRAPHY
Mulla, The Indian Partnership Act, (22nd ed., LexisNexis 2020).
Bangia, R.K., The Indian Partnership Act, (26th ed., Allahabad Law Agency 2021).
The Indian Partnership Act, 1932, (Bare Act, Universal Law Publishing Co. 2023).
Singh, Avtar, Law of Partnership, (5th ed., Eastern Book Company 2019).
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Nature and Essentials of Partnership under Indian Partnership Act, 1932, available at
[Link] (last accessed on November 16,
2024).
Ministry of Corporate Affairs, The Partnership Act, 1932, available at
[Link] (last accessed on November 16, 2024).
Partnership | Wex | US Law | LII / Legal Information Institute, available at
[Link] (last accessed on November 16, 2024).
Law of Partnership: Nature and Definition, available at
[Link]
[Link] (last accessed on November 16, 2024).
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