An Act to define and amend the law relating to partnership.

Whereas it is expedient to define and amend the law relating to partnership; 

it is hereby enacted as follows:—

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 But subsequently with a view to develop modern law of partnership separately these sections were repealed and a separate Act namely, the Indian Partnership Act, 1932 “(Act IX of 1932) was enacted. Sections 239-266 of the Indian Contract Act, 1872 (9 of 1872)” were repealed by section 73 of the Partnership Act, 1932.

As against only 28 sections relating to law of partnership in the Indian Contract Act, 1872, the present Act, namely Indian Partnership Act, 1932. contains as many as 74 sections. Thus, the law of partnership was further explained although in substance very little was altered.

The Indian Contract Act, 1872, is a Parent Act in-so-far as the general principles contained therein are applicable to all kinds of contracts unless an exception is provided in a particular Act. Section 3 of the Indian Partnership
Act, 1932, therefore, provides the unrepealed 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 to firms.

The present Act called the Indian Partnership Act, 1932 extends to the whole of India, except the Jammu and Kashmir. It came into force on the 1st day of October, 1932 except section 69 which came into force on the first day of October, 1933.

Definitions.—

In this Act, unless there is anything repugnant in the subject or context—

(a) An “Act of a firm” means any act or omission by all the partners, or by any partner or agent of the firm, which gives rise to a right enforceable by or against the firm.

(b) “Business” includes every trade, occupation and profession;

(c) “Prescribed” means prescribed by rules made under this Act;

(d) “Third Party” used in relation to a firm or to a partner therein means any person who is not a partner in the firm, and

(e) expressions used but not defined in this Act and defined in the Indian Contract Act, 1872 (9 of 1872) shall have the meaning assigned to them in that Act.

Act 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.

Retrospective effect.—

A general rule of interpretation is 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.

Section 4 of Indian Partnership Act, 1932 (IX of 1932) defines partnership in the following words:

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

Halsbury defines partnership as “the relation which subsists between persons carrying on a business in common with a view to profits.”

In story on partnership, the term is defined as a voluntary contract between two or more competent persons, to place their money, effects, labour, skills or some or all of them in lawful commerce or business with the understanding that there shall be a communion of the profits thereof between them.

What is the meaning of the partnership according to section 4 of Partnership Act, 1932? State with Examples.

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’.

Section 58.—

A firm name can’t contain any of the following words, namely, crown, emperor, empress, empire, Imperial King. Queen Royal or words expressing or implying the sanction, approval or patronage of the Government.

Section 4 of the present Act corresponds to repealed section 239(c) of the Indian Contract Act which contained the following illustrations:

(a) ‘A’ and ‘B’ buy bales of cotton which they agree to sell for their joint account. ‘A’ and ‘B’ are partners in respect of such cotton.

(b) ‘A’ and ‘B’ buy 100 bales of cotton agreeing to share it between them. ‘A’ and ‘B’ are not partners.

(c) ‘A’ agrees with a goldsmith to buy and furnish gold to ‘B’ to be worked up on by him and sold and that they shall share in the resulting profit or loss. ‘A’ and ‘B’ are partners.

(d) ‘A’ and ‘B’ agree to work together as carpenters, but ‘A’ shall receive all profits and shall pay wages to ‘B’. ‘A’ and ‘B’ are not partners.

(e) ‘A’ and ‘B’ are joint owners of ship. This circumstance does not make them partners.

According to section 4 the following essentials are necessary to constitute a partnership—

(i) There should be an agreement between the persons who want to be partners.

(ii) The purpose of creating partnership should be carrying on of business.

(iii) The motive for the creation of partnership should be earning and sharing profits.

(iv) The business of the firm should be carried on by all of them or any of them acting for all i.e., is mutual agency.

(1) In Raghunath Sahu v. Trinathdas, MANU/OR/0002/1985 : AIR 1985 Ori 8 (10). A Division Bench of Orissa High Court pointed out the three essential elements of partnership:

(a) an agreement between the persons concerned,

(b) this agreement should be for sharing of profits,

(c) the business should either be carried on by all or any of them on behalf of all.

(2) In Pratibha Rani v. Saroj Kumar, MANU/SC/0090/1985 : (1985) 2 SCC 370 (384), the Supreme Court pointed out the two essential elements of partnership—

(a) Some real or external physical act by two persons to start a business.

(b) If all carry or any one of them carries the business, partners shall share profits on the basis of the shares allotted to them under the agreement.

(3) The Supreme Court observed in Helper Girdharbhai v. Saiyad Mohamad Hirasahab Kadri, MANU/SC/0381/1987 : AIR 1987 SC 1782, “whether there was a partnership or not in certain cases be mixed question of law or fact, in the sense that whether the ingredients of partnership as embodied in the Law of Partnership were there or not in particular case must be judged in the light of the principles applicable to partnership”.

The first essential ingredient of partnership is that there must be an agreement between the persons constituting partnership. The word ‘agreement’ is defined under clause (e) of section 2 of the Indian Contract Act, 1872 as follows:

Section 4 makes it clear that partnership is a relation between persons who have agreed to share profits. There can be no partnership without an agreement. Section 5 further clarifies this by providing that the relation of partnership arises from contract not from status. (1) In Deputy Commissioner of Sales Tax (Law) Board of Revenue (Taxes) v. K. Kelukuttey, MANU/SC/0313/1985 : AIR 1985 SC 1143 the Supreme Court has held that relation between partners is founded on an agreement between them. Hence, the basis of partnership and firm is partnership agreement.

(2) In the case of Tajmul v. Ahmed Ali, ILR 1938 13 Luck 219, it was observed that this contractual nature of partnership is also important an account of what has been said in section 5.

(3) In the case of Haji Isa v. Sarnbai, MANU/NA/0177/1937 : AIR 1938 Nag 324, it was observed that an agreement is sine qua non of every partnership which may be oral or in writing, may be expressed or implied.

The agreement is the corner-stone of the partnership. Agreement here means a contract. This element indicates voluntary contractual nature of partnership. The presence of agreement has to be there. If the basis of the relationship between certain persons is not an agreement, the association would not be a partnership. Some associations may be created without an agreement e.g., the associations between certain persons arise from status as in case of members of joint Hindu family or the joint heirs.

According to Kent—

“Partnership is an agreement of two or more competent persons to place their money, effects, labour 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.

In the words of Pathak, J—“The foundation of a partnership and therefore of a firm is a partnership agreement. A partnership agreement is the source of partnership. It also gives expression to other ingredients defining the partnership, specifying the business agreed to be carried on, the persons who will actually carry on the business, the share in which the profits will be divided and several other considerations which constitute such an organic relationship.

(1) In the case of Abdul v. Century Wood Industries, AIR 1954 Mys 33, it had been held that it is not necessary that there should be a very formal or written agreement. An agreement to create a partnership may well arise from the conduct of the parties concerned. The facts of the case are:

(2) In Rakesh Kumar Dinesh Kumar v. UG Hotels and Resorts Ltd., MANU/HP/0102/2006 : AIR 2006 HP 135, it was held that the agreement of partnership need not be express. It can arise out of mutual understanding shown by consistent course of conduct.

(3) Pratibha Rani v. Suraj Kumar, MANU/SC/0090/1985 : 1985 (2) SCC 370, it was held that the entrustment by wife of her stridhan (personal property) to her husband does not amount to an agreement even if the husband was making a business use of the property.

(4) Regional Director ESIC v. Ramanuja Match Industries, MANU/SC/0203/1984 : AIR 1985 SC 278: 1985 (1) LLN 249: 1985 (66) FJR 108, it was held by the Apex Court that while the partnership deed in writing is not necessary and even writing is not prescribed in the Act itself. But writing known as “Instrument of partnership” is necessary under the Income-tax Act, 1961, if the partners desire their firm to be assessed for Income-tax as such firm.

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 person of unsound mind who is not competent to contract can’t become partner. Section 30 of the Indian Partnership Act, 1932 makes it expressly clear that “a person who is minor according to the law to which he is subject may not be a partner in a firm, but with the consent of all the partners for the time being, he may be admitted to the benefits of partnership. Such a minor has a right to such share of property and profits as may be agreed upon. Moreover, such minor’s share is liable for the acts of the firm but the minor is not personally liable for any such act.

An HUF cannot become a partner of a partnership firm. Section 4 of the Partnership Act, 1932 explains of “persons” who enter into partnership with one another. It can only be individuals and not a body of persons, who can be a partner. A firm has been described as ‘a compendious way of describing the individuals constituting the firm’.

1. The Apex Court in Rashiklal & Co. v. I.T. Commissioner, explained AIR 1998 SC 401: An HUF directly or indirectly can’t become a partner of a firm because the firm is an association of individuals. A Karta who enters into a contract of partnership with a stranger may be accountable to the other members of the HUF for the profits received from the partnership business. But that is something between the Karta and the HUF. The partner may have to account for the monies received from the firm to another person or another firm or an association of persons or a HUF.

2. In Chandrakant Manilal Shah v. Commissioner of Income-Tax, MANU/SC/0745/1991 : AIR 1992 SC 66, it has been held by Supreme Court that the undivided members of HUF can enter into contract and form partnership with Karta.

It connotes a legal entity in the nature of partnership engaged in the joint undertaking of a particular transaction for mutual profits or an association of persons or companies jointly undertaking some commercial enterprises wherein all contribute assets and share risk.

1. Gvprel-Mee (J.V.) v. Court of Andhra Pradesh, MANU/AP/0189/2006 : AIR 2006 AP 169, the joint venture can be time-bound, can be work specific and it would involve, partners contribution of finances, knowledge, technical know-how, mutual contract of management, expectation of profits, share of profit.

The Partnership Acts permits partnership between any two or more persons. Such persons may be either natural or artificial. Thus a partnership could be formed between the number of companies.

In Ganga Metal Refining Company v. Commissioner of Income-

tax West Bengal, MANU/WB/0105/1967 : AIR 1967 Cal 429, the Calcutta High Court has expressed the view that there is a possibility of an incorporated company forming partnership with another incorporated company.

The relation of partnership arises from contract not from status; and in particular, the members of Hindu Undivided Family carrying on a family business as such or a Burmese Buddhist husband and wife carrying business as such, are not partners in such business.

The word ‘Business’ does not necessarily mean some undertaking of an industrial or commercial nature. Business connotes organised course of activity or conduct with set purposes for earning profits or to exploit property purchased in order so that one should get the highest amount.

A very wide definition of word ‘Business’ has been given in section 2(b) of Indian Partnership Act. “Business” includes every trade, occupation and profession.

The fields of above words may overlap but each has a content of its own distinct from others. Article 19(1)(g) of the Constitution of India extends to practicing of any profession or to carry on any occupation, trade, business.

1. In Sadan Singh v. New Delhi Municipal Committee, AIR 1989 SC 1988, the Apex Court held that.

“Profession” means any occupation carried on by a person by virtue of his personal and specialised qualification, learning or skill.

‘Occupation’ has a wide meaning such as any regular work, profession, job, principal activity, employment, business as a calling in which an individual is engaged.

‘Trade’ includes any bargain or sale, any occupation or business carried on for subsistence of profit, it is an act of buying and selling of goods and services.

According to Lindley: 

“A single commercial transaction may constitute a business, it is not necessary that the business should be of long standing and permanent nature. If the persons are not already partners, share profits or losses of a particular transaction, they may be partners for the said particular transaction.

1. In Kottapally Jaggaiah v. Kokumanu Venkatasatyanarayana, MANU/AP/0163/1984 : AIR 1984 AP 149: 

The High Court of Andhra Pradesh observed that test is if there is any activity which can be called a business for that transaction. Hence a single contract with the government can be a subject-matter of partnership.

2. In Coope v. Eyre, 1788 1 HB 1 (37): 

There was an argument between Eyre & Co. and three other persons that Eyre & Co. would purchase some oil and distribute the same between itself and the other three persons and others would then pay for the oil to Eyre & Company at the purchase price. The purchase was made only in the name of company without any notification to the plaintiffs that any other persons had any concern in it.

Heath, J. observed, that Eyre & Co. are the only purchaser known to plaintiffs, entire credit was to be given to them alone, that the act of one partner binds all the co-partners.

3. In Birdichand v. Harakchand, MANU/NA/0067/1939 : AIR 1940 Nag 211: 

If number of persons agree to purchase cotton jointly on joint account and thereafter resell the same and then share the profits or losses as may arise from the same, this amounts to carrying on of business and partnership is created between such persons.

4. Mahadeodas v. Gerulal Parakh: MANU/WB/0180/1958 : AIR 1958 Cal 703: 

The business which the partners agree to carry on must not be unlawful or opposed to public policy. A partnership where the partners agree to engage in forward contracts without an intention of actual delivery but only to deal in difference, the agreement is merely wagering.

5. Smith v. Anderson, (1880) 15 Ch 247: 

James, LJ. only said the term ‘business’ must be taken in a practical sense that is, in a sense in which men of business would use that term where certain persons joined in the purchase of wheat and oil with the intention of dividing and paying for it equally, it was held that they being not interested in profit or loss, were not partners.

6. Froment v. Coulpland, (1824) 27 RR 575: 

The business must be of lawful nature. A partnership can’t be formed for an illegal purpose. An illegal purpose partnership becomes automatically dissolved under operation of law. No action lies between partners for dissolution as account.

7. Khan v. Mian, (2000) 1 WLR 2123: 

Partnership is created by agreement between the partners without any action by the State. But it is not the agreement alone which creates a partnership. It is carrying on business in a particular way which creates a partnership, and a partnership comes into existence only when the partners begin to carry on business in accordance with their agreement. This may be contrasted with a registered company which comes into existence as soon as it is registered, regardless of whether it transacts any business.

8. Keith Spicer Ltd. v. Mansell, (1970) 1 All ER 462: 

In this case two persons decided to form a limited company and to carry on business in its nature. Before the company was actually formed one of them ordered goods from the plaintiff. It was held that there was no joint business presently in existence. They were only preparing to carry on business as a company as soon as they could. An agreement to purchase property at an auction sale also does not amount to partnership.

9. T.M.A. Pai Foundation v. State of Karnataka, MANU/SC/0905/2002 : (2002) 8 SCC 481: 

The Supreme Court held that occupation would be an activity of a person undertaken as a means of livelihood or a mission in life. Partnership firm can run educational institutions.

10. Indian Medical Association v. V.P. Santha, MANU/SC/0836/1995 : (1995) 6 SCC 651: 

The Supreme Court held that occupations which are regarded as professions have four characteristics viz.:

(a) the nature of the work which is skilled or specified and a substantial part is mental rather than manual;

(b) commitment to moral principles which go beyond the general duty of honesty and a wider duly to community which may transcend the duty to a particular client or patient;

(c) professional association which regulates admissions and seeks to uphold the standards of the profession through professional codes on matter of conduct ethics, and

(d) high status in the community.

It is also an essential element of partnership that the agreement provides for sharing of profits between the partners. Section 4 of the Partnership Act does not provide that profit must be actually shared by the partners. The object of every partnership must be to carry on business for the sake of profits and to share the same. Although the term profit has not been defined in the Act, it means net gain i.e., the excess of return over outlay.

1. Abdul Badsha v. Century Wood Centuries, AIR 1954 Mys 33: 

The fact whether partners actually share the profit or not does not affect the existence of partnership

2. Raghunandan v. Harmasjee, MANU/MH/0152/1926 : AIR 1927 Bom 187: 

The partners may agree even on this point that anyone of them shall receive a fixed amount monthly or annually. There can even be such an agreement that whether there is profit in a business or not, one of them shall get a fixed amount annually or monthly as profit.

3. “The case Cox v. Hickman, (1860) 8 HLC 268: 

125 RR 148”: Brought about a revolutionary change in this respect. Delivering the judgment Lord Cranworth of the House of Lords said dual sharing of profits is a good evidence that the business in which profits have been incurred is being carried on behalf of the persons who are sharing profits. The net result of this historic decision is that no man is a partner unless he has the right to share the profit of the business.

4. Walker West Developments v. F.I. Emmett, (1978) 252 E4: 

Sharing of profit is only a prima facia evidence of the existence of partnership. This provision for loss sharing is not essential.

Existence of mutual agency is also essential to constitute partnership. According to section 4 of the Partnership Act, 1932 the partnership business must be carried on by all or any of them acting for all. It enables any partner to carry on the business on behalf of others. Every partner, therefore, can bind other partners by his act alone on behalf of the firms. Every partner can be the agent of any other partner and the relationship is that of mutual agency.

‘A’ carries on in his name the business of loading and unloading wagons of a limited company. ‘A’ appoints ‘B’ to manage the business. It is agreed between them that ‘B’ shall get 75 paise share out of the net profit as remuneration and that ‘A’ shall get a 25 paise but shall not be liable for loss. Are ‘A’ and ‘B’ partner?

(a) In this illustration, there is agreement between ‘A’ & ‘B’, the agreement is to carry on business and the objective or motive of the agreement to divide profits but the fourth element i.e., mutual agency is absent. Therefore, ‘A’ and ‘B’ are not partners. The fact that ‘A’ is not liable for losses shows that there is no mutual agency.

It enables any partner to carry on the business on behalf of others. Every partner therefore, can bind other partners by his act done on behalf of the firm. Every partner can be the agent of any other partner and the relationship is that of mutual agency.

(b) A partnership consist of ‘A’ and ‘B’. A may enter into a contract on behalf of the firm and thereby make ‘B’ bound by the agreement. In this transaction, ‘A’ is the agent and ‘B’ the principal.

If the person carrying on the business acts not only for himself but for others also so that they stand in the position of principals and agents, they are partners. This is the principle of Cox v. Hickman, (1860) 8 HLC 268.

“S and S were iron merchants in partnership. They became financially embarrassed and, therefore, made a compromise with their creditors. Under the compromise the property of the firm was assigned to a few creditors selected as trustees. They were empowered to carry on the business to divide the net income among the creditors in a rateable proportion and after the debts had been discharged, the business was to be returned to S and S. Cox was one among the trustee although he never acted. The other trustee continued the business. They purchased a quantity of coke from the plaintiff Hickman and gave him a bill of exchange for the price. The bill remaining unpaid. Hickman brought an action against the trustee, including Cox, for the price.

It was held that they were not partners and, therefore, Cox was not liable. The creditors instead of taking legal proceedings came to an agreement about the way in which their claims should be satisfied. That did not make them partners.

Lord Cranworth said, “The liability of one partner for the acts of his co-partner is in truth the liability of a principal for the acts of his agent Chandrakant Manilal Shah v. Commissioner of Income-Tax Bombay, MANU/SC/0745/1991 : AIR 1992 SC 66 That there can be a partnership between an undivided member of HUF and Karta. The relationship constituted between parties in respect of a particular matter does not expressly or by necessary implication involve rights of one party to pledge the other as agent, then there is no partnership.

M/s. Rashiklal & Co. v. Commissioner of Income-Tax, Orissa, AIR 1998 SC 401: The Supreme Court held that when section 4 of the Partnership Act spoke of ‘Persons’ who had entered into partnership with one another, it could be individual and not a body of persons. A body of persons like a firm could not enter into partnership with other individuals. Further section 13 relating to mutual rights and liabilities are only applicable to individual partners who are the members of the firm.

Obviously there must be at least two or more principals before there can be a partnership. There can’t be partnership with only one partner.

Hossen Kassam v. Commissioner of Income-

Tax, (1937) 2 Cal 160. A partner can’t be a partner in his individual capacity as also in a representative capacity. A person can’t be a partner with a wakf, as a wakf is not a persona.

The number of persons who may form an ordinary partnership is limited, both in England and in India, to 10 for banking or 20 for any other business.

According to English Partnership Act, a firm is only a compendious (i.e., abridged) name or an alias, that is an assumed name for all partners, and is not a legal entity.

Although the Indian Partnership Act accepts the practical or commercial nature of the firm. In India also, a firm is not a separate legal entity.

(1) Comptroller & Auditor-General v. Kamlesh Vadilal Mehta, (2003) 2 SCC 249. Partnership firm is not a legal entity like a company, it is group of individual partners.

(2) N. Khadervali Saheb v. N. Gudu Saheb, MANU/SC/0088/2003 : (2003) 3 SCC 229, firm name is only a compendious name given to the partnership and the partners are real owners of assets and partnership firm is not a legal entity.

A partnership firm is not a distinct legal entity and partnership property belongs to all the partners constituting the firm. Although a right to participation in profits is a strong test of partnership and there may be cases where upon a simple participation in profits, there is a presumptions not of law, but of fact that there is a partnership. Yet, whether the relation of partnership does as exist must depend upon the whole contract between the parties and the circumstances as act conclusive.

There may be various types of partners in a partnership firm which are as follows:

1. Active or actual partners:

 Partners who take an active part in the conduct of the partnership business are called ‘actual’ or ‘ostensible’ partners. They are full-fledged partners in the real sense of the term. Such a partner must give public notice of his retirement from the firm in order to free himself from liability for acts after retirement.

2. Sleeping or dormant partners: 

Sometimes, however there are persons who merely put in their capital and do not take active part in the conduct of the partnership business. They are known as sleeping or dormant partners. They do share profits and losses, have a voice in management but their relationship with the firm is not disclosed to the general public.

3. Silent Partners: 

Those who by agreement with other partners have no voice in the management of the partnership business are called silent partners. They share profits and losses, are fully liable for the debts of the firm and may take active part in the conduct of the business.

4. Partners in profits only: 

A partner who has stipulated with other partners that he will be entitled to a certain share of profits without being liable for the losses.

5. Sub-partner: 

Where a partner agrees to share his share of profits in a partnership firm with an outsider, such an outsider is called a sub-partner. Such a sub-partner has no rights against the firm nor is he liable for the debts of the firm.

Both Company and Partnership are the means of carrying on business and in both the relation of members is based on a contract or an agreement. Even then a company is a distinct juristic personality, separate and distinct from its shareholders, a firm is nothing but an aggregation of its partners. The following are the main points of distinction between the two:—

1. Formation: 

A company is formed under the Companies Act, 1956 and the partnership is created under the Partnership Act, 1932.

2. Registration: 

Company is formed by registration only under the provisions of Companies Act, 1956 while Partnership is created by agreement only. This agreement can be written or oral, express or implied. Registration of partnership is not necessary.

3. Legal entity: 

Company is a legal person but partnership firm is not the legal person. Firm not being an artificial person cannot enter in partnership with other persons or any other firm and if it does so the partnership shall be deemed to have been entered with all the partners of the firm. But company being an artificial person can do so and in this partnership company shall be deemed to be the partner, not all shareholders. If two companies enter into a partnership between themselves, their mutual rights, duties and liabilities are controlled by the rules of partnership only .

4. Number of Persons: 

No maximum limits of members of a company is prescribed but minimum number is prescribed. There should be at least seven members in a public company and two members in a private company. Section 11 of Companies Act prescribes that there should not be more than twenty members in a partnership firm and not more than 10 (ten) in banking firm.

5. Liability of members: 

In company liability of its shareholder is limited but in partnership firm it is not limited. In company with limited liability the liability of its members is limited to the extent of the value of share taken by them. If value of share has been paid to the company, there is no liability of the shareholder. Creditors of the company can recover their debts from the company only, if company is a guarantee company, the liability of its members is limited to the extent of amount guaranteed by them. In partnership the liability of partners is unlimited. In partnership apart from their shares, the personal property of partners is also liable for the debts and liabilities of the firm.

6. Transferable Share: 

Shares of company are transferable. Therefore they can be sold to any person at any time. But partner of a firm can’t transfer his share or partnership in the firm nor can make him partner of that firm without the consent of other partner.

7. Dissolution/winding-up: 

Company has perpetual succession. It never dies. Members may come and go but company remains. Insolvency or death of any member or shareholder does not affect the existence of company. Company is created by registration and it is dissolved by the order of the court. Partnership can be dissolved at any time with the consent of partners. In the absence of any agreement, on the death or insolvency of any partner, partnership ceases. (Section 42)

8. Formation and dissolution: 

Formation, dissolution, determination of rights and duties of partners of a firm, in the absence of any contrary intention is done according to the provisions of Partnership Act. Whereas formation, dissolution, conduct of the business and determination of mutual rights and duties and liabilities of directors and shareholders of a company is done according to the provisions of the Companies Act, 1956.

In partnership, there can be at least two partners and at the most 10 partners in case of a firm carrying on a banking business and 20 partners in a firm carrying on other kind of business, but in the Companies Act, there is no restriction on the maximum number of shareholders.

9. Objects and powers: 

Company can carry on only those trade, commerce, business or undertaking which are described in its Memorandum of Association. If it does any work other than these, it shall be void for it being in excess of jurisdiction. There is no such prohibition for partnership firm and all partners can at any time make changes in their business.

10. Death: 

Death or Insolvency of any shareholder has no effect on the existence of company, because company is an artificial person. On the death or insolvency of any partner, in the absence of an agreement of contrary intention the partnership ceases.

11. If a decree is passed by the court against a firm, it can be executed against the partners, jointly or severally. A creditor of a company, on the other hand, can proceed only against the company, and not against its members.

12. A company being a distinct entity can sue and be sued on its own. Since a firm has no legal existence, it can’t do so.

13. Each partner is prima facie the agent of the others and can bind them by his contract made in the course of the partnership business. Shareholders in a company are not the agents of one another.

Distinguish the partnership firm with co-owners.

In a partnership, all the partners are the co-owners of the joint assets and property but there may be co-owner of property who may not have entered into partnership and thus may not be partners. The following points of distinction between the two may be noted—

In Hulton v. Lister, (1890) 62 LT 200 (CA) it was held that whether co-owner are also partners is a question of evidence. The mode in which the property has been dealt with and divided and the way in which the proceeds and income thereof have been treated in the books are important, because persons who are only co-owners keep books on different footing from those who are also partners.

1. A partnership can arise only by agreement. A co-ownership may arise in any other way.

2. Business is necessary for the existence of partnership whereas co-ownership can exist without it.

3. In the partnership business, there is mutual agency between the partners and the act done by any partner binds the others. There may be no mutual agency between the co-owners, and the act of one
co-owner does not bind the others.

4. A partner can’t transfer or sell the whole of his share to an outsider so as to substitute an outsider in his place. A co-owner on the other hand has a right to transfer his part of the share to anybody he likes.

5. A partner has no right to partition in specie, nor a right to compel a sale of partnership property during the subsistence of the partnership and this notwithstanding that in the case of land, there will be either an express or statutory trust for sale affecting the legal estate but is entitled on a dissolution to have the partnership property whether land or not, sold and the proceeds divided.

6. A co-owner can sell his share without the consent of the others but a partner cannot.

7. One co-owner is not the real or implied agent of the others while partners are the agent of one another.

8. One co-owner has no lien on the thing owned in common for outlays or expenses nor for what may be due from the others as their share of a common debt, a partner has such a lien.

9. A co-owner is primarily entitled only to partition, though he can have the property sold and get a share of the proceeds. Partners are not entitled to partitions.

Section 5 of the Indian Partnership Act, 1932. “The relation of partnership arises from contract not from status, and in particular, the member of Hindu Undivided Family carrying on a family business or such, or as a Burmese Buddhist husband and wife carrying on business as such, are not partners in such, business.”

The individual members of a joint HUF may become partners with the individual members of another joint Hindu family; Ram Laxman Sugar Mills v. CIT, Uttar Pradesh, (1967) MANU/SC/0176/1967 : 66 ITR 613 (SC).

A joint family carrying on business has some features common with partnership but section 5 expressly excludes them from the operation of the Act:

In the case of Nandchand Gangaram v. M.M. Saddal, MANU/SC/0047/1976 : AIR 1976 SC 835. Supreme Court said that sections 4 and 5 of Partnership Act keeps the Hindu joint family outside the scope of the Act.

3. There is mutual agency between the partners of a partnership firm and the act done by way of the partners binds the firm whereas there is no such mutual agency between the member of joint Hindu family.

4. The liability of partner is not only joint liability or limited to his share in the partnership business, the liability is several liability also. Such liability is unlimited and even a partner’s personal property can be attached for the partnership debts.

5. In partnership, every partner can ask for the account of acts done by his co-partners. Any partner can ask for details of profit and loss also. In joint family any member can’t ask for account of profit and loss in case of severing his relation with the business; Samalbhai v. Someshwar, (1880) 5 Bom 38.

6. A partnership is dissolved by the death of a partner but that is not so in the case of joint Hindu family.

7. A male minor can be a member of a joint Hindu family. A minor can’t, however be a partner of a firm, though he can be admitted to the benefits of partnership.

Explanation 2 of section 6 expressly provides that the receipts of a share of the profits of a business or of a payment which is contingent upon the earning of profits or which varies with the profits earned by business by a servant or an agent as remuneration does not of itself, make such a servant or agent a partner with the other persons carrying on the business.

However, it is not always easy to draw a line between a partnership and a payment of a salary by way of share of profit. In one case X carried on, in his own name the business of loading and unloading wagons for the company. He appointed Y to manage the business and it was agreed between them that Y would be paid 75% of net profits as remuneration and that X would retain the balance 25%. It was also argued that X would not be liable for any loss, on these facts, the Calcutta High Court held that the relationship between X and Y was not that of partners, but one of principal and agent; Munshi Abdul Latiff v. Gopeswar Chottoraj, 1932 56 Cal LJ 172.

It is also possible for ‘Y’ both to receive a share of the profits of X’s business and also to bear a share of losses and yet under the agreement between the parties, to be in position of a servant as regards X, not a partner of X; Walker v. Hirsch, 1884 27 Ch DIV 460.

On the other hand two persons would be held to be partners, even if one of them is in receipt of a fixed salary in lieu of share of profits, if their intention to be partners is otherwise apparent from the facts and circumstances of the case.

A partnership is also to be distinguished from a trade association. Mutual agency which is an essential ingredient of a partnership, does not exist in a trade association.

1. Bhawanilal Lachchi Ram v. Badrilal, MANU/MP/0031/1964 : AIR 1964 MP 153, an association of cloth dealers getting quotas of cloth allotted to it, and then distributing the quotas to its member firms was held not to be a partnership. This was so despite the fact that the profits made by the association by re-selling the cloth were divided amongst the members. There was no mutual agency and no partnership in the circumstances.

“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 itself make such persons partners.

Explanation 2.—

The receipt by a person of a share of the profits of a business or of a payment contingent upon the earning of profits or varying with the profits earned by a business, does not of itself make him a partner with the persons carrying on the business, and in particular, the receipts of such share or payment:

(a) by a lender of money to persons engaged or about to engage in any business,

(b) by a servant or agent as remuneration,

(c) by a widow or child of a deceased partner, as annuity, or

(d) by a previous owner or part-owners of the business as consideration for the sale of the goodwill or share thereof, does not itself make the receiver a partner with the persons carrying on the business.”

This section describes in detail the principles laid down by the House of Lords in Cox v. Hickman, (1860) 8 HLC 268. According to this section to determine the existence of partnership between two or more than two persons the actual relation between the parties should be seen. Whether there is a relationship of partnership between them or not, it depends upon the agreement entered between them and their real intention which appears from all facts of the case and does not depend only on the intention expressed by them.

It is not easy task to determine whether a group of persons constitute a partnership or not. Often specific/instrument mention the word ‘partner’ vaguely without caring about its legal connotation. The use of word ‘partner’ in an instrument or by any description persons concerned don’t become partners on the other hand if legal requirements are essential elements as mentioned above are fulfilled, no description will prevent them from becoming the partners.

1. In Khan v. Miah, (2000) 1 WLR 2123, certain persons obtained loan from Bank in joint names to purchase premises for restaurant. They also entered into contract for the purchase of equipment and laundry for the restaurant. But their relationship terminated before the opening of the restaurant. The trial Judge held that a business existed between and that there was a partnership. The court of appeal reversed this decision by a majority holding that they had not become partners in a restaurant business by the date when the relationship was terminated.

There is no rule that parties to a joint venture do not become partners until actually trading commences. The rule is that persons who agree to carry on a business activity as a joint venture don’t become partners until they actually embark on the activity in question. It is necessary to identify the venture in order to decide whether the parties have actually embarked upon it, but it is not necessary to attach any particular name to it.

Any commercial activity which is capable of being carried on by an individual is capable of being carried on in partnership. Many businesses require a great deal of expenditure to be incurred before trading commences.

2. In Mallow March and Co. v. Court of Wards, (1872) LR 4 PC 419: 

It was held that whether relation of partnership does or does not exist must depend upon the real intention and contract of the parties as appearing from the whole facts of the case, not merely on their express intention.

3. Kilshaw v. Jukes, (1873) LJ QB 217: 

It was held that a person who advanced money and supplied goods out of the profits of building speculation, if such profits should be sufficient for the purpose, he was not liable to debts contracted by them for the purpose of the speculation.

4. Danis v. Danes, (1894) 1 Cal 393: 

The main rule to be observed in determining the existence of partnership is that regard must be had to true contract and intention of the parties as appearing from all the facts of the case.

1. Sharing of Profits: 

Sharing of Profits or of gross returns arising from property by persons holding a joint or common interest. According to Explanation 1 of section 6 the sharing of profits or of gross returns arising from property by persons holding a joint or common interest in that property does not itself make such persons partners. For example–where joint owners collect rent out of properties received in gifts and no business is carried on by all or anyone of them on behalf of all, there is no partnership. Therefore in such a case suit for dissolution of partnership cannot be filed.

The joint owners of property who share the profits or gross return arising out of property don’t become partners, joint ownership is not partnership.

1. Govind Nair v. Maga, (1948) 1 Mad 343: 

“A and B jointly purchased a tea shop and incurred additional expenses for purchasing pottery and utensils for the job. Each of them contributed a half of total expenses. The shop was then leased out on rent which was shared equally by them.

The Madras High Court said: “Nothing more is done by the parties than utilising the common property and obtain a return for such use by leasing the property for rent. Their investment made them only co-owners and not partners. They never carried on any business.

2. Chettyar Firm v. Chettyar Firm, AIR 1933 Rang 120: 

If co-owners start a business and share the income thereof they may become partners.

3. Mohanlal Daulatram v. Commissioner of Income-Tax, 1991 Supp (2) SCC 696: 

MANU/SC/0127/1991 : AIR 1991 SC 479. In a father and son partnership, on the death of the father the widowed mother was admitted representing the joint estate, the firm was held to be valid and genuine, though the partners being mother and son were the joint owners of the whole estate left behind by the father.

4. Cox v. Coulson, (1916) 114 LT 599: 

A father left for his two sons his business and three houses in equal shares. They let out one of the houses and employed the rent in the development of the business of the workshop which was attached to the two houses. It was held that they were partners in the business of workshop, but not in the houses.

5. Davis v. Davis, (1894) 70 LT 265: 

Where joint owners collect rent out of properties received in gift and no business is carried on by all or anyone of them on behalf of all. There is no partnership. Therefore in such a case, suit for dissolution of partnership cannot be filed. In such a case, the proper suit will be the suit for partnership and account.

2. Lender of money receiving profits: 

According to Halsbury–

if the agreement gives the supposed lender the right and privileges of a partner; no device or contrivance will enable him to escape the liabilities of a partner. If he is not a partner, he is merely a creditor whose rights are limited by statute. A lender may, however, stipulate for large powers, some of which might be consistent with the position either of a creditor or a sleeping partner and if such powers are reasonably necessary for the protection of his interest as a lender, they will not be held to make him a partner.

A person who has lent money to a person or firm engaged in business and has agreed to take in addition to or in place of his interest, a portion of the profits of the business, he does not by that reason become a partner in the business.

1. In Re Meganand Ex-parte Delhasse, it was held that if on the true construction of the agreement, the real partnership between the parties is not purely and bona fide that of debtor or creditor, the effect of an advance in consideration of a share of profits may easily be to place the intending lender in the position of a partner with all its consequences and liabilities.

2. Badley v. Consolidated Bank, (1888) 38 Ch D 238. “A lender advanced money to a contractor to enable him to carry out a contract with a railway company. The contractor assigned to the lender all his machinery and plants etc., to secure the repayment of the debt. The lender was to receive 10% interest and 10% profits, he had the power to enter upon work in case of contractor’s insolvency and also to sell the property in default. The contractor was allowed $ 1000 for his service.”

It was held that these terms did not show any intention of constituting a partnership between them. The real intention was to secure the repayment of the loan.

3. Mallow March & Co. v. Court of Wards, (1872) LR 4 PC 419. “A Hindu Raja advanced a sum of money to two British merchants carrying on business at Calcutta. The merchants agreed to carry on the business subject to the control of Raja in several respects. He was to receive a commission of 20% on all the profits. Subsequently the property of the firm was mortgaged to him and he released his right to commission.

It was held that object of the agreement was to give Raja maximum security for the repayment of his loan. There was no intention to take him in as a partner. Partnership requires a community of interests and not a conflict of them.

It appears to be now established that although a right to participate in the profits of trade is a strong test of partnership and that this may be cases from such participation alone, it may, as a presumption, not of law, but of fact, be inferred: yet whether that relation does or does not exist depends on the real intention and the conduct of the parties.

3. Sharing of Profits or receipt thereof by a servant or agent as remuneration: 

Sometimes a share in the profits may be given to a servant or agent in the business so that he can take more interest in the business. Such a person sharing the profits in the capacity does not thereby become a partner.

1. Munshi Abdul Latif v. Gopeswar, MANU/WB/0185/1932 : AIR 1933 Cal 204. ‘A’ who had undertaken to load and unload Railway wagons for a limited company, appointed ‘B’ to do that job, ‘B’ was to be paid 75% of the profits and was also liable for the losses, if any. It was held that the relationship between ‘A’ and ‘B’ was that of principal and agent and not partners.

The receipts of share or payment by a servant or agent as remuneration does not of itself make the receiver a partner, with the persons carrying on the business. Sometimes it may not be easy to distinguish between partnership and share of profits received as remuneration.

2. Mclaren v. Versochayle, (1901) 6 CWN 429. An assistant in a firm of brokers was paid a share in the profits over and above his salary. At times he signed some letters and document on behalf of the firm. It was held that such a servant only acted as an agent for the firm and the mere fact that he only acted as an agent for the firm and mere fact that he shared the profits did not make him a partner in the firm.

3. Raghumal Khandelwal v. Official Assignee, (1923) 28 CWN 34, where four persons contributed money to start a business and while the three of them were to receive all profits and the fourth to receive a fixed monthly pay and 10% commission on profit, it was held that the latter was also a partner in the firm.

4. Stekel v. Elice, (1973) 1 WLR 191. ‘S’ joined ‘E’ in a firm of Chartered Accountants as a salaried partner, property, profits & goodwill remaining that of ‘E’. It was held that ‘S’ no doubt became a partner but he was not entitled to an order of dissolution as he had no interest in assets.

4. Share of profits to widow or child of deceased partner as annuity: Sometimes on the death of a partner the widow or child of the deceased partner may be given a share of profits in accordance with an agreement which may have been entered into between the partners. Such widow or child does not become the partner merely because she or he is sharing the profits in the business. Accordingly, her claim to the annuity was the claim of a creditor and was not postponed to those of the other creditors.

5. Seller of goodwill: The receipt of share or payment does not of itself make him a partner with the persons carrying on the business.

A person who sells the business along with the goodwill is sometimes given a share in the profits of the business he has sold, but such a person does not of itself become the partner in the business.

Helper Girdharilal v. Saiyed Mohamad Mirasaheb Kadri, MANU/SC/0381/1987 : AIR 1987 SC 1782. In this case, a partner brought in as assets his tenancy of premises in which partnership was carried on. Though he was to share profits, he was not allowed to operate bank accounts. There was hardly any indication that the partnership was not genuine. Delivering the judgment Sabyasachi Mukharji observed:

Whether there was a partnership or not may in certain cases be a mixed question of law or fact, in the sense that whether the ingredient of partnership as embodied in the law of partnership were there or not in a particular case must be judged in the light of the principle applicable to partnership.

Rawlison v. Clarke, (1846) 153 ER 860. ‘A’ sold to ‘B’ his interest in the profession and practice of a surgeon and druggist. It was agreed that ‘A’ would continue to attend his old profession and to the utmost of his power introduce ‘B’ to her patient and to do every reasonable act for promoting the interest of the concern. ‘B’ allowed ‘A’ share of the clear profits of the concern.

It was held that the parties were not thereby constituted partners in the trade. Tindal, CJ. said- it is very difficult to say how they can be called partners, where there is no joint interest in the matter of question.

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.

Essentials:

Partnership at Will require the following as essentials—

(i) No mention is made in the partnership deed regarding duration of partnership.

(ii) Also no mention is made regarding determination of partnership.

1. Karumurthi Thiagarajan Chettiar v. E.M. Muthappa Chettiar, MANU/SC/0059/1961 : AIR 1961 SC 1225:

In the words of Wanchoo, J. of Supreme Court- “the essence of partnership at Will is that it is open to either partner to dissolve the partnership by giving notice. Section 7 contemplates two exceptions to a partnership at Will. The first exception is where there is a provision in the contract for the duration of the partnership and the second exception is where there is provision for the determination of the partnership, in either of these cases, the partnership is not at Will.”

2. Iqbalnath v. Rameshwarnath, MANU/MH/0177/1976 : AIR 1976 Bom 405: 

It has been held that a provision as regards the retirement of a partner can’t be regarded as a provision for the termination of the partnership within the meaning of section 7 of this Act.

3. Gulab Singh v. Gattulal, 1970 MP LJ 389, if a partnership which was originally for a fixed term, is continued after the expiry of the term, it would be regarded as a partnership at Will.

4. Keshavlal Lallubhai Patel v. Patel Bhailal Narandas, MANU/GJ/0059/1968 : AIR 1968 Guj 157. The duration of partnership may be expressly provided for in the contract, but even where there is no express provision, the partnership will not be at Will if the duration can be implied. A term in the contract, that either partner may withdraw from the partnership by relinquishing his right of management by the other partner, would not make the partnership a partnership at Will, for the essence of a partnership at Will is that it is open to either partner to dissolve the partnership by giving notice.

Problem: 

A.B.C. signed a partnership deed, under which the goodwill and the trade-mark were to remain vested in all of them. One of the clauses provided that if anyone of them was not willing to carry on the business, he could get out, and receive Rs. 10,000 as his share of the goodwill and trade-mark, in addition to the amounts to his credit in the business. The business would then be carried on by the remaining two partners, and the goodwill and trade mark would then vest in such two partners. One of the partners gave notice of dissolution, saying that this was a partnership at Will. How would you decide the case?

Ans: 

This is not partnership at Will. According to Madras High Court, it can be said that the parties only intended a sensible business agreement. The court observed that there would be no sense left in several provisions of the agreement if any of the partners could put an end to the firm at his Will, so long as the other two were alive. The partnership specifically provided for survival of the trademark and goodwill and these provisions could not be implemented if the partners could dissolve the firm at Will.

5. Nissar Ahmed v. Nasima Bi, 1970 MLJ 512. Section 43(1) declares how a partnership at Will can be dissolved, and provides that 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.

6. Vora v. Sheth, MANU/WB/0056/1973 : AIR 1973 Cal 279. The Calcutta High Court has held that a provision in a partnership deed for retirement of a partner is not inconsistent with a partnership at Will though the firm is constituted by only two partners.

“A person may become a partner with another person in particular adventure or undertaking.”

According to the Report of the Special Committee, section 8 is intended to meet the common practice of establishing particular partnership, a practice which finds favour with Indian firms with numerous branches.

In case of particular partnership, the agreement generally refers to a specific adventure or business, as for instance, when two persons enter into partnership to buy a plot of land and sell it for a profit.

1. Gherulal Parekh v. Mahadev Das Maiyg, MANU/SC/0024/1959 : AIR 1959 SC 781. It was held that if two or more persons agree to enter into a partnership for carrying on forward contracts with a particular person, such a partnership will be particular partnership.

2. Karmali Abdulla v. Vara Karimji Jiwani, 17 BCR 103. Two merchants decided to do business in sugar to be shipped from Mauritius to Hong Kong. Purchases were to be made jointly at Mauritius. The Preamble to the agreement declared that the purpose was to do business in partnership. Unfortunately, the very first consignment of sugar proved to be a failure, and resulted in a heavy loss. The question before the court was whether one of them was liable on a bill drawn by the other partner who became insolvent. The court held that this was a particular partnership, a partnership of a limited character and therefore the solvent partner was liable.

3. Manu v. D. Arey, 1968 2 All ER 172. In this case, the defendants were doing business in a partnership of buying and selling potatoes. The acting partner entered into an agreement with the plaintiff for a joint venture of buying a shipload of potatoes and of sharing the profits of its re-sale. The venture resulted in a loss and the other partner disowned liability as regards the transaction. This was held to be a particular partnership, a partnership of a single venture.

4. Kottapalli Jaggaiah v. Kokumanu Venkatasatyanarana, MANU/AP/0163/1984 : AIR 1984 AP 149. The plaintiff and the two defendants joined together and obtained a contract for the maintenance of a road. There was held to be partnership in the road building activity. Such activity though arising out of a single contract was spread over a particular period and the firm had to employ certain workers, supervise the work, prepare the bills and finalise the work and get the approval from the court and finally receive the bills and all that meant carrying on of business.

5. Rasdas v. Mukut Dhari, AIR 1952 UP 1. Persons can be partners in the working out of a coal-mine on the production of a firm because although that may be a single adventure but the same requires a series of transactions and continuous relationship.

Similarly, if a number of bales of yarn are purchased at one time, but the sales are to go on, profits are to be realised and then distributed amongst a number of persons. There is carrying on of the business. (Senaji Kapurchand v. Pannaji Devichand, MANU/PR/0110/1930 : AIR 1930 PC 300; Nathilal v. Srimal, AIR 1940 All 230).

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 undertakings, for instance until the production of a film. Sometimes the agreement may stipulate about the determination (end) of partnership on the happening of certain events e.g., if the business runs into loss for consecutively five years. When the partners have not decided about the duration of partnership such a partnership is known as partnership at Will.

1. Avula Construction (P) Ltd. v. Senior Divisional Electrical Engineer, Traction Distribution, MANU/AP/0302/1999 : AIR 1999 AP 318. Since the firm has no personality of its own and since it is not a juristic person, the constituents of the firm, its partners are its real representatives. The experience of the partners for the purposes of working a profit of technical nature can be treated as the experience of the firm.

2. Munshiram v. Municipal Committee, MANU/SC/0392/1979 : (1979) 3 SCC 83. A firm is a collection of the partners. It is not a legal person or a separate legal entity having any independent or distinct existence. It is nothing but partners bracketed together under one name. When a partner dies or becomes insolvent the firm is dissolved. The assets of the firm are joint property of the partners and partners are personally liable for all the business obligations of the firm. A firm is not recognised as a person for the purpose of subscribing to the memorandum of company or for making partnership with another person or firm.

3. Comptroller and Auditor-General v. Kamlesh Vadilal Mehta, MANU/SC/0037/2003 : AIR 2003 SC 1096. The Supreme Court emphasis on this feature is to be seen in this remark that a firm as partnership is not a legal entity separate and distinct from partners and is only a compendious description of individuals who comprise the firm.

4. Dy. C.S.T. v. K. Kelukutty, MANU/SC/0313/1985 : AIR 1985 SC 1143. A partnership firm is identifiable from partnership agreement. Same partners may constitute more than one distinct and separate firm but firms have no juristic personality.

The name in which the partners of a firm carry on their business is called the firm name. The selection of a name is a matter entirely for the partners but even so, certain matters have to be kept in mind in making the choice. One of the primary consideration in the selection of name is that it should not be misleading, which means that it should not be identical with or too closely resembling the name of another firm, or with the trade-mark of the goods produced by another firm. A new firm can be restrained from adopting a similar name or giving a similar name to its product which is already in the use of another firm.

If a partner dies, the surviving partners may carry on the business by forming another partnership. In such a case, they will have to account for the share of the deceased partners to his legal representative. But, if a partner dies, his legal representative may be admitted to a new partnership by the surviving partners. There can be no legal bar to a personal representative of the deceased partner being admitted to the partnership by the surviving partners.

1. Commissioner of Income-

Tax v. Kandath Motors, MANU/SC/0258/1997 : (1997) 4 SCC 54: If the personal representative of the deceased is also one of the surviving partners, he can agree to join the new partnership as a nominee of the legal heirs of the deceased partner.

2. Commissioner of Income-

Tax v. A. Abdul Rahim, MANU/SC/0168/1964 : AIR 1965 SC 1703: The Supreme Court held that a partnership can’t be held to be not genuine or be denied registration merely because a partner has joined in a representative capacity, or is a trustee or benamidar for an outsider or for another partner, or is otherwise not beneficially entitled to the whole or part of his share of profits.

Quite often for procurement of goods in service by the State and its instrumentalities, the eligibility criteria requires a minimum experience of the tenderers. Similar criteria are required to be satisfied for obtaining privileges like licences, quotas, permits and the like.

1. New Harizons Ltd v. Union of India, MANU/SC/0564/1995 : (1995) 1 SCC 478: 

The Supreme Court held that the requirement of experiences of the tenderer is to ensure of credentials of the tenderer from a commercial point of view which means that if the contract is given to the firm, one would look into the background of the firm and the persons who are in control of the same and their capacity to execute the work.

1. The firm is an assessable unit separate and distinct from individual partners, who as individuals constitute assessable units separate and distinct from the firm. It is on that basis that the provisions of the tax law are structured into a scheme providing for the assessment of partnership income; Deputy Commissioner of Sales Tax (Law) Board of Revenue (Taxes) v. K. Kelukutty, MANU/SC/0313/1985 : (1985) 4 SCC 35.

2. State of Punjab v. Jullundur Vegetable Syndicate, MANU/SC/0296/1965 : AIR 1966 SC 1295: Although under partnership law, the syndicate is not a legal entity and only consists of the individual partners for the time being, it was a legal entity for the purpose of the Income-tax Law as well as Sales tax law.

Order 30 of Code of Civil Procedure, 1908 permits suits to be brought against firms. The summons may be issued against the firm or against persons who are alleged to be partners individually. The suit, however, proceeds only against the firm. Any person who is summoned can appear and prove that he is not a partner and never was but if he raises that defence, he can’t defend the firm.

Persons who admit that they are partners may defend the firm, take as many pleas as they like but can’t enter upon issues between themselves. When the decree is passed, it is against the firm. Such a decree is capable of being executed against the property of the partners and also against two classes of persons individually.

Partnership is based upon the agreement. Section 23 of Indian Contract Act provides that every agreement of which the object or consideration is unlawful is void and it lays down that the consideration of an agreement is unlawful unless inter alia, it is opposed to public policy. Where a partnership is formed of persons more than permitted by section 11(2) of the Companies Act, such partnership is illegal. Badri Prasad v. Nagarmal, MANU/SC/0009/1958 : AIR 1959 SC 559. A partnership is presumed to be legal unless the object is proved to be illegal or the object necessarily involved something illegal.

Unless the persons dealing with the firm in Particeps Criminis, there can be no turpis causa to bring him within the operation of the rule “ex turpi causa non orbiters actio” and he not being implicated in any illegal act himself, can’t be prejudiced by the fact that the persons with whom he has been dealing are illegally associated in partnership.