DEPARTMENT OF LAW, C.U.
COURSE TITLE – MERCANTILE LAW
COURSE CODE – IL-C-405
ASSIGNMENT TOPIC- UNDERSTANDING OF PARTNERSHIP
UNDER INDIAN PARTNERSHIP ACT, 1932
Prepared by: Submitted to:
ABHISHEK KASHYAP INSHAH YASIN
B.A LL.B 4TH SEM ASSISTANT PROFESSOR
2107CUKmr46 DEPARTMENT OF LAW, SLS.
ACKNOWLEDGEMENT
I want to express my special thanks of gratitude to my teacher
Professor Insha Yasin, as well as the Department of Law, School
of the Legal Studies Central University of Kashmir, who gave me
the golden opportunity to do this wonderful project on the topic
"Understanding Of Partnership Under Indian Partnership Act,
1932" which also helped me in doing a lot of research. I came to
know about so many things.
I am doing this project not for marks but to increase my
knowledge.
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Table of Contents
1. INTRODUCTION .......................................................................................................... 3
2. BACKGROUND OF INDIAN PARTNERSHIP ACT, 1932 ....................................... 3
3. DEFINITION ................................................................................................................. 4
3.1. Elements of Partnership according to the Section 4 of Indian Partnership Act,1932
.................................................................................................................................. 4
[Link] Agreement ................................................................................................... 4
[Link] of profits ............................................................................................... 5
[Link] on of Business .................................................................................... 5
[Link] Agency .................................................................................................. 5
4. NATURE OF PARTNERSHIP...................................................................................... 6
5. KINDS OF PARTNERSHIP .......................................................................................... 7
5.1. According to Objectives .......................................................................................... 7
[Link] at Will ............................................................................................. 7
[Link] Partnership ........................................................................................ 7
5.2. According to Tenure ................................................................................................ 8
[Link] for a Fixed Term............................................................................. 8
[Link] Partnership ........................................................................................... 8
5.3. According to Nature................................................................................................. 8
[Link] Partnership ........................................................................................... 8
[Link] Liability Partnership (LLP).................................................................. 8
5.4. According to Legality .............................................................................................. 8
[Link] Partnership ............................................................................................... 8
[Link] Partnership .............................................................................................. 8
5.5. On the basis of Registration ..................................................................................... 9
[Link] Partnership Firm .......................................................................... 9
[Link] Partnership Firm .............................................................................. 9
6. CONCLUSION .............................................................................................................. 9
7. REFERENCE ................................................................................................................. 9
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INTRODUCTION
The term partnership is a business structure wherein two or more individuals
come together to undertake a lawful business and have agreed to share the profits and
losses arising from it. The business's management and operation should be performed
by all the partners or any of them acting for all the partners.
The Partnership is a relation which subsists between individuals who have decided to
pool their money, skill and resources in business to share profits and losses in an agreed
ratio. The members of a partnership are jointly known as the partnership firm and
severally known as partners.
The laws relating to partnership in India before 1932 were contained in Chapter XI of
the Indian Contract Act, 1872. On various occasions, it was held that Chapter XI of the
Indian Contract Act of 1872 was not exhaustive, and on specific points, it was not clear
and definite. Thus, certain amendments were desired and particular points, relating to
partnership needed proper clarification. Accordingly, Chapter XI of the Indian Contract
Act was repealed, and new and comprehensive legislation in the shape of the Indian
Partnership Act of 1932 was passed.
In this assignment, I will cover the definition, nature and kinds of partnership in
‘The Indian Partnership Act, 1932’ in detail. Firstly, I will discuss its background
in brief.
BACKGROUND OF INDIAN PARTNERSHIP ACT, 1932
The Indian Partnership Act, 1932 was enacted on the 1st day of October 1932 and passed
in 1931. This Act replaces the previous Indian Contract Act, Chapter XI, 1872.
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 of 1932 expressly provides
that unrepealed provisions of the Indian Contract Act, 1872 remain in force except in
cases inconsistent with express provisions under this Act. The provisions of the Indian
Contract Act also apply to 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 in Section 30 of the Indian Partnership Act, 1932.
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DEFINITION
Section 4 of the Indian Partnership Act ,1932 defines ‘Partnership’ as under:
‘Partnership is the relation between persons who have agreed to share the profits
of a business carried on by all or any of them acting for all’
Elements of Partnership according to the Section 4 of Indian
Partnership Act,1932
➢ There should be an agreement between the persons who wants to be partners.
➢ The purpose of creating a partnership should be carrying on business
➢ The motive for the creation partnership should be earning and sharing profits.
➢ 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
An Agreement
Partnership arises from an agreement between two or more persons for the creation of
this relation. 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 association between certain persons may arise from status as in
the case of members of a Joint Hindu Family, the main reason being that their
association is not the result of an agreement between those persons. To make things
further clear, Section 5 expressly provides that “The relation of partnership arises from
contract and not from status”. Thus, it is the element of agreement which distinguishes
a partnership from various other relationships like members of a Joint Hindu Family,
joint owners or joint heirs.
The Supreme Court has, construing the provisions of Section 4, observed that a
partnership agreement is the source of partnership. It also gives expression to the other
ingredients defining the partnership, specifying the business to be carried on, the persons
who will carry on the business, the shares in which the profits will be divided, and
several other considerations which constitute such an organic relationship.
NOTE- Partnership Agreement – Can be Oral, Written or By Conduct
An agreement of partnership need not be express, but can be inferred from the course
of conduct of the parties to the agreement. The Supreme Court in Tarsem Singh V.
Sukhminder1 Singh has 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 based
on oral agreement unless there is a law which requires the agreement to be in writing.
1
1998 3 SCC 471, para 13
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Sharing of profits
The object of every partnership must be to carry on business for the sake of profits and
to share the same. Therefore, clubs or societies which do not aim at making profits are
not partnerships. The term profits has not been defined in the Act. The profits
contemplated by the Act and by the common law of partnership sometimes called net
profits, are the excess of returns over advances, the excess of what is obtained over the
cost of obtaining it. It was formerly common to speak of the total receipts or gross
returns of a business as gross profits. This is objectionable and should be avoided. There
may be very large gross returns and little or no real profit. Sharing gross returns will not
create a partnership, as the English Act [Section 2, sub-sec (2)], affirming the general
law, has expressly declared. The Supreme Court discussed in Narayanappa V.
Bhaskara Krishnappa2
The whole concept of partnership is to embark upon a joint venture and to bring in
capital money or even property including immovable property. Once that is done,
whatever is brought in would be the trading asset of the partnership.
The person who brought it in would not be able to claim or exercise any exclusive right.
Carrying on of Business
The object of every partnership must be carrying on a business and sharing its profits.
It may be any business which is not unlawful. The Act defines business as including
every trade, occupation or profession3. The definition is not exhaustive and is capable
of including any kind of commercial activity aimed at earning profits. The business, for
instance, may be of working as tailors, engaging in legal profession, rendering medical
services, producing a film, running a banking business, or purchasing and selling of
goods.
The business the partners agree to conduct must not be unlawful or opposed to public
policy. Thus, where a partnership between two persons to carry on the business of
transport service by obtaining a permit in the name of one of them only involved the
contravention of the provisions of sections 42 (1) and 59 (1), Motor Vehicles Act, the
partnership is illegal and opposed to public policy. A claim based on the settlement of
accounts of such partnership is also illegal and the same, therefore, cannot be enforced.
That is held in case of Kanniappa Nadar v Karuppiah Nadar4.
Mutual Agency
The partnership business is undertaken by all the partners or any of the partners, who
act on behalf of all the partners. So, every partner is a principal as well as an agent.
Further, the acts of partners bind each other and the firm.
2
AIR 1966 SC 1300
3
Section 2(b) of IPA
4
AIR 1962 Mad. 240
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NATURE OF PARTNERSHIP
Partnership is a form of business organization where two or more persons come
together for jointly carrying on some business. It is an improvement over the “Sole-
trade business”, where one single individual, with his resources, skill, and effort, carries
on his own business. 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, cannot be thought of in such a form of business
organisation. 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 and the burden gets divided amongst
various partners in a partnership.
The new Companies Act has prescribed the maximum number of members in the case
of a partnership firm not to be more than 100.[4] As per the previous Companies Act,
1956,[5] 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, of 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. If the parties
intend to opt for a much larger business, they can choose the company type of business
organisation. 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
organisation and its people.
However, in companies, the liability of members (shareholders) is limited whereas the
partnership provides unlimited liability to every partner. In certain respects, a
partnership is a more suitable business organisation than a Company. For the creation
of a 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 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 business
organisation.
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KINDS OF PARTNERSHIP
The types of partners under the Partnership Act, 1932 can be studied under the
following heads:
1. According to objectives
2. According to tenure
3. According to nature
4. According to legality
5. On the basis of Registration
According to Objectives
Partnership at Will
When a partnership is created, it’s upon the discretion of the partners to decide that till
when they want the partnership to exist. Therefore, whenever a partnership is created
without determination of a specific time limit, it is known as partnership at will.
Such partnership is based upon the will of the partners and it can be brought to an end
whenever any of the partners serves a notice depicting intention for the same. This
partnership is created to conduct a lawful business for an indefinite period.
Furthermore, the dissolution of a partnership is not pre-decided and it is taken into
consideration when the need arises. It’s upon the partners to decide among themselves
the requisite time period of partnership.
Particular Partnership
The main objective behind making a particular partnership is to carry out a specific
undertaking. Such a partnership is created between partners for a project of a temporary
contract-based work or a specific business only, this is known as a particular
partnership. In particular partnerships, once the objective of the business partnership is
achieved, then partishership gets dissolved. In simple words, this partnership is formed
for undertaking the particular venture and it comes to an end automatically after the
completion of tasks involved in the venture. Nevertheless, the partners have a choice to
continue the partnership by coming to an agreement.
For example: Partnership made for production of a movie or a construction of a
building.
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According to Tenure
Partnership for a Fixed Term
In such a type of partnership, the partnership is for a fixed period of time say 5 years, 2
years or any specified duration of time. The partnership automatically comes to an end
after the expiration of the said period.
Flexible Partnership
Partnerships which are neither for a fixed duration of time nor for any particular venture
are called flexible partnerships.
According to Nature
General Partnership
In a general partnership, each partner reserves a right to make decisions about the
working and management of the firm. It is pertinent to note that, the liability of the
partner in such a type of partnership is unlimited. It means that if there is any financial
error or loss incurred by one partner, all the other partner’s assets would be taken into
consideration in order to pay the liabilities incurred in the form of debts.
If there is absence of an agreement, the provisions of the Indian Partnership Act, 1932
are applicable for general partnerships wherein the liability of each partner is limited.
Limited Liability Partnership (LLP)
Unlike general partnership, limited liability partnership is a corporate form of business
organization. In such a type of partnership, the liabilities are limited to each partner in
accordance with the contribution made by them in the business. Furthermore, the
personal property or assets of the partner cannot be attached to pay back the liability of
the firm. It is pertinent to note that this organization is not governed under Partnership
act,1932, but is governed under Limited Liability Partnership Act, 2008.
In a limited liability partnership some or all except one partner have a limited liability
in accordance with the extent of capital contributed by them. It is pertinent to note that,
in partnership all the partners cannot have limited liability.
According to Legality
Legal Partnership
When the partnership is formed in accordance with the provisions of the Indian Contract
Act, 1872 and Indian Partnership Act, 1932, it will be termed as a legal Partnership.
Illegal Partnership
The partnership can become illegal when it violates the provisions of any law of the
country or when the requisite number of partners exceeds beyond the time limit or below
the time limit.
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On the basis of Registration
The registration of a firm is not mandatory under Partnership Act, 1932. Both Registered
firm and unregistered firm are valid in the eyes of Law.
Unregistered Partnership Firm
An unregistered firm is established when there is execution of agreement between the
partners. The partnership firm which is unregistered allows the partners to carry out
business activities as provided in the agreement.
Registered Partnership Firm
In order to register a partnership firm, it must be registered with the Registrar of Firm
(ROF) having the requisite jurisdiction over the place where the Firm is carrying out its
business activities. The application of registration involves the payment of registration
fee to ROF, which varies from state to state in accordance with the state laws. In a
partnership, registration of a firm is preferred due to benefits it offers such as filing a
suit in the court5.
CONCLUSION
Thus we will conclude that “Partnership is a relation which subsists between persons
who have agreed to put their property, labour, skill in some business, and to share the
profits thereof between them”. The 1932 definition of the partnership added the concept
of mutual agency. Partners have to continue the business of the firm to the greatest
common advantage, to be just and faithful to every other, and to render true accounts
and full information of all things affecting the firm to any partner, his heir or
representative.
REFERENCE
SECONDARY SOURCES
1. I follow Bare act of The Indian partnership Act, 1932
2. I go [Link] for case laws
3. [Link]
4. [Link]
5. [Link] For kinds of partnership.
6. [Link]
******END*****
5
Section 58 of IPA 1932
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