Partnership and the Nature of Partnership under the Indian Partnership Act

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Introduction

Partnership results from a contract and is governed by the Partnership Act 1932. The partnership is additionally governed by the final provision of the Indian Contract Act on such matters where the Partnership Act is silent. It’s expressly mentioned that the provision of the India Contract Act which isn’t repealed will be applicable on Partnership until and unless such provision is contrary to any provision of Partnership Act, 1932. The rules of contract regarding the capacity to contract, offer, acceptance, etc will also apply to the partnership. But the rules regarding the status of minors will be governed by the Partnership Act, 1932 since Section 30 of the Act talks about the position of the minor.[1]

Section 3: Application of Provisions Of the Indian Partnership Act

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.[2]

Section 4: Definition Of “Partnership”, “Partner”, “Firm” And “Firm-Name”

“Partnership” is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Persons who have entered into a partnership with one another are called individually, “partners” and collectively “a firm”, and the name under which their business is carried on is called the “firm-name”.[3]

In other words, The Indian Partnership Act, 1932 defines a partnership as a relationship between two or more individuals who comply with share the profits of a business run by them all or by one or more individuals acting for all. Individuals who have entered into a partnership with each other are called “partners” and collectively a “company,” and also the name under which their business is carried on is termed as the “company name.”

Illustrations

  • X and Y purchase 100 bales of cotton that they agree to sell on their shared account. For the sale of such cotton, X and Y are partners. X and Y purchase 100 bales of cotton and agree to share. X and Y are not partners.
  • X agrees with Y, a goldsmith, to purchase and furnish gold to Y, to be processed, sold, and to share the profit or losses that result. X and Y are partners.[4]

Section 5: Partnership under the Indian Partnership Act Not Created By Status

The relation of partnership arises from contract and not from status; and, in particular, the members of a Hindu undivided family carrying on a family business as such, or a Burmese Buddhist husband and wife carrying on business as such are not partners in such business.[5]

State Amendment Goa, Daman, and Diu. In section 5, for the words “Burmese Buddhist husband and wife carrying on business as such”, substitute the words “a husband and wife under the regime of the communion of property-carrying on business as such”. [Vide Goa, Daman and Diu Act 6 of 1966, sec. 2 (w.e.f. 22-8-1966)].[6]

Section 6: Mode of Determining Existence of Partnership under the Indian Partnership Act

In determining whether a gaggle of persons is or isn’t a firm, or whether an individual is or isn’t a partner in an exceedingly firm, regard shall be had to the important relation between the parties, as shown by all relevant facts taken together.

Explanation I: The sharing of profits or of gross returns arising from property by persons holding a joint or common interest in this property doesn’t of itself make such person partners. 

Explanation II: The receipt by an individual 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, doesn’t itself make him a partner with the persons carrying on the business; and, particularly, the receipt of such share or payment –

(a) by a lender of cash to persons engaged or near to engage in any business

(b) by a servant or agent as remuneration, 

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

(d) by a previous owner or part-owner of the business, as consideration for the sale of the goodwill or share thereof, doesn’t of itself make the receiver a partner with the persons carrying on the business.[7]

Section-7: Partnership-At-Will

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”.[8]

In other words, if there is no clause to establish a partnership at the expiry of such a partnership, it is referred to as a partnership at will. Under Section 7 of The Indian Partnership Act, 1932, two conditions have to be met for a partnership to be a partnership at will and they are:

  • There is no agreement on a fixed period for the existence of a partnership.
  • No provision is made for establishing a partnership.

If a partnership has been established and continues to operate beyond the fixed period, the partnership will become a partnership at will after the end of that term.[9]

Section-8: Particular Partnership under the Indian Partnership Act

A person may become a partner with another person in particular adventures or undertakings.[10]

In other words, A partnership may be formed for ongoing business or a specific purpose. If the partnership is merely formed to hold out one company or complete one undertaking, it’s referred to as a specific partnership.

The partnership is going to be dissolved after the completion of the said venture or activity. The partners may, however, conform to continue the said partnership. But within the absence of this, when the task is complete, the partnership ends.

For more articles on Partnership Act, Click Here.

For Notes On Other Subjects, Click Here.

For Case Briefs And Analysis, Click Here.


[1] https://blog.ipleaders.in/the-indian-partnership-act-1932/

[2] https://www.mca.gov.in/Ministry/actsbills/pdf/Partnership_Act_1932.pdf

[3] https://www.mca.gov.in/Ministry/actsbills/pdf/Partnership_Act_1932.pdf

[4] https://blog.ipleaders.in/scope-and-nature-the-indian-partnership-act-1932/

[5] https://www.mca.gov.in/Ministry/actsbills/pdf/Partnership_Act_1932.pdf

[6] https://indiankanoon.org/doc/107341/#:~:text=%E2%80%94(3)%20Any%20partner%20may,the%20Indian%20Contract%20Act%2C%201872%20(

[7] https://www.mca.gov.in/Ministry/actsbills/pdf/Partnership_Act_1932.pdf

[8] https://www.mca.gov.in/Ministry/actsbills/pdf/Partnership_Act_1932.pdf

[9] https://blog.ipleaders.in/scope-and-nature-the-indian-partnership-act-1932/

[10] https://www.mca.gov.in/Ministry/actsbills/pdf/Partnership_Act_1932.pdf

Author: Mannat Arora (Bharati Vidyapeeth Institute of Management & Research)


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