Partnership at Will 

A partnership at will is a type of partnership where the partners have not fixed any duration for the partnership and have also not provided any method for determining or ending the partnership through their agreement. Under Section 7 of the Indian Partnership Act, 1932, such a partnership can be dissolved by any partner by giving written notice to all other partners of the intention to dissolve the firm.

What Is Partnership at Will?

A partnership at will is a partnership where there is no agreement between the partners regarding the period for which the firm will continue or the manner in which the partnership can be determined. In such a partnership, the continuation of the firm depends entirely on the mutual willingness of the partners.

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Section 7 of the Indian Partnership Act, 1932 defines partnership at will. It provides that a partnership is considered a partnership at will when:

• No provision is made in the partnership agreement regarding the duration of the partnership; and
• No provision is made regarding the determination of the partnership.

The essential feature of a partnership at will is that any partner has the right to bring the partnership to an end by following the procedure prescribed under Section 43 of the Act.

Unlike a fixed-term partnership, where partners agree to carry on business for a specific period, a partnership at will does not contain any such restriction. The partners are free to continue the business as long as they mutually desire.

Section 7 of the Indian Partnership Act, 1932

Section 7 deals specifically with the concept of partnership at will. According to this provision, two conditions must exist for a partnership to be classified as a partnership at will:

1. The partnership agreement should not mention any specific duration for which the partnership will continue.
2. The partnership agreement should not contain any clause explaining how the partnership will be determined or terminated.

If either of these conditions is absent, the partnership cannot be treated as a partnership at will.

For example, if a partnership deed states that the firm will continue for five years, it will not be a partnership at will. Similarly, if the deed provides that the partnership will end upon the happening of a particular event, the partnership will not fall under Section 7.

Essentials Of Partnership at Will

A partnership at will requires certain essential elements to exist. These conditions determine whether a partnership falls within the scope of Section 7 of the Indian Partnership Act.

No Provision Regarding Duration Of Partnership

The first essential requirement is that the partnership agreement must not provide any fixed duration for the existence of the firm.

If partners agree that the partnership will continue for a particular period, such as ten years, the partnership will be considered a partnership for a fixed term and not a partnership at will.

The absence of a duration clause indicates that the partners have not restricted the existence of the partnership to any specific period.

No Provision Regarding Determination Of Partnership

The second requirement is that the partnership agreement must not contain any provision regarding the determination or termination of the partnership.

A partnership deed may specify certain circumstances in which the partnership will come to an end. Such a clause prevents the partnership from being classified as a partnership at will.

The determination of partnership refers to the method by which the relationship between partners comes to an end. If the partners have already agreed upon such a method, Section 7 will not apply.

Essential Test To Identify A Partnership at Will

The main test for determining whether a partnership is at will is to examine the intention of the partners expressed through the partnership agreement.

The Supreme Court in Karumurthi Thiagarajan Chettiar v. E.M. Muthappa Chettiar, AIR 1961 SC 1225 explained that the essence of partnership at will is that any partner can dissolve the partnership by giving notice.

The Court observed that Section 7 provides two exceptions to partnership at will:

• Where there is a provision in the contract regarding the duration of the partnership.
• Where there is a provision regarding the determination of the partnership.

If either of these provisions exists, the partnership will not be considered a partnership at will.

Thus, the intention behind the partnership agreement plays an important role in deciding the nature of the partnership.

Partnership at Will And Right Of Dissolution

A partnership at will gives every partner the right to dissolve the firm by giving notice.

Section 43(1) of the Indian Partnership Act, 1932 provides that where the partnership is at will, the firm may be dissolved by any partner giving written notice to all other partners of his intention to dissolve the firm.

The notice must clearly communicate the intention of the partner to end the partnership. Once the notice is given, the partnership is dissolved from the date mentioned in the notice or, where no date is mentioned, from the date of communication of the notice.

The right of dissolution exists because there is no fixed duration or agreed method of continuation in a partnership at will.

Whether Retirement Of A Partner Amounts To Determination Of Partnership?

A common question in partnership law is whether a clause allowing retirement of a partner makes the partnership not a partnership at will.

The answer depends on the nature and effect of the clause.

A provision allowing a partner to retire does not automatically amount to a provision for determination of the partnership. Retirement only affects the position of a particular partner, whereas determination refers to ending the partnership firm itself.

In Iqbalnath v. Rameshwarnath, AIR 1976 Bom 405, the Bombay High Court held that a provision regarding retirement of a partner cannot be considered a provision for determination of partnership under Section 7 of the Indian Partnership Act.

Therefore, a partnership may still remain a partnership at will even if the deed contains provisions relating to retirement of partners.

Similarly, in Vora v. Sheth, AIR 1973 Cal 279, the Calcutta High Court held that a provision for retirement of a partner is not inconsistent with a partnership at will, even where the firm consists of only two partners.

When A Fixed-Term Partnership Becomes Partnership at Will?

A partnership initially created for a fixed period may become a partnership at will if the partners continue the business after the expiry of the agreed period without entering into a fresh agreement.

In Gulab Singh v. Gattulal, 1970 MP LJ 389, the Madhya Pradesh High Court held that where a partnership originally created for a fixed term continues even after the expiry of that term, it will be regarded as a partnership at will.

This principle applies because, after the expiry of the original period, there is no longer any agreement fixing the duration of the partnership.

Therefore, the continued existence of the firm depends upon the willingness of the partners.

Implied Duration Of Partnership And Partnership at Will

A partnership may not always require an express clause regarding duration. In some cases, the intention of the parties may be gathered from the terms of the partnership agreement.

In Keshavlal Lallubhai Patel v. Patel Bhailal Narandas, AIR 1968 Guj 157, the Gujarat High Court observed that even where there is no express provision regarding duration, a partnership will not be considered a partnership at will if the duration can be implied from the agreement.

The Court also held that a clause allowing one partner to withdraw from management does not necessarily make the partnership a partnership at will.

The essence of partnership at will is the unrestricted right of a partner to dissolve the partnership by giving notice. Mere withdrawal from management or retirement from business does not have the same effect.

Problem Based On Partnership at Will: Goodwill And Trademark Clause

A partnership deed was executed between A, B and C. The agreement provided that the goodwill and trademark of the business would remain vested in all three partners.

One clause stated that if any partner did not wish to continue the business, such partner could leave the firm and receive Rs. 10,000 as his share of goodwill and trademark along with the amount standing to his credit.

The remaining two partners would continue the business, and the goodwill and trademark would then belong to them.

One partner issued a notice of dissolution claiming that the partnership was a partnership at will.

The issue before the court was whether such a partnership could be dissolved at the will of one partner.

The court held that the partnership was not a partnership at will.

The reason was that the partnership deed contained a complete arrangement regarding the continuation of the business after the exit of one partner. The agreement clearly intended that the business would continue with the remaining partners.

Allowing any partner to dissolve the firm at will would defeat several important provisions of the agreement, especially those relating to goodwill and trademark.

The arrangement showed that the partners intended a continuing business relationship rather than a partnership that could be terminated at any moment.

Therefore, the notice of dissolution could not be treated as valid on the ground that the partnership was at will.

Difference Between Partnership at Will And Fixed Partnership

Conclusion

Partnership at will under the Indian Partnership Act, 1932 refers to a partnership where the partners have not agreed upon any duration or method for determining the partnership. The absence of such provisions gives every partner the right to dissolve the firm by giving written notice under Section 43. 

However, a partnership will not become a partnership at will merely because a partner has the option to retire. The intention of the partners and the terms of the partnership deed remain crucial in determining whether a partnership falls within Section 7 of the Act.