PARTNERSHIP LAW

ABSTRACT

In modern times there is the emergence of new branches of law, due to the increase in the problems and crimes in the society. In order to solve the problems and to give justice there are many new kinds of law established in the society. The few new kinds of law that has been established for solving the problem in the society are Cyber Law, Patent Law, Immigration Law, Law of Partnership ect. In this essay we are going to deal about the Law of Partnership.

. The four essentials features of partnership are:

· It is an result of the agreement

· It is organised to carry on a business

· The persons concerned agree to share the profits of the business

· The business is to be carried on by all or any of them acting for all

The major rights if the partners of the firm are:

· Take part in business firms

· Majority rights

· Access to books

· Right to indemnity

· Right to profits

· Right to remuneration

ACTION BY AND AGAINST PARTNERS:

ALLOWANCES TO PAERTNERS:

Other items of which the commissioner may have to take care are the allowances, contributions and indemnities payable to partners.

FOR BREACHES OF TERMS OR DUTIES:

Where a partner commits a breach of his duty as a partner, as a result of which the firm or his co- partners suffer a loss the question arises whether a suit will lie for compensation without seeking dissolution and account.

SUITS BY OR AGAINST THIRD PARTIES:

The procedure in suits by or against firms is provided in order 30 CPC. According to rule 1 the partners of a firm can sue and be sued in the name of their firm. The pleadings maybe verified by any one of the partners. This an enabling provision. It permits partners to sue in the name of the firm and also 3rd parties to sue them in such name

PARTNERSHIP LAW

In modern times there is the emergence of new branches of law, due to the increase in the problems and crimes in the society. In order to solve the problems and to give justice there are many new kinds of law established in the society. The few new kinds of law that has been established for solving the problem in the society are Cyber Law, Patent Law, Immigration Law, Law of Partnership ect. In this essay we are going to deal about the Law of Partnership.

The origin of the Partnership Law was on 1932. It is also known as the Indian Partnership Law. Before this act was passed the law of partnership was to be found in a chapter of the Contract Act 1872. It became independent in the year 1932. The wake of this law was a necessity because of the flow of business life in the crucial period of expanding the trade and commerce , the development of trade in India and no of cases pointing out the incompleteness of the chapter on the law of partnership, made it almost necessary that should be for the help of the business community.

The term “Partnership” is defined in Section 4 of the Partnership Act, 1932 as follows:

“Partnership” is the relation between persons who have agreed to share the profit of a business carried on by all or any of them acting for all. The four essentials features of partnership are:

· It is an result of the agreement

· It is organised to carry on a business

· The persons concerned agree to share the profits of the business

· The business is to be carried on by all or any of them acting for all

AGREEMENT:

Section 5 declares that the relation of partnership arises from contract, not from status. It may be too elementary to say that a partnership can arise only by an agreement between the parties concerned and in no other way, yet the point is important. It is one of those elements which clearly displays the distinction between a partnership and other business relations, like joint family carrying on business which does not arise by agreement , but it is result of status, operation of law , succession or inheritance

MEANING AND NATURE OF FIRM:

Person who have entered into partnership with one another are individually called “partners” and collectively called as “firm”, and the name under which the business is carried on is called the “.firm name”. thus a firm is a collection of 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 the partners are personally liable for all the business of obligations of the firm. Since the firm has no personality of its own and since it is not a juristic person , the constituents of the firm , the partners , are its real representatives.

FIRM NAME:

The name in which the partners of the firms carry on their business is called the “firm name”. the section of the name is a matter entirely for the partners but even so, certain matters have to be kept in mind in making the choices. One of the primary consideration in the selection of a name is that it should not be miss leading , which means it should not be identical with or to closely resembling the name of another firm, or with the trade of the goods produced by another firm.

MAXIMUM NUMBER OF PARTNERS:

Under section 11 of the Company’s Act 1956 a partnership for carrying in banking business in which there are more than 10 members and for any other business, in which there more than 20 members, must be registered as a company under the Company’s Act, or under any other law, otherwise it will be an illegal association.

RELATION OF PARTNERS TO ONE ANOTHER:

Two fundamental principles governed relations of partners to one another. The 1stprinciple give the partners the freedom to settle their mutual rights and duties by their own voluntary agreement . the statement of duties and rights should be prefaced with the contents of section 11 which gives freedom to partners, subject, to the provisions of the act , to determine the mutual rights and duties by their own agreement .

The 2nd principle of high importance is that the relations of partners to one another are based upon the fundamental principle of absolute good faith. Every partner is an unlimited agent of his co-partners for all matters connected with the business and therefore has the power to bind them into any amount of liability, mutual trust and confidence among the partners therefore becomes a necessary condition of their relations.

RIGHTS OF PARTNERS:

Mutual rights and duties of partners depend upon the provisions of the agreement. But subject to their agreement, the law confess the following rights upon all partners:

· Right to take part in business

Every partner has a right to take part in the conduct of the business of the firm. The privilege of participation in business must be used for promoting the interest of the firm and not for damaging it. The Delhi High Court issued an injunction against a partner, who in order only to undermine the position of the managing partner, wrote to the principals of the firm not to supply motor vehicles and to bankers not to honour the firm’s cheques. Partnership agreements usually provide for the exclusion of this in the case of some partners

· Majority rights

When every single partner has the right to be consulted with the decision making business policies, differences of opinion might arise among them. Any difference arsing as to ordinary matters connected with the business mat be decided by a majority of the partners and every partner shall have the right to express his opinion before the matter is decided, but no change may be made in the nature of the business without the consent of all the partners.

· Access to books

Every partner has a right to have access to and to inspect and copy any of the books of the firm. A partner may exercise his right himself or by agent, but either can be restrained form making use of the knowledge thus gain against the interest of the firm. A partner can have the accounts inspected through an agent and need not do it personally. For example, were a sleeping partner wanted to sell his interest to the other partners and authorised and expert valuer to inspect accounts to ascertain the values of his interest ,it was held that the other partners could not object to it, unless they could show some reasonable grounds for their objection such as, for example protection of trade secrets. The right to inspect papers, however, does not include the right to carry them, without the consent of the other partners, to any other place than the registered office of the company.

· Right to indemnity

The right to recover indemnity from the firm is provided in Section 13(E) of the partnership act in the following.

The firm shall indemnify a partner in respect of payments made and liabilities incurred by him—-

1. In the ordinary and proper conduct of the business and

2. In doing such act, in an emergency, for the purpose of protecting the firm from laws, as would done by a person of ordinary prudence, in his own case , under similar circumstances.

There are 2 kinds if indemnity

a) In the 1st place, a partner is entitled to recover from the firm any expenses incurred by him “in the ordinary and proper conduct of the business”

b) The 2nd kind of indemnity , is recoverable when a partner has done an act involving expenditure in order to protect the property of the firm from a loss threatened by an emergency. It is necessary that the partner concerned should have acted as a reasonable person would have acted in his own case.

The right to indemnity is not lost by the dissolution of the firm and it also does not matter that there is or has been not settlement of accounts

· Right to profits

Unless otherwise agreed, partners are entitled to share equally in the profits earned by the firm. Similarly, they are bound to contribute equally in the losses sustained in the course of the business of the firm. This would be so even when there is disproportionate capital contribution or some of the partners render extraordinary services. Whether, therefore, partners have contributed money equally or unequally, whether they are or are not on a parity as regards skill, etc, whether they have or have not laboured equally for the benefit of the firm, their shares will be considered as equal unless some agreement to the contrary can be shown to have been entered into. In Robinson v. Anderson, 2 solicitors were jointly retained to defend certain actions and there was no satisfactory evidence to show in what proportion they were to divide their remuneration. It was held that they were entitled to share equally all though they had been paid separately and had done unequal amount of work

· Right to interest

If a partner has advanced, for the purposes of the firm business, a sum of money beyond the capital he has agreed to subscribe, he is entitled to interest on the advance at the rate of 6% per annum

Section 13 D— A partner making, for purposes of the business, any payment or advance beyond the amount of capital he has agreed to subscribe, is entitled to interest there on at the rate 6% per annum.

Unless otherwise agreed, partners are not entitled to any interest on their contributions to the capitals. Even where a partner is given the right to receive interest on his subscribe capital , such interest shall be payable only out of profits. Section 13 (c) provides in the following words

Section 13(c) — where a partner is entitled to interest on the capital subscribed by him, such interest shall be payable only out of profits.

So far as interest on capital contribution is concerned, it ceases to run from the date of dissolution.

· Right to remuneration

Unless otherwise agreed, partners are not entitled to receive salary or remuneration for taking part in the conduct of the business. A partner is not entitled to receive remuneration for taking part in the conduct in of the business.

The partnership agreement however provides for the payment of remuneration to the working partners the so called remuneration paid to the partners is a distribution of profits. It is well known principle that under ordinary circumstances, the contract of partnership excludes any implied contract for payment for services. In the absence of an agreement, one partner cannot charge his co-partners with any some for compensation in the form of salary or otherwise, even where the services rendered by the partners were exceeding the unequal.

ACTION BY AND AGAINST PARTNERS:

ALLOWANCES TO PAERTNERS:

Other items of which the commissioner may have to take care are the allowances, contributions and indemnities payable to partners. A commissioner appointed by the Allahabad High Court reported how bribes are to be paid by a partner of a firm of contractors for getting bills passed for larger quantity of timber when in fact a shorter quantity are supplied , the court accepted his report and allowed the paying partner to recover contribution from his co-partner for half the amount so paid.

REMEDY OF DAMAGES:

For failure to enter into partnership:

Where an agreement to form a partnership is made and one backs out or there is an agreement to admit a person into the firm as a partner and non- compliance , the injured party cam recover compensation for breach of contract. The amount of compensation has to be assessed in accordance with the rule stated in the Section 73 of the Contract Act. Damages may be recovered upon an agreement by one of several partners to introduce a stranger into the firm, although the agreement be entered into without the knowledge of the firm.

FOR BREACHES OF TERMS OR DUTIES:

Where a partner commits a breach of his duty as a partner, as a result of which the firm or his co- partners suffer a loss the question arises whether a suit will lie for compensation without seeking dissolution and account.

QUESTIONS OF LIMITATION:

A suit for account under share in the assets of a dissolved firm is governed by article 5 of the Limitation Act, 1963 and must be instituted within 3 years from the date of dissolution. This article is applicable when the firm is already dissolved either by an act of the parties or by operation of law. Suits for dissolution of existing firms are governed by article 113 of the Limitations Act 1963. Where dissolution takes place because of the abandonment of his interest by one of the partners, it was held that a suit could be brought within 3 years from the date.

ARBITRATION IN PARTNERSHIP DISPUTES:

An arbitration clause is a universal feature of almost all partnership agreement. The effect of the existence of an arbitration clause in a partnership agreement is that all disputes between partners falling within the scope of the arbitration clause would have to be submitted to arbitration and if any partner files a suit, any other partner can supply under Section 34 of the Arbitration Act for stay of the suit and for adjudication by arbitration. The court may not grant a stay where the validity if the partnership agreement of the arbitration agreement itself is challenged, or where the question whether the dispute is within the scope of the arbitration clause, where there is evidence to show that the nominated person is not fit for the purpose of adjudication.

SUITS BY OR AGAINST THIRD PARTIES:

The procedure in suits by or against firms is provided in order 30 CPC. According to rule 1 the partners of a firm can sue and be sued in the name of their firm. The pleadings maybe verified by any one of the partners. This an enabling provision. It permits partners to sue in the name of the firm and also 3rd parties to sue them in such name. It being an enabling provision it does not bar suits in any other manner. The rule is merely permissive in character and dose not enjoin in that the only manner in which suit by or against a firm can be brought is in the from prescribed by this rule. A plaintiff bringing a suit against a firm may implead all the members of the firm and likewise members of a firm can sue jointly in their individuals names. Such a suit will nonetheless be a suit against the firm or by the firm.

AUTHOR DETAILS: R.KAVISHNA AND S.V.SATHYA RUBA (REVA UNIVERSITY, BANGALORE)

The views are personal only, if any.