There was no separate partnership Act prior to 1932. The law on partnership was contained in chapter XI (SS 239 to 266) of contract Act, 1872. A partnership arises from a contract and therefore such a contract is governed by law of contract. Chapter XI was not brief enough to contain all the matters relating to partnership. Few matters of partnership were left unnoticed .Chapter XI was passed on English precedents and common law. Therefore it could not serve the purpose due to the changes taking place in trade and business. Moreover contract Act was enacted fifty years ago which was quite inadequate for the present scenario. The partnership law in India prior to the enacting of partnership act ,1932 was the same as in England.
In India while drafting the partnership bill ,a special committee noticed few difficulties and defects in the working of English partnership Act , so there was a need to enact a separate partnership act for India .because the court functioning in English courts were quite than that of India. There was no necessity to alter the entire provision but to alter few sections that were creating difficulties. In India the partnership Act was enacted in 1932 and came into. force on 1st day of October 1932 except Section 69 ,which shall come into force on the 1st day October 1933. As it is formulated on the English partnership act ,1890 , it does not alter in any substantial way the provisions of English law prevailing in this country. The chief principles in both English and Indian law of partnership are almost identical.
THE NATURE OF PARTNERSHIP
DEFINITION OF PARTNERSHIP (section 4):
A partnership is defined as “the relationship between persons who have agreed to share profits of a business carried on by all or by any of them acting for all”.
SECTION 239 OF CONTRACT ACT 1872 ( WHICH WAS REPEALED ):defines ‘partnership ‘ thus : “partnership is the relation which subsists between persons who have agreed to combine their property ,labour or skill in some business and to share the profits thereof between them”.
ESSENTIAL INGREDIENTS OF PARTNERSHIP ACT 1932
The following are essential ingredients necessary to constitute a ‘partnership’:
1. AN ASSOCIATION OF TWO OR MORE PERSONS :
There must be at least two persons who join together to constitute partnership. Because one person cannot become a partner with himself. As regards maximum number of partners in a partnership firm, Section 11 of the companies Act ,1956 puts limit at 10 in case of banking business and 20 in case of any other business.
2.IN PURSUANCE OF AN AGREEMENT OR CONTRACT
There must be a valid agreement or contract between the partners. The agreement need not be express but may be inferred from the course of conduct of the parties . the relationship between the parties to the contract is enforceable if there is a contract between them. In case of Hindu undivided family where a business is carried on by the members of the family , the members are not called as partners and that body is not recognised as a partnership because there is no agreement between them.
RAGHUNATH SAHU & ANOTHER V. TRINATH DAS & OTHERS [ AIR 1985 ORISSA]It was held that there was absence of agreement between the parties that either of them or any of them would carry on business on behalf of all. Court held that there is no partnership. Since the commencement there was no agreement between parties so since starting itself that business did not existed.
TARSEM SINGH V. SUKHMINDER SINGH [1998 (3 ) SCC 471,PARA 13] It was held that it was not necessary to have a written contract but there should be equally binding contract between parties on the basis of oral agreement ,unless there is any law saying that every contract requires agreement.
3.TO COMBINE THEIR PROPERTY ,LABOUR OR SKILL
Few definitions stated that partners to bare the expenses of labour or combine there property or should possess some kind of skill in order to be a partner in the business. But it was held in several cases that it is not necessary to contribute anything, if he undertakes the liability of being a partner then he is considered as partner. Consequently Section 4 of the partnership Act have omitted the element of agreeing to combine their property ,labour or skill.
4 .THE AGREEMENT MUST BE TO CARRY SOME BUSINESS
The term “business” means any trade ,occupation or profession(sec 2 clause(b)). Though the word “business” generally conveys the idea of numerous transactions a person may become partner with another even in particular adventures or undertakings. Unless the persons join for the purpose of carrying a business ,it will not amount to a partnership. Thus partnership does not exists between members of charitable trust.
5. WITH A VIEW TO SHARE THE PROFITS BETWEEN THEM
Another essential element of partnership is that persons should have agreed to share the profits of the business .The words persons who have agreed to share profits in section – 4 of the partnership act denote the purpose of forming a partnership and that purpose is to share the profit of the business. Existence of business is essential so that ,where there is no intension to carry on business and to share profits thereof ,there can be no partnership.
CHAMPARAN CANE CONCERN V. STATE OF BIHAR [AIR 1963 SC]
The supreme court held that the fact that the profits or even the losses are distributed in accordance with the shares of the two owners does not necessarily establish a partnership.
RIGHTS OF THE PARTNERS [SECTION 12-17]
1.EVERY PARTNER SHALL HAVE RIGHT TO TAKE PART IN THE BUSSINESS[SEC 12 (a) ]
All the partners in the business have the right to participate in the conduct of the business and take part in the organizational decision no partner to the business can be denied of this right .as being the partner they have granted this right from the court of law .if any of the partners are denied of such right they can approach the court of law .the court may pass any such order like injunction towards other partners .the other remedies are suit for dissolution.
2. RIGHT TO EXPRESS OPINION BY THE PARTNER [SEC 12 (c) ]
As being the partner to the firm all partners must be asked there opinion and decision attached to any situation that arises .every partners view must be taken into consideration .the consent of all partners shall be mandatory .the opinion of the majority shall prevail .a single partner of the firm cannot arbitrarily take decision .as the concept of the partnership is not arbitrary in nature .the duty of each partner is to make sure that peace and harmony must prevail.
3. RIGHT TO HAVE ACCESS TO BOOKS OF THE FIRM [SEC 12 (d)]
All the transactions and the profit or losses must be shared among the partners if the profits and losses are to be shared then all the partners have equal right and opportunity to have a look at the balance sheet or to have look at the accounts of the firm .
4. RIGHT TO PROFITS [SEC 13 (b)]
All the partners are entitled to equal proportionate share of the profits of the firm .all the partners shall also bear the losses inquired by the firm the way the equal share of profit is provided . based on the agreement the ratio of the profit and losses shall be allotted .in case of no agreement it is presumed that the share of profit is equal to that of others .in case of minor he /she also entitled to get profit sharing but will not bear any losses inquired .
5. THE MONEY INVESTED BY THE PARTNER SHALL HAVE INTEREST ATTACHED TO IT [SEC 13 (c)]
The situation wherein the partners to the firm lend their personal money towards the firm as a source of capital then the partners to have lended capital have the right to earn interest against the same .the general rule attached to it is that there needs to be mention in the agreement or contract regarding the interest of capital and the interest rate. but according to the partnership act the partner will not be called as creditor .
DUTIES OF PARTNERS
THE FOLLOWING ARE THE DUTIES OF PARTNERS:
1.DUTY OF ABSOLUTE GOOD FAITH (SEC 9)
All the steps or decisions taken must have good-conscience and good faith. There must be mutual trust among the partners in every step of business .without good faith a busy cannot run .all the investment and the exact profit ratio of the firm must be shared among the partners .
2. DUTY TO RENDER FULL INFORMATION OF ALL THINGS AFFECTING THE FIRM (SEC 9)
It’s the duty of the partners to reveal the profit and losses of the firm so that the investors ,employees partners have knowledge about the firm’s activity .if there is any activity that is affecting the progress of the Firm that needs to be Shared .so that the mistakes are not repeated again.
3. DUTY TO INDEMNIFY FOR FRAUD (SEC 10)
The partner to the firm in case of any fraud shall pay for the damages incurred to the firm .as partners are the caretakers of the firm in case of any misfortune or fraud it comes to the responsibility of the partners to indemnify loses
4. DUTY TO ATTEND THE BUSINESS WITHOUT REMUNERATION [SEC 13
There are several situation that may arise in the course of firm wherein to remunerate the partners with remuneration wont be possible in that particular time the firm must not shut down and the activities of the firm shall run as it is hence the partner’s are duty bound to attend the firm conduct and management even when they are not remunerated
5. DUTY TO SHARE LOSSES [SEC 13 (b)]
It is all the partners duty to share the losses as well . And the losses shall be shared as per the ratios mentioned in the contract
“To conclude with all the partners of the firm are vested with organisational rights and duties .violation of which the court of law can be approached for the violation of any of the provisions mentioned under the partnership act. The partners are dutybound with certain duties and also entitled to certain rights” .
Author Details: Raisha Rout (Reva university ,Bangalore)
The views of the author are personal only. (if any)