THE INDIAN PARTNERSHIP ACT, 1932

Q.1.

What is the concept with regard to partnership? How old it is?

A:

The concept of partnership between two or more individuals to carry on any business in partnership has been very old and the relations between the partners ere governed by the contract between them. Originally, the partnership was also governed by the Indian Contract Act, 1872, thereafter the Indian Partnership Act, 1932, (9 of 1932) was enacted to define and amend the law relating to partnership.

Q.2.

What is the definition of partnership, partner, firm and firm name?

A:

Partnership is the relationship between person who have agreed to share the profits of a business carried on by any of them acting for all.
Persons who have entered into 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. 

Q.3.

Can a partnership be created by status?

A:

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 business as such are not partners in such business. 

Q.4.

How do you determine the existence of partnership? 

A:

In determining whether a group of persons whether is or is not a firm, or whether a person is or is not a partner in a firm, regard shall be had to the real relation between the parties, as shown by all relevant facts taken together. The explanations to section 6 of Indian Partnership Act, 1932, mentions interalia as follows:

Explanation 1 - The sharing of profits or of gross returns arising from property by person holding a joint or common interest in that property does not of itself make such persons partners.

Explanation 2 - The receipt by a person 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, does not of itself make him a partner with the persons carrying on the business;

And in particular, the receipt of such share or payment -

by a lender of money to persons engaged or about to engage in any business.

By a servant or agent as remuneration,

By the widow or child of a deceased partner, as annuity,or

By a previous owner or part owner of the business, as consideration for the sale of the goodwill or share thereof,

does not of itself make the receiver a partner with the persons carrying on the business.

Whether there is a partnership in existence or not is a mixed question of law and fact which the court has to determine whenever the question arises in a particular litigation.

Most of the times the persons concerned enter into a partnership deed which satisfies all the requirements and conditions of formation of a partnership and thus they put an end to any controversy being raised in that regard.

What is a 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”.
A notice can dissolve a “partnership at will” by one partner to the other partners. It comes to an end or stands dissolved upon the death of a partner.

Can there be a partnership between persons in respect of a particular adventure or undertaking?

That is so a person may become a partner with another person in particular adventure or undertakings.
This sort of partnership is in the nature of a joint venture and the rights and obligations as between the partners are governed by the agreement relating to the joint venture subject of course to the provisions of the Indian Partnership Act, 1932.

What are the general duties of partners to each other?

Partners are bound to carry on the business of the firm to the greatest common advantage, to be just and faithful to each other, and to render true accounts and full information of all things affecting the firm to any partner or his legal representative.
This shows that the relationship of partners is of absolute faith and trust between each other. The intent of each partner should be to work for the greatest common advantage and they should render true accounts and full information of all things affecting the firm.

Is a partner duty bound to indemnify for loss caused by fraud ?

Every partner shall indemnify the firm for any loss caused to it by his fraud in the conduct of the business of the firm.

Fraud means intentional willful and deliberate act to defraud other partners and or to make personal benefit from out of the business of the firm without disclosing the same and with intent to deceive the other partners of the business. This sort of act is apparently in breach of the general duties of the partners to each other as prescribed by S.9. However this particular section makes the guilty partner liable for the consequences of his wrongful and fraudulent acts. It should be remembered that partnership is a relation based on total faith and absolute trust in each other of the partners and they work for common benefit of each other. Once a partner or a set of partners become interested or take personal advantages out of the firms business or transaction it is only better for the partners to put an end to the relationship with each other otherwise the consequences may be very serious and far reaching to the disadvantage of those who do not act wrongfully and continue to have trust and faith in the other partners. A partner should be  a watchdog and should take interest in the firm’s business and keep knowledge about the activities thereof.
 

Section 11 of the Partnership Act, interalia provides that subject to the provisions of the said act (Partnership Act), the mutual rights and duties of the partners of a firm may be determined by contract between the partners and such contract may be expressed or may be implied by a course of dealing.
Such contract may be varied by consent of all the partners and such consent may be expressed or may be implied by a course of dealing.
We had earlier seen that where no provision is made by contract between the partners for the duration of their partnership, the partnership is partnership at will.  However, the present section i.e., section 11 deals with cases where the partners by contract make provisions for determination of the partnership, which in turn takes away their rights of determining the contract at, will.

Yes. Notwithstanding anything contained in section 27 of the Indian Contract Act, 1872, such contracts may provide that a partner shall not carry on any business other than that of the firm while he is a partner

The partners by contract can make the partnership business a whole time business for each of the partners without liberty to do any other business. This enhances a desire amongst the partners to earn more and more through the business of a firm in common benefit as none of them can have any other business income by virtue of the restrictive agreement.

 Subject to contract between the partners -

every partner has a right to take part in the conduct of the business;

every partner is bound to attend diligently to his duties in the conduct of the business;

any difference arising as to ordinary matters connected with the business may 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; and

every partner has a right to have access to and to inspect and copy of the books of the firm.

Though the introductory words in this section are that the same is subject to contract between the partners yet, if one analyses the various sub-sections as to the conduct of the business of the firm it appears that the same represent that the object of these sub-sections is to see that the work of the firm runs smoothly during its continuance and everyone attends to its business and knows all about its affairs. This is the salutary purpose for which partnerships are formed. However, by contract, the partners can vary the provisions for the conduct of the business of the firm if they so think it fit and proper.

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