CONTRACT Study Notes: Indian Partnership Act 1932
The Indian Partnership Act, 1932 defines and amends the law relating to Partnership. This Act is based on the Provisions of English Partnership Act, 1890. The Law relating to partnership was contained in chapter XI [section 239-266] of the Indian contract Act, 1872.
Those Provisions were found unsuitable and unsatisfactory, as a result, chapter XI was repealed and in 1932, Indian Partnership Act was enacted.
Definition of Partnership Section & defines
“Partnership is medium between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.”
There are three essential elements to form partnership
1. An agreement between all the persons
2. Sharing of Profit
3. Carrying on of business by all or any of them acting for all.
Modes of Dissolution of Partnership Firm
1. Dissolution by agreement (consent of all Partners partnership for final period.)
2. Compulsory dissolution
3. Contingent dissolution
4. Dissolution by Notice.
5. Dissolution by court
Note: The relation of Partnership arises from contract, not from status for example join family business, successions does not form partnership.
Note: The partnership agreement may be in oral or written form a formal or written agreement is not required to from Partnership.
Q. What is a partnership deed?
A formal and written agreement between the parties is called partnership deed.
Q. Is capital contribution compulsory?
A.No, capital contribution is not compulsory a partner may contribute his skills, intelligence experience etc. in partnership.
Q. What is the effect of partner’s death on Partnership business?
AThe Partnership firm dissolves on the death of partner. The other Partner’s have to enter a fresh agreement.
Q. Are partners entitled to share profits only? What if loss in incurred by the firm?
A. The Partners have to bear the loss in the same ratio ie. Profit sharing Ratio. Into agreement with third party on the name of Partnership firm. The agreement binds the firm and all partners.
Limitations:
A partner cannot take any such decisions, which may affect the Partnership firm badly, or larger interest of Partnership firm may get affected.
1. Submit a dispute relating to business of the firm to arbitration.
2. Compromise or relinquish any claim or portion of claim.
3. Withdraw a suit or proceeding on behalf of the firm.
4. Cannot acquire immovable property on behalf of the firm
5. Enter into partnership on behalf of the firm.
Q. Does the principle of mutual agency exist between partners?
A. According to the definition of Partnership, “a business may be carried on by all or one of them acting for all.” It means a person is acting on behalf of others also. This relationship in called as relationship of Principal and agent. So, yes, mutual agency exists among partners.
Duties of Partners:
1. The partners are bound to carry on the business of the firm to the greatest common advantage.
2. To be just and faithful towards each other.
3. To render true accounts, not to make hidden profits and to disclose all relevant information affecting the firm to partner or to the Legal Representative.
Authority of Partner:
1. Express
2. Implied: A partner have on implied authority to act on behalf of other Partner and to enter into agreement with third party on the name of partnership firm. The agreement binds the firm and all partners.
Example:
1. He may borrow money.
2. He may buy, sell Partnership property
3. He can pledge the goods.
4. He may make or draw the cheques.
5. He may engage servants for Partnership business etc.
Note: A Partner has an implied authority to act and to take decision for the firm in case of emergency and during the usual course of business.
Doctrine of Holding out:
This Doctrine makes a person liable as a partner if he (i) by words spoken or written or by conduct represented himself to be a partner or knowingly permitted himself to be represented as a partner. And as a result of such representation the other person gave credit to the firm. Later on the person who represented himself to be a partner owes liability towards the creditor because the creditor gave credit on the faith of representation.
Position of minor in Partnership
According to section 30 of Indian Partnership Act, he may be admitted for the benefits of partnership.
1. Minor shares profit
2. Minor in not personally liable.
3. Minor may not sue and be sued.
PRACTICE EXERCISE:
1. _________________ defines and amends the law relating to Partnership
A. The Indian Partnership Act, 1932 B. Indian Contract Act, 1872
C. Code of Civil Procedure D. None of the above
Ans.A
2. __________ is a medium between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.
A. Bailment B. Agency
C. Partnership D. None of the above
Ans.C
3. Which of the following are essential elements to form a partnership?
A. An agreement between all the persons
B. Sharing of Profit
C. Carrying on of business by all or any of them acting for all
D. All of the above
Ans.D
4. What is partnership deed?
A. An oral agreement between the parties
B. A newspaper article
C. A formal and written agreement between the parties
D. None of above
Ans.C
5. What are the ways in which a partner can contribute?
A. Capital B. Skill
C. Intellect D. All of the above
Ans.D
6. Is capital contribution compulsory?
A. Yes B. No
C. Maybe D. None of the above
Ans.B
7. What is the effect of partner’s death on Partnership Business?
A. No effect
B. The Partnership firm dissolves on the death of partner
C. The other Partner’s have to enter a fresh agreement
D. Both B. and C.
Ans.D
8. Are partners entitled to share profits only? What if loss in incurred by the firm?
A. No effect
B. Only the one who made the mistake will be responsible for the loss
C. Profits or losses will be shared as per the profit sharing ratio
D. None of the above
Ans.D
9. A partner cannot
A. Submit a dispute relating to business of the firm to arbitration.
B. Compromise or relinquish any claim or portion of claim.
C. Withdraw a suit or proceeding on behalf of the firm.
D. All of the above
Ans.C
10. Does the principle of mutual agency exist between partners?
A. Yes B. No
C. Maybe D. None of the above
