THE LAW OF PARTNERSHIP IS AN EXTENSION OF LAW OF AGENCY

P a g e | 1

I. INTRODUCTION: One of the forms in which business can be carried on is ‘partnership’, where two or more persons join together to form the partnership and run the business. The Indian Partnership Act, 1932 is 1932 is an act enacted by the the Parliament of India to regulate partnership firms in India. Since public at large would

be

dealing

with

the

partnership

as

customers, suppliers, creditors, lenders, employees or any other capacity, it is also very important for them to know the legal consequences of their transactions and other actions in relation with the partnership.

A partnership is mean of bringing together the person who can contribute capital skill for expansion of business.

II. THE INDIAN PARTNERSHIP ACT, ACT, 1932: 1932: The Indian Partnership Act, 1932 1932 received the assent of the Governor-General on 8 April, 1932 and came into force on 1 October 1932, except section 69 which came into force on the 1st Day of October, 1933. Before the enactment of this act, partnerships were governed by the provisions of the Indian the Indian Contract Act (Chapter IX - sections 239 to 266). 266) . It was derived from English Partnership Act, 1890. The act is administered through the Ministry of Corporate Affairs. Affairs. The act is not applicable to Limited to Limited Liability Partnerships, since Partnerships, since they are governed by the by the Limited liability Partnership Act, 2008.



Features of the Act 1:  Act

complimentary

to

Contract

Act- The Indian Partnership Act is

complimentary to Contract Act. Basic provisions pr ovisions of Contract Act apply to contract of partnership also. Basic requirements requirements of contract i.e. legally enforceable agreement, mutual consent, parties competent to contract; free consent, lawful object, consideration etc. apply to partnership contract also.

1

S.D. Singh & J.P.Gupta, Law of Partnerships in India, Orient Law House, Third Revised Edition,(1988), at p.8.

THE LAW OF PARTNERSHIP IS AN EXTENSION OF THE LAW OF AGENCY

P a g e | 2

ar t n e r s h i p  P ar

Contract is

a ‘Concurrent

subject’ -- ‘Contract, including subject’

partnership contract’ is a ‘concurrent subject, covered in Entry 7 of List III (Seventh Schedule to Constitution). Indian Partnership Act is a Central Act, but State Government Government can also pass legislation on this issue. Though Partnership Act is a Central Act, it is administered by State Governments, i.e. work of registration of firms and related matters are looked after by each State Government. The Act is not applicable to Jammu and Kashmir. ar t n e r s h i p F i r m i s n o t a l e g al al e n t i t y - It may be surprising but true that a  P ar

Partnership Firm is not a legal entity. Under partnership law, a partnership firm is not a legal entity, but only consists of individual partners for the time being. It is not a distinct legal entity apart from the partners constituting it 2

Malabar Fisheries Co. v. C IT

Taxation - For tax law, income-tax as  Firm legal entity for the purpose of Taxation well as sales tax, partnership firm is a legal entity - State of Punjab v. 3

4

Jullender Vegetables Syndicate - CIT v. A W F i g g i e s - CIT v. G 5

Parthasarthy Naidu Though a partnership firm is not a juristic person, Civil

Procedure Code enables the partners of a partnership firm to sue or to be an s p o r t A g e n c y v . A w a d h e s h sued in the name of the firm. - A s h o k T r an Kumar

6

2

(1979) 120 ITR 49 = 2 Taxman 409 (SC). 1966 (17) STC 326 (SC) 4 AIR 1953 SC 455 5 (1999) 236 ITR 350 = 104Taxman 197 (SC) 6 1998(5)SCALE 730 (SC 3


P a g e | 3

III. DEFINITION: 

The term 'Partnership' is defined under section 4 of Indian partnership act 1932 as under:

"Partnership is an agreement between two or more persons who have agreed to share profits of the business carried on by all or any one of them acting upon all."



Sir

Frederick

Pollock

defines

“Partnership” as: “The relation which subsists between persons who have agreed to share the profits of a business carried on by all or any of them on behalf of all of them”.



Meaning of ‘Partner’ ‘Firm’ and ‘Firm Name’

Section 4 of Indian Partnership Act, 1932 provides that: “Persons who have entered into partnership with one another are individually called partners and collectively called a firm and the name under which their business is carried on is called firm name.”“Partnership is thus Invisibility which binds the partners together and firm is the visible form of those partners who are thus bound together”.

Examples: 1. A and B buy 100 bales of cotton to sell later on profit which they agree to share equally. A and B are partners in respect of such cotton. 2. A and B buy 100 bales of cotton together for personal use. There is no partnership between A and B. 3. A, a goldsmith, agrees with B to buy and provide gold to B to work on an ornament and to sell and that they shall share the profit. A and B are partners. 4. A and B are carpenters working together. They agree that A will keep all the profits and will pay B a wage. They are not partners. 5. A and B jointly own a ship. This circumstance does not make them partners. THE LAW OF PARTNERSHIP IS AN EXTENSION OF THE LAW OF AGENCY

P a g e | 4



In Helper Girdharbhai vs Saiyed M Kadri and others 7, J. Sabyasachi of Supreme Court identified that the following elements must be there in order to establish a partnership – “There must be an agreement entered into by all the parties concerned, the agreement must be to share profits of the business, and the business must be carried on by all or any of the person concerned for all”.

IV. ESSENTIALS OF PARTNERSHIP8: 1. Agreement. 2. Agreement between two or more persons 3. Business. 4. Sharing of Profits. 5. Business carried on by all or any of them acting for all. (Mutual Agency)

1. Agreement: There has to be an agreement between two or more people to enter into partnership. The agreement is the source of the partnership. It is not necessary that the agreement be formal or written. An agreement can be express or implied. Further, such agreement must follow all the requirements of a valid contract given by Indian Contract Act 1872. This includes the parties must be competent to contract and the object of the agreement should be legal as Section 5 of IPA 1932 provides that the relation of partnership arises from contract and not from status. Thus, if there is no specific contract, there can be no partnership. The Supreme Court, in Tarsem Singh v Sukhminder Singh 9, has held that it is not necessary under the law that every contract must be in writing. There can be an equally binding contract between the parties on the basis of oral agreement, unless there is a law which requires the agreement to be in writing.

7

AIR 1987

8

Justice K. Sukumaran, Mulla The Indian Partnership Act, Pollock & Mulla, Lexis Nexis Butterworths, Sixth Edition. 9 AIR 1998 SC 1400


P a g e | 5

2. Agreement between two or more persons: The term ‘person’ as used in Sec.4 does not include a firm. This is because a firm is not a separate legal entity. As such two partnership firms cannot enter into partnership, though all the partners of the two firms may form a partnership out of their separate firms provided their number does not exceed the statutory limit.

In agreement associated between two or more persons, the number of partners in a firm shall not exceed 20 and a partnership having more than 20 persons is illegal. If the partnership is between the Karta and member of Hindu undivided family the members of the joint Hindu family will not be taken into account.

A company is a ‘person’ and being an entity distinct from its members; enter into a contract of partnership if i t is authorized by its Memorandum of Association.

The following can enter into a partnership: Individual



Firm





Hindu undivided family

Company



Trustees





Individual: An individual, who is competent to contract, can become a partner in the partnership firm. If there are more than two partners in a firm, an individual can be a partner in his individual capacity as well as in a representative capacity as Karta of the Hindu undivided family.



Firm: A partnership firm is not a person and therefore a firm cannot enter into partnership with any firm or individual. But a partner of the partnership firm can enter into partnership with other persons and he can share the profits of the said firm with his other co-partners of the parent firm.



Hindu undivided family: A Karta of the Hindu undivided family can become a partner in a partnership in his individual capacity, provided the member has contributed his self-acquired or personal skill and labour. THE LAW OF PARTNERSHIP IS AN EXTENSION OF THE LAW OF AGENCY

P a g e | 6



Company: A company is a juristic person and therefore can become a partner in a partnership firm, if it i s authorized to do so by its objects.



Trustees:

Trustees of private religious trust, family trust and trustees of

Hindu mutts or other religious endowments are juristic persons and can therefore enter into partnership, unless their constitution or objects forbid. 3. Business10: They must intend to start or do a business. A business is a very wide term and includes any trade, occupation, or profession. Business may not be of long duration or permanent and even a single activity may be considered a business. Thus, if two persons are not partners, they can engage in a transaction with an intention to share profits and can become partners in respect of that transaction.

For example, if two advocates are appointed to jointly plead a case and if they agree to divide the profits, they are partners in respect to that case.

Section 8 of the Act also mentions that a person may become partner with another in particular adventures of undertaking. It is however necessary that a business exists. If a business is simply contemplated and has not been started, the partnership is not considered to be in existence.



Ram Priya Saran vs Ghanshyam Das 11: Fact: Two persons agreed that after their tender is passed they will construct the dam in partnership. In order to deposit earnest money, the plaintiff gave 2000 Rs. The tender was not accepted. Held: It was held that since a business was only contemplated and not started, there was no partnership and so the plaintiff was entitled to get 2000 Rs from the defendant.

10 11

H.R. Gokhale & Y.S. Chithale, The Sale of Goods & Partnership Act, Pollock & Mulla, Tripathi, Fourth Edition. AIR 1981 All THE LAW OF PARTNERSHIP IS AN EXTENSION OF THE LAW OF AGENCY

P a g e | 7



Khan Vs Miah12 : Fact: Two persons obtained loan from the bank to start a restaurant. They also entered into a contract to purchase equipment and laundry for the restaurant. But their relationship terminated before the opening of the restaurant. It was held that there is no rule of law that parties to a joint venture do not become partners until they actually embark on the activity in question. It is necessary to identify the venture in order to decide whether the parties have actually embarked upon it but it is not necessary to attach any name to it. Many businesses require a lot of investment and activities before the actual trading begins. This does not mean that the business has not started until the trading begins.

Held: It was held that in this case the activity of the business had begun and so the partnership was in existence. 4. Sharing of profits13: Normally, an activity is done in partnership with a goal to make profits. Thus, for a valid partnership to exist, the partners must agree to share the profits according to their investment. Here, profits include losses as well. The partners may agree to share profits out of partnership business, but not share the losses. Sharing of losses is not necessary to constitute the partnership. The partners may agree to share the profits of the business in any way they like. The honorable apex Court of the nation has reiterated the provision in Section 6 of the Act in Girdharbhai v. Saiyed Mohmad Mirasaheb Kadri14: that in determining whether a group of persons is a firm or not, the real intention of the parties has to be taken into consideration. The Supreme Court had laid down the elements to determine a partnership as (a) there must be an agreement entered into by all parties concerned; (b) the agreement so entered into must be to share profits of a business; (c) the business must be carried on by all or any one for all. 12

[2001] All ER 20

13

14

sydney.edu.au › lec › subject pages › law of associat ions

AIR 1987 SC 1782


P a g e | 8

5.

Mutual Agency: The present definition replaces Section 239, Ind ian Con tract A ct which defined ‘Partnership’ as under: ‘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.’

The present definition is wider than the one contained in the Indian Contract Act in so far as it includes the important element of ‘mutual agency‘, which was absent in the old definition.

According to Pollock, ‘Partnership is the relation which subsists between persons who have agreed to share the profits of a business carried on by all or any way of them on behalf of all of them.’

The firm must be managed by the partners and thus when any partner acts; he acts on behalf of the firm and thus on behalf of other partners. Therefore, a partner is considered an agent of others. In absence of such mutual right of agency, a partnership cannot exist.

For example: An author receiving a royalty from publishers is not a partner because there is no mutual agency between them.


P a g e | 9

V. THE LAW OF PARTNERSHIP IS AN EXTENSION OF THE LAW OF AGENCY: Firstly it is important to discuss something about Agency:



Definition: Sec 182 of Indian Contract Act, 1872 defines an ‘Agent’ as “a person employed to do any act for another or to represent another in dealings with third person”. The person for whom such act is done or who is represented is called the “ principal ”. The relationship between the agent and the principal is called “agency”.

The common law principle in operation is usually represented in the Latin phrase, “qu i facit per alium , facit per se , i.e. the one wh o acts th roug h ano ther, acts i n h i s o r h e r o w n i n t e r e s t s ” and it is a parallel concept to vicarious liability and

strict liability in which one person is held liable in Criminal law or Tort for the acts or omissions of another.



Principles of Agency: Contracts of agency are based on two important principles, namely: a) Whatever a person can do personally shall also be allowed to be done

through an agent except in case of contracts involving personal services such as painting, marriage, singing, etc. b ) He who does not act through a duly authorized agent does it by himself, i.e.,

the act of the agent are considered the acts of the principal (Sec. 226).



Essential features of agency: Agency has certain essential features. They are as follows:

(i) Agency implies that one person (i.e. an agent) brings two other persons (i.e. a principal and a third person) into contractual relationship - That means an agent is a connecting link between the principal and the third person.

(ii) An agent is not mere a connecting link between the principal and the third party. He also creates a legal relationship between the principal and the


P a g e | 10

third party - That is he makes the principal answerable to the third party for his acts and also entitles the principal to all the benefits accruing from his acts. (iii)An agency can be established to do any act which the principal could do lawfully - That means an agency can be established only for lawful acts. If an agency is established for an unlawful act it cannot be enforced by law. (iv)Agency can be created only for those acts which can be delegated by a person to another - That means agency cannot be created for acts which must be done by a person himself and cannot be delegated to an agent say painting, marrying, singing. (v) The agency relationship may be established by a contract between the principal and the agent which may be written or oral, or may be established by implications, as in the case of husband and wife, master and servant etc. (vi)Though a valid contract requires that both the contracting parties must be competent to contract, for a contract of agency, it is enough if only the principal is competent to contract - The agent need not be competent to contract. In other words an agent may be incompetent to contract, say a minor, lunatic, idiot etc. (vii)

There should be the intention on the part of the agent to act on behalf of

the principal - As such, if a person intends to act on behalf of another an agency arises even if the contract between the parties provides that there is no such relationship. On the other hand if a person intends to act on his own behalf and not on behalf of another there cannot arise any agency, even if the person contends that he is an agent. (viii)

No consideration is necessary to create an agency - The fact that the

principal has agreed to be represented by the agent is a sufficient detriment to the principal to support the contract the contract of agency. Though no consideration is necessary to support a contract of agency, an agent may be paid for. That means an agent may be paid for his services.


P a g e | 11

(ix)

An agent is appointed with specific instructions and is authorized to act

within the scope of the instructions (i.e. the authority) - As such the agents within the scope of his authority are regarded as the acts of the principal and such acts bind the principal as if the principal has done them himself.

Who may employee an agent- Any person who is of the age of majority according



to the law to which he is subject, and who is of sound mind, may employee an agent (Sec. 183). Thus any person competent to contract can appoint an agent.

Who may be an agent- As between the principal and third person any person can



become an agent, but no person who is not of the age of majority and of sound mind can become an agent, so as to be responsible to his principal according to the provisions in that behalf herein contained (Sec. 184). The concept of “agency” has been thus explained by RAMSWAMI J. of the



Madras High Court in Krishna v Ganapathi 15; ―In the legal phraseology, every person who acts for another is not an agent. A domestic servant renders to his master a personal service; a person may till another’s field or tend his flocks or work in his shop or mine; one may for another in aiding in the performance of his legal or contractual obligations of third persons…. In none of these capacities he is an agent and he is not acting for another in dealings with third persons…. Representative character and derivative authority may briefly be said to be the distinguishing feature of an agent.



In Shivraj Reddy & Bros v S. Raghu Raj Reddy it was held that “A person can become a partner in a firm, which is the position of an agent, without making any capital contribution16 .”

15 16

AIR 1955 SC Mad 648. AIR 2002 NOC 120 (AP) THE LAW OF PARTNERSHIP IS AN EXTENSION OF THE LAW OF AGENCY

P a g e | 12

Now we will discuss that how Partnership is an extension of Agency: As mentioned above there are five essential characteristics of partnership. An association of two or more persons entering into an agreement to share profits may not necessarily determine partnership because such an agreement may not be able to carry on business and may be formed for charitable or social objects. Similarly mere sharing of profits may exist between the joint owners of the property and therefore this may also not determine the existence of partnership. Even a mere statement that the parties are to be partners will not necessarily constitute them as partners in law. So also a person who holds out himself to be a partner is not a partner in law though he may be liable to third parties. Section 6 of the Act provides for the Mode of Determining Existence of Partnership which reads as: “In determining whether a group of persons 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. Explanation I: The sharing of profits or of gross returns arising from property by persons holding a joint or common interest in that property does not of itself make such persons partners. Explanation II : 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 itself make him a partner with the persons carrying on the business; and, in particular, the receipt of such share or payment (a) by a lender of money to persons engaged or about to engage in any business (b) by a servant or agent as remuneration, (c) by the widow or child of a deceased partner, as annuity, or (d) 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. “ THE LAW OF PARTNERSHIP IS AN EXTENSION OF THE LAW OF AGENCY

P a g e | 13

Thus, the intentions of the partners will have to be decided with reference to the terms of the agreement and all the surrounding circumstances including evidence as to the interfacing or interlocking of management finance and other incidents of the respective businesses. The members of a Hindu Undivided family carrying on family business are not partners, because a male child of a Hindu acquires an interest in such business by birth apart from any agreement to that fact. He is not a partner but a joint owner. Joint ownership is a family quasi-partnership created by the operation of law and is not a partnership arising out of a contract. Similarly, a Burmese Buddhist husband and wife carrying on business are not partners. The true test for determining the existence of partnership is Agency and Authority. It is the reaction of agency which distinguishes a partnership from coownerships. It was held that in cases where losses as well as profits are shared, the presumption about the existence of partnership still becomes stronger, though not conclusive. Agency is an essential element of partnership just sharing of profits and contribution to losses is not sufficient. It was held that the receipt by a person of a share in the profits of businesses is prima facie evidence that he is a partner, but this is not a conclusive test. The question whether a person is a partner or not therefore depends in nearly all cases upon whether or not he has the authority to act for other partners and whether or not other partners have the authority to act for him. The above discussion establishes that Partnership is the branch of the law of agency. Section 18 of the Partnership Act further clarifies and confirms this. Section 18 provides: “Subject to the provisions of this Act, a partner is the agent of the firm for the purposes of the business of the firm.” Thus the firm as well as other partners will be bound by the act of the firm. Intention of parties to be gathered from the language used in the deed, read as a whole and having regard to the ordinary sensible meaning. It is only where there is a difference of opinion between the partners that the matter is connected with the business has to be decided by a majority of partners. Hence control and management can be exercised by a single partner and need not be by the majority.


P a g e | 14

F o r e x a m p l e –

-

where a contract was entered into by one of the partners of a firm with the Finance Corporation for supply of dal, the contract will be binding on the other partners of the firm when validity of the contract or authority of the partner to enter into the contract is not denied by other partners.

-

if two persons own a house and give it on rent, the sharing of the rent does not create a partnership.

-

Similarly, a payment to a person contingent upon profits also does not necessarily create a partnership until the element of mutual agency is not present.

Leading Case Laws –



1. Cox Vs Hickman 186017:



Facts -

Benjamin Smith and Josiah Timmis Smith carried on business as iron workers and corn merchants under the name of B Smith & Son. They owed a lot of money to the creditors and a meeting took place, amongst whom were Cox and Wheatcroft. A deed of arrangement was executed by more than six-sevenths in number and value of the creditors. The trusts were enumerated and the lease was fixed at 21 years. They were to carry on business under the name of “The Stanton Iron Company”. The deed also contained a clause which prevented them from suing the Smiths for existing debts. Cox never acted as trustee, and Wheatcroft resigned after six weeks after which no trustee was appointed. The goods for the business were provided by Hickman who drew 3 bills of exchange, which the business accepted but did not honour. The suit was first tried in front of Lord Jervis who ruled in favour of the defendants. The action was then taken to the Exchequer Chamber wherein three judges wanted to uphold the judgment and the other three were for reversing it.

17

(1860) 8 H.L. 268


P a g e | 15



Issues -

Whether there is a partnership between the traders who were in essence the creditors of the firm?



Contentions -

The counsel for Wheatcroft contended that: 1. There was no action against the appellant, as if Hickman had heard that Cox and Wheatcroft were the trustees, he would have realized that Cox had never been a trustee and Wheatcroft had resigned. 2. The ownership of the partnership never changed and was still owned by the Smiths. 3. A qualified benefit derived from a trade does not make a person a partner in it. Here, unless the profits are taken, there exists no partnership. The counsel for Cox contended that: 1. The defendant can be held liable only if: 1.1 He put his name on the bill 1.2 Authorized someone else to put their name on the bill 1.3 Held himself to have given the authority

1. As to the first and third points he is not liable. As far as the second is concerned, the defendant cannot be held liable unless an agency is proved. 2. It is up to the defendant to show that the plaintiff is a partner.

The counsel for Hickman contended that: 1. There was a contract of partnership under which business was to be carried out for the benefit of creditors 2. The scheduled creditors are allowed to participate in the profits of the firm thereby making them partners 3. Any one of the partners may bind all the others by the acceptance of the bills in the regular course of business


P a g e | 16



Judgement –

The deed gave special powers to the creditors. They were given the choice by majority regarding whether or not the trade should be continued and making rules and regulations as to the carrying out of that trade, which are the powers that partners have.

The creditors, however, did not carry out the business of the trade when they could have but let the trustees do the same. By this act of theirs, they did not make themselves partners of the trade. If they had carried out the business they could have made sure none of the trustees accepted the bill of exchange as they would be the principals.

The deed in this case is merely an arrangement between the creditors and the Smiths, to repay the creditors out of existing and future profits. This relationship between the creditors and debtors is not enough to constitute a relationship between a principal and agent. Trustees are liable as they are the agent by the contract but the creditors are not the principals of the trustees. Lord Cranworth held that – “ The liability of one partner for the acts of his copartner is in truth the liability of a principal for the acts of his agent. Where two or more persons are engaged as partners in an ordinary trade each of them has an implied authority from the other to bind all by contracts entered into during the course of business. Every partner in trade is the agent of his co-partner; all are, therefore, liable for the ordinary trade contract of the other ”.

Lord Wensleydale also observed that – “So if two or more agree that they should carry on a trade, and share the profits of it, each is a principal, and each is an agent of the other, and each bound to the other’s contract in carrying on the trade, as much as a single principal would be by the act of an agent who was to give the whole of the profits to his employer.”


P a g e | 17



Consequences of the case –



Mere sharing of profit does not make one partner. It is only prima facie test •



Work should have been done by him personally or on his behalf with his real or ostensible authority.





Should be in the capacity of partner.

Held –

In the present case there is no relation of partner. The decision of the Court of Common Pleas was reversed and the defendant’s were not held liable.

2. Mollow March Co Vs the Court of Wards 187218 : 

Fact -

A Hindu Raja loaned some money to Watson & Co. In return, he was to get a % of profit and was to exercise control on some aspects of the business. He was not empowered to direct the transactions of the company.



Held -

It was held that although sharing of profits is a very strong test, yet whether a relation of partnership exists depends on the real intention and conduct of the parties.

3. Lang v James Morrison & Co Ltd19: 

Fact -

An action was bought by an English company, James Morrison & Co Ltd, against 3 defendants, J McFarland, T Lang and W Keates. The plaintiffs carried on the business of receiving and disposing of frozen meat from abroad. They alleged that the 3 defendants carried on business in melb as partners under the names ‘T McFarland & Co’ and on occasions ‘McFarland, Lang and Keates’. Before the action commenced, J McFarland and W Keates became insolvent and the action proceeded against their assignees and Lang. 18 19

L.R. 4 P.C. 419 (1912) 13 CLR 1.


P a g e | 18



Held -

There was no partnership as there was no real evidence that the plaintiffs and Thomas McFarland intended on entering into a joint venture. They were not partners against third parties, but each party had certain rights against each other. Evidence for this finding was found in the fact that separate bank accounts were kept as it was apparent that neither Lang nor Keates operated on the account of T McFarland & Co. Further Lang and Keates took no part in the business of the new firm other than to sign two letters. It was stated: “Now in order to establish that t here was a partnership, it is necessary to prove that JW McFarland carried on the business of Thomas McFarland & Co. on behalf of himself, Lang and Keates, in this sense, that he was their agent in what he did under the contract with the plaintiffs.” In th e circumstances, there was no such agency.

4. Abdul Latif v Gopeshwar 20: 

Facts –

The plaintiff undertook a contract with a company and he appointed the defendant to manage the business who was also authorized to receive advances from the company and also to extend advances in favour of the company. Defendant was also liable for all the losses in case of negligence. The plaintiff sued the defendant for accounts in the capacity of agency whereas the defendant claimed that there exists partnership.



Held -

There is no partnership as the business was exclusively in the name of the plaintiff and the defendant was only managing the same on sharing of profit and loss basis.

20

AIR 1933 Cal 204 THE LAW OF PARTNERSHIP IS AN EXTENSION OF THE LAW OF AGENCY

P a g e | 19

5. Hirabai v. Bhagirath & Co.21: 

Facts –

Managing owner of an agency gave agency to defendant on temporary basis for 15 years but kept receiving the profits.



Held –

That there is no agency and mere sharing of profit does not make one partner. 6. Ross v Parkyns 22: 

Facts –

The defendant Parkyns agreed with the plaintiff that accounts are to be carried in defendant’s name. Subscription, policies are also to be signed by him or by the plaintiff as his agent. The plaintiff was supposed to maintain the account of the firm and in return he was to get a fixed sum as salary and 1/5th part of the profit. The loss was to be borne by the defendant. Further, in any year after division of profit if an unexpected claim is made, the plaintiff was supposed to pay his share of the same but that would not exceed in any circumstances from the money he has received as his share of profit.



Held –

There was no mutual agency hence no partnership.

Thus, from the above discuss ions it can be concluded that

“ t h e L a w o f

P ar t n e r s h i p i s a n e x t e n s i o n o f t h e L a w o f A g e n c y . ”



Partnership vs. Agency -

i. “agency” may in one sense be considered the broader term because: partnership” is only a form of “agency.”

ii. an agent never acts for himself but only for his principal; a partner is both a principal (for his own interest) and an agent (for the firm and the others).

21 22

AIR 1964 Bom 174 (1875) THE LAW OF PARTNERSHIP IS AN EXTENSION OF THE LAW OF AGENCY

P a g e | 20

VI. ADVANTAGES OF PARTNERSHIP: Following are the advantages of the Partnership:

1) Better decisions: The partners are the owners of the business. Each of them has equal right to participate in the management of the business. In case of any conflict, they can sit together to solve the problem. Since all partners participate in the decision-making process, there is less scope for reckless and hasty decisions.

2) Flexibility in operations: A partnership firm is a flexible organization. At any time, the partners can decide to change the size or nature of the business or area of it’s operation. There is no need to follow any legal procedure. Only the consent of all the partners is required.

3) Easy to form: Like sole proprietorships, partnership businesses can be formed easily without any compulsory legal formalities. It is not necessary to get the firm registered. A simple agreement or partnership deed, either oral or in writing, is sufficient to create a partnership.

4) Availability of large resources: Since two or more partners join hands to start a partnership business, it may be possible to pool together more resources as compared to a sole proprietorship. The partners can contribute more capital, more effort and more time for the business.


P a g e | 21

VII. DISADVANTAGES OF THE PARTNERSHIP: Following are the advantages of the Partnership:

1) Unlimited liability: All the partners are jointly liable for the debt of the firm. They can share the liability among themselves or any one can be asked to pay all the debts even from his personal properties depending on the arrangement made between the partners.

2) Uncertain life: The partnership firm has no legal existence separate from its partners. It comes to an end with death, insolvency, incapacity or the retirement of a partner. Further, any unsatisfied or discontent partner can also give notice at any time for the dissolution of the partnership.

3) No transferability of share: If you are a partner in any firm, you cannot transfer your share or part of the company to outsiders, without the consent of other partners. This creates inconvenience for the partner who wants to leave the firm or sell part of his share to others.

4) Lack of harmony: In a partnership firm every partner has an equal right to participate in the management. Also, every partner can place his or her opinion or viewpoint before the management regarding any matter at any time. Because of this, sometimes there is a possibility of friction and discontent among the partners. Difference of opinion may lead to the end of the partnership and the business.

5) Limited capital: Since the total number of partners cannot exceed 20 (10 for Banking business), the capital to be raised is always limited. It may not be possible to start a very large business in partnership form.


P a g e | 22

VIII. CONCLUSION: It can be said that, a partnership is a form of business. It has at least two members who joined capital or services for prosecuting of some business. Partnership is very important because in day to day activities we enter into partnership agreements and by making partners big goals are achieved with the help of joint and more number of people. The joint efforts of all the member results in successful accomplishment of tasks and that task or job can be easily afforded. Division of work leads to increase in efficiency at work among different partners. When some job is done by consent of all the members and if some profit is earned then it is shared among the different partners. And similar is the case when some loss occurs then that is also beard among all the members and it’s not that only one has to take responsibility or give compensation. So in my view Partnership is a good form of doing business than a company which is owned by a single person. Partnership is one of the oldest forms of business relationships. Though limited liability companies have replaced partnership firms in complex businesses, partnerships are still preferred by professionals and small trading and business enterprises in India and abroad. The Indian partnership act of 1932 provides for a general form of partnership which is the most prevalent form in India, but, over time the general form of partnership has lost its charm because of the inherent disadvantages in it, the most important is the unlimited liability of all partners for business debts and legal consequences, regardless of their holding, as the firm is not a legal entity. General partners are also jointly and severally liable for tortuous acts of co-partners. Each partner has the exposure of their personal assets being appropriated and liquidated to meet partnership dues. These are statutory position, which cannot be altered by contract inter-se, though at times subterfuges are resorted to by unscrupulous partners to avoid personal liability. General partnership holdings are not easy to transfer; typically all other partners have to agree. Yet partnership is preferred in India, because of the ease of formation and lack of compliances involved.


P a g e | 23



BIBLIOGRAPHY 

Dr. S.K. Kapoor, Contract – II, Central Law Agency, Twelfth Edition, 2012



S.D. Singh & J.P.Gupta, Law of Partnerships in India, Orient Law House, Third Revised Edition,(1988), at p.8.



Justice K. Sukumaran, Mulla The Indian Partnership Act, Pollock & Mulla, Lexis Nexis Butterworths, Sixth Edition.



H.R. Gokhale & Y.S. Chithale, The Sale of Goods & Partnership Act, Pollock & Mulla, Tripathi, Fourth Edition.



G.C.V. Subba Rao’s , Special Contracts, s.gogia & company, 12th edition 2012



REFERENCE www.studymode.com/





www.hanumant.com/



www.freellbnotes.blogspot.in



www.indiankanoon.org



www.google.com



www.wikipedia.com



www.scribe.com

THANKS THE LAW OF PARTNERSHIP IS AN EXTENSION OF THE LAW OF AGENCY

THE LAW OF PARTNERSHIP IS AN EXTENSION OF LAW OF AGENCY

Recommend Documents