Introduction to The Indian Partnership Act, 1932
The Indian Partnership Act, 1932 defines a partnership as a relation between two or more persons who agree to share the profits of a business run by them all or by one or more persons acting for them all.
Essential requirements of a partnership are-
- There must exist an agreement between the partners.
- The motive is to earn the profit and share between the partners.
- The agreement must be to carry out the business jointly or by any of them acting on the behalf of all.
Classification of Partners
The member of a partnership is called partners. It is not mandatory that all the partners are the same or all the partners participate in the conduct of the business or share the profit or losses equally. The partners are classified depending on the nature of work, the extent of liability, etc. There are basically six types of partner namely-
- Active or managing partner: The partner who takes participation in the conduct of the business daily. This partner is also called an ostensible partner.
- Sleeping or Dormant: He does not participate in the conduct of the business but he is bound by the conduct of all the partners.
- Nominal partner: He is a partner to the firm only by his name. In reality, he has no significant or real interest in the firm.
- Partner in profit only: The partner who agrees to share the profit but does not suffer losses. He is not liable for any liabilities in case of dealing with the third party.
- Minor partner: A minor cannot be a partner according to the Indian Contract Act, but he can be admitted to get the benefit of all the partners gives the consent. His will share the profit equally but his liability will be limited in case of loss of the firm.
- Partner by estoppel: it means when the person is not a partner but he has represented himself by conduct, or words to another person to be the partner then he cannot deny afterwards. Even though he is not a partner but he becomes the partner by holding out or by estoppel.
Overview of Partnership Property
Section 14 of Partnership Property Act, 1932 deals with the law behind Partnership Property. A partnership property includes all property and rights, and interest in property that the partnership firm purchases. These purchases can also be made for the purpose and in course of the business of the firm, including the goodwill of the firm.
In general terms, partnership property consists of all the property contributed by the partners or acquired for the partnership with its funds. A partnership may own real property as well as personal property. Partners hold title to partnership property by tenancy in partnership or tenants in common.
This means that each partner has an equal right to use the partnership property for partnership purposes unless there is an agreement to the contrary. Also, a partner possesses no interest in any specific item of partnership property. A creditor of the partner cannot proceed against any specific items of partnership property. A creditor can only proceed against the partner’s interest in the partnership.
According to Section 15 of the Indian Partnership Act, 1932, depending upon the contract between the partners, the property of the firm shall be held and used exclusively for business purposes by the partners.
In simpler words, the property of the firm which has been acquired by the firm for the business purposes shall be used only for such business purposes and nothing else.
Partnership is the result of an agreement. No particular formalities are required for an agreement of partnership. It may be in writing or formed verbally. But it is desirable to have the partnership agreement in writing to avoid future disputes. The document in writing containing the various terms and conditions as to the relationship of the partners to each other is called the ‘partnership deed’. It should be drafted with care and be stamped according to the provisions of the Stamp Act, 1899. Where the partnership comprises immovable property, the instrument of partnership must be in writing, stamped and registered under the Registration Act.
Legal Cases regarding Partnership Property in The Partnership Act, 1932.
- Boda Narayana Murthy & Sons v. Valluri Venkata Suguna & Others.
In this case, the partners in a partnership business purchased a property individually and not using any sort of funds from the partnership. Disputes arose when the respondents claimed that the property so purchased using every partner’s individual monetary support belongs to the partnership firm.
The High Court of Andhra Pradesh held that to become a property of the firm, such property must have been brought into the stock of the firm by the partners originally, during the formation of the firm or was subsequently acquired by purchase or any other means, in the course of business of the firm.
- Addanki Narayanappa & Anr v. Bhaskara Krishtappa & Others
In this case, the plaintiffs and the defendants, Addankis and the Bhaskaras, are two Hindu Undivided families who entered into partnership business of hulling rice, decorating peanuts, etc.
In the course of the business the partners acquired some lands for the business purpose. Now such acquisition was made by payment of money by individual partners. A dispute spiked between the plaintiffs and respondents regarding whether the properties acquired in the course of business excluding the business funds are owned by the partnership business or by individual shareholders.
The Supreme Court held that property belonging to the partners or any one of them is incapable of being deemed as a partnership property, merely of being used for business purposes, and thus cannot be deemed as partnership properties.
About the Author – Aditya Pratap
Aditya Pratap is a lawyer practising in Mumbai. He argues cases in the Bombay High Court, Sessions and Magistrate Courts, along with appearances before RERA, NCLT and the Family Court. For further information one may visit his website adityapratap.in or view his YouTube Channel to see his interviews. Questions can be emailed to him at firstname.lastname@example.org.
Cases argued by Aditya Pratap can be viewed here.