Indian Partnership Act, 1932
Topic 1 - The nature of partnership
Defn of "partnership", partner, firm, &
firm name (S 4);
Section 4. DEFINITION OF "PARTNERSHIP",
"PARTNER", "FIRM" AND "FIRM-NAME".
"Partnership" is the relation between
persons who have agreed to share the profits of a business carried on by all or
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".
Partnership not created by Status (S5);
Section 5. PARTNERSHIP NOT CREATED BY STATUS.
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 on business as such are not partners in such business.
Mode of determining existence of partnership (S6);
Section 6. MODE OF DETERMINING EXISTENCE OF
PARTNERSHIP.
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.
Partnership at will (S7);
Section 7. 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".
Particular of partnership (S8);
Section 8. PARTICULAR PARTNERSHIP.A person may become
a partner with another person in particular adventures or undertakings.
(1) Steel Bros & Co. v. CIT, AIR 1958 SC 315
Partnership b/w Steels, Ellermans & Burma( all
shares owned by Steels who were also its managing agents) prior to 29 Nov 1928–
Rice milling machines – producing rice from paddy – selling rice – Applied to
ITO for registration of partnership(u/s 26A of IT Act) b/w Steels & Ellermans fr assessment years
1943-44 & 1944 – 45– ITO rejctd appl contending that (i) third party named
in partnership deed (Burma) not named in application of partnership (ii) Loss
arising out of previous year was not allocated proportionately between the
three, loss arising out of Burma was allocated to Steels only – Court held
entire deed must be considered to determine the existence of partnership &
all the ingredients of partnership was satisfied – and Burma cud be considered
a wholly owned subsidiary of Steels.
(2) K.D. Kamath & Co v. CIT (1971) 2 SCC 873
Appellant carrying on a business with 6 partners –
deed dated March 20, 1959 – business carried on since Oct 1, 1958 as per deed –
partnership regd under Partnership Act 1932 – applied for registration u/s 26A
IT Act for assessment year 1959 – 60 – ITO rejected application contending that
deed was not genuine and firm was a sole proprietorship in guise of a
partnership – Court held – mere nomenclature in deed not enough to constitute
partnership – Two essesntial conditions to be satisfied are (i) Agreement to
share profits as well as losses of the business (ii) Business must be carried
out by all or any of them acting for all – Fact that exclusive control is under
one partner & only he can operate bank account or borrow on behalf of the
firm is not destructive to the theory of partnership provided the above two
conditions are satisfied – two conditions above are satisfied – theory of
agency is satisfied (one partner acting for all + profit/loss sharing in ratio)
– registration u/s 26A of IT Act sustained.
(3) K. Jaggaiah v. K. Venkatasatyanarayana, AIR 1984
AP 149
A single venture amounts to carrying on of a business
– Plaintiff & two defendants joined together & obtained a contract for
the maintenance of a road – held to be partnership u/s 4 – court obsrvd defn of
business u/s 2 is not exhaustive – court held that test is not whether the
venture consists of a single transaction or not but whether its activity is
capable of being participated by more than one person
(4) Helper Girdharbhai v. Sayed Mohmad Mirasaheb
Kadri, AIR 1987 SC 1782
Held that sharing of profits and contributing to
losses were not the only elements in a partnership, existence of agency was
essential and where there was a partnership or not is a mixed question of law
& fact depending on the varying circumstances in various cases – The act
does not prescribe the degree of kind of participation in profits, for rent
paid to the propertied member may be taken as his share of profit – present
case bank account not operated by the appellant(a partner) and further that
irrespective of profit the deed provided that a fixed percentage of profit
should be given to the partner appellant – The appellant was not to share the
losses – But there is nothing illegal about it – the appellant was to bring his
asset being the tenancy of the premises in question for the partnership
(5) Commissioner of Sales Tax v. K Kelukutty (1985) 4
SCC 5
Same persons were partners in two firms carrying out
separate and distinct businesses – whether the firms can be regarded as
separate entities for assessment of sales tax – Justice Romer observed that for
taxing purposes a partnership is treated as a distinct entity – though it is
not a separate juristic entity – firm name only a collective name for
individual partners – But each partnership is a distinct relationship between
the partners – ( extend a partnership, constitute another partnership,
intention of partners) – court refused to give a decision – said to be decided
by authorities constituted under Kerala General Sales Tax Act.
(6) Mahabir Cold Storage v. CIT, AIR 1991 SC 1357
Whether registered partnership firm can be a partner
in another firm – partners (Hanumanmal & Pragyachand Periwal) took loan
from a partnership firm(Periwal & Co) – later included it in their Calcutta
operations and made it a separate partnership firm (Mahavir Cold Storage) –
court observed old firm was doing operations in Purnea and the new firm was
doing business in Calcutta – Court held that a partnership firm cannot be a
partner in another firm though its partners can be a partners in their
individual capacity – appellant – assessee is a new identity under the act
(7) Bhagwanji Morarji Goculdas v. Alembic Chemical
Works AIR 1948 P.C. 100
Nature of an agreement by a company with individuals
constituting firm were in issue – agreement was made on 7th Dec 1907
between company and 4 named individuals constituting a firm, then when all
those individuals had ceased to be members of the firm then it was held that
there is no privity between the company and the firm.
(8) Nanchand Gangaram v. Mallappa Mahalingappa
Sadalge (1976) 2 SCC 429: AIR 1976 SC 835
Whether an acknowledgement by the Karta of Jt Hindu
trading family after its severance would extend limitation against all the
former members of the family – Appellant business dealings in tobacco and money
dealings with defendant jt family – periodical verification of accounts and
acknowledgements were made from time to time by the manager of the family –
Court obsrvd legislature excuded JF’s from S4 of Partnership Act – S5 further
makes it clear that partnership arises from contract and not from status –
therefore no question of applying principle of S45 of the act on a HJF – SC
held duty of creditor to ascertain the representative capacity of person making
acknowledgement – Law does not cast any duty upon the members of the family who
do not figure in the endorsement or writing admitting the debt to inform the
creditor by a general notice about the disruption of the family
(9) Lachhman Das v. CIT, AIR 1948 P.C.8
Member of HJF to contract in his individual capacity
a partnership firm with the HJF – Court held if a stranger can contract then no
reason to withhold such a benefit from a member of the HJF – though court
observed that this benefit does not extend to Karta as there may be a conflict
of personal interest with family interest and he cannot represent both
interests at the same time
(10) Chandrakant Manilal Shah v. CIT, AIR 1992 SC 197
HUF – Karta’s son joined business on monthly salary –
35 % P/L share to son 65% to appellant – registration refused on ground that no
valid partnership – Issue whether valid partnership between Karta and member of
family moreso when son has not brought any separate capital into the business–
Court cited Privy council in PKPS Chettiar v Chokalingam Pillai said if
stranger can enter into partnership with HUF so can coparcener – Court obsrvd
situation before & after Hindu Gains & Learnings act –
(11) Champaran Cane Concern v. State of Bihar, AIR
1963 SC 1737
Where two jt owners of a land agreed to raise crop
and for this borrowed money fr the cultivation & took active steps in
raising crops they were held to be partners, but where two persons purchased
certain land for growing cane and appointed a manager to manage the
agricultural operations and the profits arising out of the joint cultivation
were divided between them, it was held that they were no partners as there was
no mutual agency between them -
(12) Laxmibai v. Roshanlal, AIR 1972 Raj. 288
Held when there is no written agreement, it is the
conduct of the parties that determines the existence of partnership –
plaintiff’s contention was that he entered into partnership orally for taking
building contracts & to share profits & losses in equal proportion –
defendants contention was that no such oral agreement ever took place – and the
plaintiff had agreed to finance him for a contract and there was only a
relation of debtor & creditor between them – Court held that mere use of
words such as partner or partnership in an agreement does not necessarily show
that there is a partnership – further a creditor by advancing money &
receiving share of profits does not become a partner – However in this case
witness corroborated the fact of existence of partnership – plaintiff used to
participate in construction work and also used to act as agent for the other –
such partnership was admitted by the defendant though he said that the
plaintiff was engaged to look after the work in lieu of payment – held that
there was a partnership between them.
(13) Cox v. Hickman (1860) 8 H.L.C. 268
S & S iron merchants in partnership– suffered
financial embarrassment – made a compromise with creditors under which the
firms property was assigned to a few creditors selected as trustees – they were
empowered to carry on the business to divide the net income among creditors in
a rateable proportion & after the debts had been discharged the business
would be returned to S & S. – Cox was one of the trustees although he never
acted – other trustees continued the business – they purchased certain goods
from the plaintiff Hickman and gave him a bill of exchange for the price – the
bill remaining unpaid Hickman brought an action against the trustees including
Cox for the price – it was held that although the creditors were sharing
profits and the business was being managed by the trustee, still the
relationship between S&S on one hand and the creditors on the other hand
was of a debtor & creditor and not that of partnership hence they
(including Cox) could not be made liable – further trustees were mere agents of
S&S and were not principals hence there was no mutual agency – S & S
were principles hence business still belonged to S&S and not to trustees
(14) Mollow, March & Co v. The Court of Wards
(1872) L.R. 4 P.C. 419
Hindu Raja advanced large sums of money to British
firm – Raja was given extensive powers of control over business and he was to
get commission on profits until the repayment of his loan with 12% interest
thereon. – Firm entered into contract with Mollow, March & Co but failed to
fulfill its contract – company sued both firm & Raja, taking them to be
partners on the ground of participation in the net profits of business – court
observed that the whole scope of the agreement and all its terms ought to be
looked at before any presumption of intention of partnership be made. – As in
Cox v Hickman the real objective here was to give Raja a security for the
credit extended by him to the firm, therefore no intent to create a partnership
– Partnership requires a community of interest and not a conflict of them – the
interest of the firm and that of the Raja were at conflict and provisions of
the agreement were designed to protect the Raja’s interest – Court observed
even when parties call themselves partners in agreement between them, this does
not constitute a partnership if the true relation is not that of partners – powers
of Raja of control only (not initiative powers)
(15) Abdul Latiff v. Gopeswar Chattoraj, AIR 1933 Cal
204: 141 I.C. 225
Plaintiff undertook contract under a company &
appointed defendant to manage the business – the defendant could receive
advances from the company and make advances from his own pocket whenever
necessary, he was to keep proper accounts of income and expenditure and would
be liable to all losses on account of his negligent work and was entitled to
3/4th of the profits – plaintiff sued defendant for an account of
the work done by him as if the defendant were his agent whereas the defendant
contended that it was a case of partnership and the suit should have been
differently instituted – court had to check whether partnership or simple
agency – court obsrvd à thin line of distinction between partnership and
agency – especially when remuneration is sharing of profits – discussion on the
words partnership in agreement – share p/l in agreement is partnership even
though a partner can indemnify another partner against losses – court
emphasized even when losses are shared the agreement can still provide that a
partnership was not intended.
Court held that if above principle was to be applied
it would be a partnership – but a more certain test is to find out whether not
only there is a common business but a common interest of all parties in it or
whether common business was to be carried on by the defendant on behalf of the
plaintiff so that the plaintiff could be regarded as principal.
Quite true that for a partnership joint stock or
capital not essential – Present case business belonged to the plaintiff –decision
making power also belonged to the plaintiff – no mutual agency – no position of
partner – hence defendant an agent and not a partner
(16) Holme v. Hammond (1872) 7 Ex. 218 : 41 L.J. Ex.
157
5 persons entered into partnership – decided to carry
on business for 7 years – on death agreed to pay share of deceased to their
executers – the plaintiff sued the executors of the deceased to make them
liable in respect of a contract entered into by the surviving parties after
death of deceased – Court held no agreement expressed or implied between
executors and partners which is essential for a partnership – executors do not
become partners by merely receiving profits – no evidence of contract of
partnership between executors & partners – no mutual agency between them –
Hence executors not liable.
(17) Badri Parshad v. Nagarmal, AIR 1959 SC 559
Illegal association – 25 cloth dealers formed an
association to collect and sell a quota, the plaintiff members charged the
defendant for not giving account of some month – Defendant contended that
association ws illegal – violated S4(2) of Rewa State Companies Act (now S11 of
the Companies Act) – plaintiff contended that objects of association were not
illegal – moreover association being dissolved the recovery should be allowed
in the manner of realization of the assets of a dissolved firm – in other words
they had a right to bring a suit for accounts of dissolved association, even
though association was illegal as u/s 69 of partnership act accounts could be
sought of an unregistered firm – Court held such a claim is clearly untenable –
reliefs asked by the plaintiff implied a recognition by the court that a legal
association existed of which accounts ought to be taken – When association
itself is illegal then getting its accounts would mean enforcing of an illegal
contract of partnership – Partnership analogy was rejected – Court also held
that unregistered partnership was not illegal
(18) Narayanlal Bansilal Pittie v. Tarabai Motilal
(1970) 3 SCC 293
NBP Son in law of TM(a widow) – TM carried on
business in cotton, cotton seed in name of Narayandas Chunilal in Bombay &
Jalna – TM instituted suit against NBP alleging she, NBP & Chogmal entered
into partnership to carry on business at Jalna in cotton for a period of 5 years
(Samvat years 1982 to 86) – demanded 2,84,308/- as her share – NBP through
written statement denied partnership agreement for 5yrs as alleged by TM – she
accepted NBPs case that the original agreement was for one year and that it was
extended for another year- she alleged at the end of two years it was agreed
b/w the three partners to extend partnership for 3 years – Issue whether
partnership agreement which was by mutual consent extended by 3 years – No
evidence to prove that partnership was extended – Infact NBP had sent letter
complaining that TM had not submitted accounts of partnership and expressed
desire to end the partnership– only oral evidence as witness – Reversed HC
decision – held no proof of extension of partnership
(19) Uduman v. Aslum, AIR 1991 SC 1020
Partnership of appellant, respondent and their father
was constituted as per French Law – Business carried on – By relinquishment
deed father retired from business – Misunderstanding arose after sometime and
respondents laid suit for dissolution of partnership and for accounting etc –
it is the respondents case that the partnership is at will and the partnership
stood dissolved at the date of receipt of notice by the appellants – Appellants
contended that the partnership is not at will – Court held that – settled
cannon that contract of the partnership must be read as a whole – intention of
the partners must be gauged - Clause (5) of the contract manifests the
intention of the partners that
partnership will not dissolve so long as there are two partners – although a
partner may withdraw himself from the partnership and terminate the legal
relationship between himself and other partners the partnership will continue
as long as there are two or more partners – given principle applies to death of
a partner – Court held that the duration of partnership is mentioned in the
partnership deed namely that the partnership will continue till the time there
are two partners hence it is not a partnership at will
(20) Chandrika Prasad Agarwal v. Vishnu Chandra, 1981
All LJ 967
Issue: Whether partnership at will or for a fixed
duration?
Facts: Clause 7 of agreement – incase of death
partnership will not dissolve but nominee of deceased to replace
Clause 18 – one month notice if anyone wants to
separate – Clause 20 Non withdrawal of
capital for 1 year – Clause 20 amended : non withdrawal till bank loan not paid
off –
Court Obsrvd: Partnership agreement contemplates
partnership to be indefinite until all partners agree to dissolve – Clause 7 à
non dissolution on death, contingency against S42(c) of the partnership act –
in the instrument in question remaining partners can expel a partner if
unanimous – Clause 18 is thus a provision made by contract between the parties
for the non determination of the partnership between all the partners at the
instance of one partner only
Further Clause 20 of the partnership fixes minimum
duration at 1 yr, amended Cl 20 à bank loan not repayed hence not a partnership at
will
(21) Gherulal Parakh v. Mahadevdas Maiya, AIR 1959 SC
781
The question for determination in this appeal was
whether an agreement of partnership with the object of entering into wagering transactions was illegal
within the meaning of s. 23 of the Indian Contract Act. The appellant and the
respondent No. 1 entered into a partnership with the object of entering into
forward contracts for the purchase and sale of wheat with two other firms and
the agreement between them was that the respondent would enter into the
contracts on behalf of the partnership and the profit or loss would be shared
by the parties equally. The transactions resulted in loss and the respondent
paid the entire amount due to the third parties. On the appellant denying his liability for the half of
the loss, the respondent sued him
for the recovery of the same and
his defence, inter alia, was that the agreement to enter into the wagering
contracts was unlawful under
s. 23 Of the Contract Act. The trial Court dismissed the suit. The High Court
on appeal held that though the wagering
contracts were void under s. 30 of the Indian Contract Act, the object of the
partnership was not unlawful within the meaning of the Act and decreed the
suit. It was contended on behalf of the appellant (1) that a wagering contract
being void under S. 30 Of the
Contract Act, was also forbidden by law within the meaning of S.23 Of the Act,
that
(2) the concept of public policy was very
comprehensive in India since the
independence, and such a contract would be against public Policy,
(3) that wagering contracts were illegal under the
Hindu Law and (4) that they were immoral, tested by the Hindu Law doctrine of
pious obligation of sons to discharge the father's debts.
Held that the contentions raised were unsustainable
in law and must be negatived.
Although a wagering contract was void and
unenforceable under S. 30 Of the Contract Act, it was not forbidden by law and
an agreement collateral to such a contract was not unlawful within the meaning
of s. 23 Of the Contract Act. A partnership with the object of carrying on
wagering transactions was not, therefore, hit by that section.
Topic 2 - Relation of one partner to One Another
General duties of partners (S9 IPA);
Section 9. GENERAL DUTIES OF PARTNERS.
Partners are bound to carry on the business of the
firm to 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, his heir or legal representative.
Duty to indemnify for loss caused by fraud (S10);
S10 Duty 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.
Determination of rights & duties of partners by
contract between the partners (S11);
Sectionn 11
(1) Subject to the provisions of this 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 express 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 express or may be implied by a course of
dealing.
(2) AGREEMENTS IN RESTRAINT OF TRADE.
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 conduct of the business (S12);
Section 12. THE CONDUCT OF THE BUSINESS.
Subject to contract between the partners -
(a) every partner has a right to take part in the
conduct of the business;
(b) every partner is bound to attend diligently to
his duties in the conduct of the business;
(c) 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;
(d) every partner has a right to have access to and
to inspect and copy any of the books of the firm;
(e) in the event of the death of a partner, his heirs
or legal representatives or their duly authorised agents shall have a right of
access to and to inspect and copy any of the books of the firm.
Mutual Rights & Liabilities (S13);
Section 13. MUTUAL RIGHT AND LIABILITIES.
Subject to contract between the partners -
(a) a partner is not entitled to receive remuneration
for taking part in the conduct of the business;
(b) the partners are entitled to share equally in the
profits earned, and shall contribute equally to the losses sustained by the
firm;
(c) where a partner is entitled to interest on the
capital subscribed by him, such interest shall be payable only out of profits;
(d) a partner making, for the purposes of the
business, any payment or advance beyond the amount of capital he has agreed to
subscribe, is entitled to interest thereon at the rate of six per cent. per annum;
(e) the firm shall indemnify a partner in respect of
payments made and liabilities incurred by him
(i) in the
ordinary and proper conduct of the business; and
(ii) in doing
such act, in an emergency, for the purpose of protecting the firm from loss, as
would be done by a person of ordinary prudence, in his own case, under similar
circumstances; and
(f) a partner shall indemnify the firm for any loss
caused to it by his willful neglect in the conduct of the business of the firm.
The property of the firm (S14);
Section 14. THE PROPERTY OF THE FIRM.
Subject to contract between the partners, the
property of the firm includes all property and rights and interest in property
originally brought into the stock of the firm, or acquired, by purchase or
otherwise, by or for the firm for the purposes and in the course of the
business of the firm, and includes also the goodwill of the business.
Unless the contrary intention appears, property and
rights and interest in property acquired with money belonging to the firm are
deemed to have been acquired for the firm.
Application of the property of the firm (S15);
Section 15 Application of the property of the firm
Subject to the contract between the partners, the
property of the firm shall be held and used by the partners exclusively for the
purposes of the business.
Personal profits earned by partners (S16);
Section 16 Personal profits earned by partners
Subject to the contract between the partners, -
(a) if a
partner derives any profits for himself from any transaction of the firm, or
from the use of the property or business connection of the firm or the
firm-name, he shall account for that profit and pay it to the firm;
(b) if a
partner carries on any business of the same nature as and competing with that
of the firm, he shall account for and pay to the firm all profits made by him
in that business.
Rights & Duties of the partners (S17);
Section 17 Rights & Duties of Partners
Subject to contract between the partners, -
(a) where a change occurs in the constitution of a
firm, the mutual rights and duties of the partners in the reconstituted firm
remain the same as they were immediately before the change, as far as may be;
(b) AFTER THE EXPIRY OF THE TERM OF THE FIRM.
where a firm constituted for a fixed term continues
to carry on business after the expiry of that term, the mutual rights and
duties of the partners remain the same as they were before the expiry, and so
far as they may be consistent with the incidents of partnership-at-will; and
(c) WHERE ADDITIONAL UNDERTAKINGS ARE CARRIED OUT.
where a firm constituted to carry out one or more
adventures or undertakings carries out other adventures or undertakings, the
mutual rights and duties of the partners in respect of the other adventures or
undertakings are the same as those in respect of the original adventures or
undertakings.
(22) Chennuru Gavaraju Chetty v. Chennuru
Sitaramurthy Chetty, AIR 1959 SC 109
Whether benefits of renewal of a lease is to be
treated as a partnership property – Court observed that the general duty of
good faith requires partners to renew a lease of the firm only in favor. It has
been decided more than once that if one partner obtains in his own name, either
during the partner or before its assets have been sold a renewal of a lease of
immovable property, he will not be allowed to treat this renewed lease of
immovable property as his own and as one in which not clandestine(hidden) but
open. In Halsbury is stated thus: The renewal of a lease of the partnership
property by one or more of the partners without the privity of the others
ensures for the benefit of all.
Supreme Court however observed: The law will not
however prevent a partner from acquiring personal interest in something which
formerly belonged to the firm where it is not inequitable for him to do so.
There is no irrefutable presumption of law that a renewal of a lease belonging
to a partnership by one of the partners ensures to the benefit of all the
partners. A partner no doubt occupies a fiduciary position in relation to other
partners in firm’s affair, but he does not suffer from an absolute disability
by virtue of his position to acquire any benefit or advantage for himself in
any circumstances. There may be cases when a partner during the continuance of
a partnership can acquire a new lease to himself (though not as a partner but
in his personal capacity) without the new lease being held to be for the
benefit of the partnership. Thus there is a presumption of fact as
distinguished from a presumption of law, that there is such equity. But
presumption of fact is rebuttable and must depend upon the facts and
circumstances of the case.
Held: In the instant case, the facts that. the parties deliberately chose to fix the term of
the partnership as conterminous with the term of the lease and licence ending with the year 1942;
that they did not, in express
terms, or by necessary implication, make any provision for extending the period
of the partnership or for obtaining renewal of the lease and the necessary licence; that there was no averment
or proof of any clandestine acts
on the part of the contesting defendants in the matter of obtaining the renewal of the lease; that the
plaintiffs themselves made attempts, though unsuccessful, to get themselves included in the category of grantees
at the time of the renewal
of the lease ; that the special nature of the business required personal
efficiency and good conduct on
the part of the actual managing agents; that no funds of the expiring
partnership or any goodwill of the partnership
was utilized for obtaining the fresh lease; that the fresh lease and licence
were granted to the contesting defendants in consideration of their personal
qualities of good management and good conduct; that the parties were not on the
best of terms during the last few years of the partnership, and finally, that the lease and the permanent licence were actually granted after the
partnership stood automatically dissolved at
the end of 1942, are all facts and circumstances which point to only one conclusion, namely, that the renewal of the
lease was not intended to be for the benefit
of all the quondam partners. Those facts
and circumstances amply rebut any presumption of fact that the lease should enure to the benefit of
all the parties. For the reasons given above, it must be held that
the judgment and decree passed by the High Court, in so far as they reverse
those of the trial court, are erroneous,
and must be set aside. The appeal is, accordingly, allowed with costs
throughout, which are attributable to the single issue which has been decided
in this Court.
Appeal allowed.
(23) Miles v. Clarke (1953) 1 All ER 779
Clarke carried on business as a photographer at
premises of which he owned the lease for seven years from 1948. In 1950 he and
Miles, who was a freelance photographer entered into partnership by which all
the profits were to be shared equally. Miles brought with him his personal
connection. The partners quarreled, and a dispute arose as to whether the
following items constituted partnership property;
(i) the consumable stock-in-trade
(ii) the personal connection brought in by each
partner
(iii) the lease of the premises
(iv) the furniture, fittings and equipment of the
studios.
It was held by the Chancery Division that no more
agreement between the parties should be supposed that was absolutely necessary
to give business efficacy to the relationship between the parties. Accordingly,
since the only agreement was as to the share of the profits only the consumable
stock-in-trade should be regarded as partnership property.
(24) Arjun Kanoji Tankar v. Santram Kanoji Tankar
(1969) 3 SCC 555
Defendant started the printing business and built up
certain assets including certain immovable properties. Later he admitted his
brother into partnership with him on certain terms, one of them being that they
would have equal share in profits, losses and all assets and properties of the
business. They could not pull on together and the question arose whether the
properties acquired earlier to the admission had also become the firm’s assets?
Apex Court held that this was not the case. SC observed there was no agreement that
the properties brought in by the partner when he established the partnership
with his brother, that he would surrender his ownership to the firm and there
is no rule of law that whatever is brought by a partner in the partnership and
is continued to be used by the members necessarily becomes the partnership
property.
(25) ARM Group Enterprises Ltd. v. Waldorf Restaurant
(2003) 6 SCC 423
Facts: Under the terms of a compromise decree between
the appellant (the landlord) and the tenant Allenberry & Co(Respondent 3)
the latter has vacated the suit premises. In the (suit) leased premises a well
known restaurant in the trade name of “Waldorf Restaurant” is being run by
registered partnership firm of that name (Respondent 1). The firm in assertion
of its claim to the status of sub-tenant has been successful for the past 45
years in resisting the executing of the decree against it. It may be noted that
the tenant Allenberry & Co had sublet the suit premises to the sole
proprietor of Waldorf Restaurant who later on formed a partnership firm(
registered in same trade name) and thus became a partner along with other new
partners in that firm. However the Waldorf became a partnership only after the
surrender of tenancy by the tenant.
Issue: Whether the respondent firm can claim status
of sub-tenant and seek protection against eviction in execution of the
compromise decree obtained against the tenant Allenberry & Co?
Observations: Under Section 14 of the Partnership Act
1932, property exclusively belonging to a person, in the presence of an
agreement to the contrary, does not, on the person entering into partnership
with others, became a property of the partnership merely because it is used for
the business of the partnership. Such property will become property of the
partnership only if there is an agreement - express or implied- that the
property was, under the agreement of the partnership, to be treated as the
property of the partnership. In the present case, in the absence of the
partnership agreement to which the proprietor was a party it is not
ascertainable whether tenanted premises were assets brought into the business
of the firm by the erstwhile sole proprietor.
Waldorf Restaurant is merely a trade name and is not
a legal entity. The legal entity or the legal persons are the proprietor of the
partnership firm.
Held that after the tenant Allenberry & Co.
surrendered the tenancy and Eng Chick Wong as the sole proprietor of the
proprietary concern Waldorf Restaurant who was sub-let into the premises prior
to the surrender of tenancy had already vacated the premises and left India,
the present firm and its partners with whom the possession of the leased
premises were left have to vacate the premises on extinguishment of the rights
of the tenants and the sub-tenants the impugned judgment of the Division Bench
thus deserves to be set aside and that of the learned Single Judge is restored.
(26) Gattulal v. Gulab Singh, AIR 1985 SC 547
One Gattulal entered into partnership with Jagdeo
Singh. Later J Singh assumed an exclusive control and excluded Gattu. Gattu
entered into a sub partnership with Gulab Singh on the condition that if latter
refused to supply funds Gattulal had the right to break partnership. Also Gulab
Singh was to bear all expenses if Gattu decided to take legal action against
Jagdeo Singh. However Gulab Singh did not provide any funds and instead adopted
a non-cooperative attitude while Gattu was proceeding with the legal action out
of his own funds. Gattu obtained a money decree . Gulab Singh claimed a share
in the decreed amount. Held that he was not entitled to claim such share as he
had abandoned his rights, as showed by his conduct of non-cooperation.
Court quoted Lindley: Independently of the Statutes
of Limitation, a plaintiff may be precluded by his own laches from obtaining
equitable relief. Laches pre-supposes not only lapse of time, but also the
existence of circumstances which render it unjust to give relief to the
plaintiff; and unless reasonable vigilance is shown in the prosecution of a
claim to equitable relief, the Court, acting on the maxim vigilanti-bus non
dormientibus subveniunt leges, will decline to interfere.
The doctrine of laches is of great importance where
persons have agreed to become partners, and one of them has unfairly left the
other to do all the work, and then, there being a profit, comes forward and
claims a share of it. In such cases as these, the plain- ; tiff's conduct lays
him open to the remark that nothing would have been heard of him had the joint
adventure ended in loss instead of gain; and a court will not aid those who can
be shown to have remained quiet in the hope of being able to evade responsibility
in case of loss, but of being able to claim a share of gain in case of ultimate
success.
(27) Lachhman Das v.
M.T. Gulab Devi, AIR 1936 All. 271
Members of HJF effected partition, but agreed to
continue the business of the family by way of partnership. Some variance was
made in their respective share in the business but none in their shares in the
property, except that they were to have equal shares in any property which they
might later acquire. A partner died and the partnership was dissolved; his heir
did not institute any suit for an account and a share of the profits of
dissolved partnership but for the paritition of certain properties(as inherited
from the deceased partner). The question was whether the properties were of a
partnership or of a HJF?
Court observed: Whether it is or is not depends upon
the agreement (express or implied) between the partners. In present case the
question was whether it was the intention of the members that properties in
existence at the time of partition should become partnership property or that
it should be regarded as JF property apart from partnership and should be used
only so far as necessary for purpose of partnership.
Court held that because certain partners jointly own
immovable property which was used for the purpose of partnership business , it
does not necessarily follow that the property is partnership property. If two
brothers jointly inherit a house and thereafter set up a business in the house
in partnership, it could not be inferred that they were intending to transfer
their shares in the house to the partnership business. Thus a mere use of a
property for its business does not make the property as belonging to the
partnership. In the present case the fact that the shares in properties were
not varied whereas the shares in business itself were varied, is a strong
evidence of the fact that they did not intend the property to be treated as an
asset of the partnership. Moreover the value of the property does not appear
nowhere in the accounts of the firm as an asset of the firm.
(28) Shashi Kapila v. R.P. Ashwin (2002) 1 SCC 583
Tenant tried to resist evacuation suit by insisting
that landlord was part of a partnership agreement of which he too was one of
the partners. And in the agreement the landlord had agreed to sell of the said
property within 3months for Rs 12 lac of which Rs 1 lac was already received by
the landlord. Rent control court did not accept the above contention of the
appellants counsel that tenant was possession of the property not as a tenant
but as a partner. The partnership agreement showed no evidence that the
landlord was a partner in the same firm as the appellant. Also the court
observed that the mere fact that the partner has agreed to include himself as a
partner in a firm will not result in incorporation of all his individual
properties as the assets of the partnership. Dismissed appeal gave appellant 6
months extension to vacate premises on the condition that he give a written
declaration to the landlord that he will vacate the premises on the end of 6
months failing which the benefit of the extension will not be provided.
(29) Trimble v. Goldberg (1906) AC 494 (PC)
Two partners of a partnership of three which was
formed to purchase and resale certain properties of a gentleman called Hallard
consisting of 5,500 shares in a company called Sigma Syndicate and of 'stands
or plots of land, purchased other stands belonging to the Syndicate and made
profits, and the question arose whether these other stands purchased by the two
partners were partnership property in which their third partner was entitled to
benefit, and the Privy Council held that as the purchase was not within the
scope of the partnership and as the subject of the purchase was not a part of
the business of the partnership, or an undertaking in rivalry with the
partnership, or indeed connected with it in any proper sense, the property
could not be regarded as partnership property.
(30) Pulin Bihari Roy v. Mahendra Chandra Ghosal, AIR
1921 Cal. 72
A partnership was entered into for the business of
importing salt into India and for re-selling the same in Chittagong. One of the
partners in the course of the operations bought some quantity of salt for
himself and re-sold the some on his own account. The Calcutta High Court held
that the partner was liable to account for this profit to his co-partners, as
the opportunity to make such a profit came his way while he was on the business
of this firm.
Topic 3 - Relations of Partners to 3rd Parties
Partners to be agent of the firm (S18);
Section 18 Partners to be agents of the firm
Subject to the provisions of this Act, a partner is
the agent of the firm for the purposes of the business of the firm.
Implied authority of partner as agent of the firm
(S19);
Section 19 Implied authority of partner as agent of
the firm
(1) Subject to the provisions of section 22, the act
of a partner which is done to carry on, in the usual way, business of the kind
carried on by the firm, binds the firm.
The authority of a partner to bind the firm conferred
by this section is called his "implied authority".
(2) In the absence of any usage or custom of trade to
the contrary, the implied authority of a partner does not empower him to -
(a) submit a dispute relating to the business of the
firm to arbitration,
(b) open a banking account on behalf of the firm in
his own name,
(c) compromise or relinquish any claim or portion of
a claim by the firm,
(d) withdraw a suit or proceeding filed on behalf of
the firm,
(e) admit any liability in a suit or proceeding against
the firm,
(f) acquire immovable property on behalf of the firm,
(g) transfer immovable property belonging to the
firm, or
(h) enter into partnership on behalf of the firm.
Extension and Restriction of partner's implied
authority (S20);
Section 20 Extension & Restriction of partner’s
implied authority
The partners in a firm may, by contract between the
partners, extend or restrict the implied authority of any partner.
Notwithstanding any such restriction, any act
done by a partner on behalf of the firm which falls within his implied
authority binds the firm, unless the person with whom he is dealing knows of
the restriction or does not know or believe that partner to be a partner.
Partner's authority in an emergency (S21);
Section 21 Partner’s authority in an emergency
A partner has authority, in an emergency, to do all
such acts for the purpose of protecting the firm from loss as would be done by
a person of ordinary prudence, in his own case, acting under similar
circumstances, and such acts bind the firm.
Mode of doing act to bind firm (S22);
Section 22. MODE OF DOING ACT TO BIND FIRM.
In order to bind a firm, an act or instrument done or
executed by a partner or other person on behalf of the firm shall be done or
executed in the firm-name, or in any other manner expressing or implying an
intention to bind the firm.
Effect of admission by a partner (S23);
Section 23. EFFECT OF ADMISSION BY A PARTNER.
An admission or representation made by a partner
concerning the affairs of the firm is evidence against the firm, it is made in
the ordinary course of business.
Effect of notice to acting partner (S24);
Section 24. EFFECT OF NOTICE TO ACTING PARTNER.
Notice to a partner who habitually acts in the
business of the firm of any matter relating to the affairs of the firm operates
as notice to the firm, except in the case of a fraud on the firm committed by
or with the consent of that partner.
Liability of partner for acts in a firm (S25);
Section 25. LIABILITY OF A PARTNER FOR ACTS OF THE
FIRM.
Every partner is liable jointly with all the other
partners and also severally, for all acts of the firm done while he is a
partner.
Liability of the firm for wrongful acts of a partner
(S26);
Section 26. LIABILITY OF THE FIRM FOR WRONGFUL ACTS
OF A PARTNER.
Where, by the wrongful act or omission of a partner
acting in the ordinary course of the business of a firm or with the authority
of his partners, loss or injury is caused to any third party, or any penalty is
incurred, the firm is liable therefore to the same extent as the partner.
Liability of firm for misapplication by partners
(S27);
Section 27. LIABILITY OF FIRM FOR MISAPPLICATION BY
PARTNERS.
Where -
(a) a partner acting within his apparent authority
receives money or property from a third party and misapplies it, or
(b) a firm in the course of its business receives
money or property from a third party, and the money or property is misapplied
by any of the partners while it is in the custody of the firm, the firm is
liable to make good the loss.
Holding out (S28);
(1) Anyone who
by words spoken or written or by conduct represent himself, or knowingly
permits himself to be represented, to be a partner in a firm, is liable as a
partner in that firm to anyone who has on the faith of any such representation
given credit to the firm, whether the person representing himself or
represented to be a partner does or does not know that the representation has
reached the person so giving credit.
(2) Where after partner's death the business
continued in the old firm-name, the continued use of that name or of the
deceased partner's name as a part thereof shall not of itself make his legal
representative or his estate liable for any act of the firm done after his
death.
Rights of transferee or a partner's interest (S29);
(1) A transfer by a partner of his interest in the
firm, either absolute or by mortgage, or, by the creation by him of a charge on
such interest, does not entitle the transferee, during the continuance of the
firm, to interfere in the conduct of the business or to require accounts or to
inspect the books of the firm, but entitles the transferee only to receive the
share of profits of the transferring partner, and the transferee shall accept
the account of profits agreed to by the partners.
(2) If the firm is dissolved or if the transferring
partner ceases to be a partner, the transferee is entitled as against the
remaining partners, to receive the share of the assets of the firm to which the
transferring partner is entitled and, for the purpose of ascertaining that
share, to an account as from the date of the dissolution.
Minors admitted to the benefits of partnership (S30);
(1) A person who is a minor according to the law to
which he is subject may not be a partner in a firm, but, with the consent of
all the partners for the time being, he may be admitted to the benefits of
partnership.
(2) Such minor has a right to such share of the
property and of the profits of the firm as may be agreed upon, and he may have
access to and inspect and copy any of the accounts of the firm.
(3) Such minor's share is liable for the acts of the
firm but the minor is not personally liable for any such act.
(4) Such minor may not sue the partners for an
account or payment of his share of the property or profits of the firm, save
when severing his connection with the firm, and in such case the amount of his
share shall be determined by a valuation made as far as possible in accordance
with the rules contained in section 48 :
Provided that all the partners acting together or any
partner entitled to dissolve the firm upon notice to other partners may elect
in such suit to dissolve the firm, and thereupon the Court shall proceed with
the suit as one for dissolution and for settling accounts between the partners
and the amount of the share of the minor shall be determined along with the
shares of the partners.
(5) At any time within six months of his attaining
majority, or of his obtaining knowledge that he had been admitted to the
benefits of partnership, whichever date is later, such person may give public
notice that he has elected to become or that he has elected not to become a
partner in the firm, and such notice shall determine his position as regards
the firm :
Provided that, if he fails to give such notice, he
shall become a partner in the firm on the expiry of the said six months.
(6) Where any person has been admitted as a minor to
the benefits of partnership in a firm, the burden of proving the fact that such
person had no knowledge of such admission until a particular date after the
expiry of six months of his attaining majority shall lie on the person
asserting that fact.
(7) Where such person becomes a partner -
(a) his rights and liabilities as a minor continue
upto the date on which he becomes a partner, but he also becomes personally
liable to third parties for all acts of the firm done since he was admitted to
the benefits of partnership, and
(b) his share in the property and profits of the firm
shall be the share to which he was entitled as a minor.
(8) Where such person elects not be to become a
partner, -
(a) his rights and liabilities shall continue to be
those of a minor under the section upto the date on which he gives public
notice;
(b) his share shall not be liable for any acts for
the firm done after the date of the notice; and
(c) he shall be entitled to sue the partners for his
share of the property and profits in accordance with sub-section (4).
(9) Nothing in sub-sections (7) and (8) shall affect
the provisions of section 28.
(31) Holme v. Hammond (1872) L.R. 7 Ex. 218: 41 L.J.
Ex. 157
5 persons entered into partnership for 7 years and
agreed to share the profits and losses equally – further agreed if any one of
them died before the expiry of the said period of 7 years the others would
continue the business and pay the share of the profits of the deceased to his
executors. On the death of one of the partners the survivors continued the
business – The executors of the deceased who did not take any part in the
management of the business were paid 1/5th share of the profits made
since the death of the deceased partner. The plaintiff sued the executors of
the deceased to make them liable in respect of a contract entered into by the
surviving partners after the death of the deceased.
Court held that in order to constitute partnership
there must be an agreement express or implied. In the absence of it the
executors cannot said to have become partners, merely by receiving profits. No
evidence to establish contract of partnership between the executors and the
surviving partners. No mutual agency between them. Hence executors could not be
made liable.
(32) Rhodes v. Moules (1895) 1 Ch. 236 (CA)
- Rew was a solicitor in a partnership with Messrs
Hughes and Masterman. Mr Rhodes was a client of the firm and the firm had acted
for him on previous occasions.
- Mr Rhodes wanted to borrow some money on a property
and asked Rew as his solicitor to assist him to affect the mortgage.
- Some clients of the firm, the Moules, were willing
to lend the money. As security for the mortgage, Mr Rhodes gave Rew some share
certificates and these were misappropriated by Rew.
- One of the questions facing the court was whether
the other two partners were liable for Rew’s actions. The court held that the
partners were jointly and severally liable for the value of the shares under
part (a) and part (b).
- The judge said that ‘the inference that the
plaintiff’s certificates were received by the firm in the course of its
business’ was justified.
(33) Hamlyn v. Houston & Co. (1903) 1 K.B. 81
Defendant’s firm consisted of two partners (1active +
1dormant)
One side of the defendant's business as grain
merchants was to obtain, by lawful means, information about its competitors'
activities. Houston, a partner in the firm, obtained confidential information
on the plaintiff Hamlyn's business by bribing one of Hamlyn's employees. Held:
The firm was liable for the loss suffered by Hamlyn. If it was within the scope
of Houston's authority to obtain the information by legitimate means, then for
the purpose of vicarious liability it was within the scope of his authority to
obtain it by illegitimate means and the firm was liable accordingly. This was
on the broad 'risk' principle: the principal having selected the agent, and
being the person who will have the benefit of his efforts if successful, it is
not unjust he should bear the risk of the agent 'exceeding his authority in
matters incidental to the doing of the acts the performance of which has been
delegated to him'. It was conceded that
a tort or even a crime may not be outside the scope of authority of a
partner or agent.
(34) Tower Cabinet Co., Ltd v. Ingram(1949) 1 KBD
1032
Facts:
Tower Cabinet sought money from Merry¶s Co. ± the
price of goods sold and delivered in January 1948
Tower Cabinet brought action against Ingram ± alleged
he was a partner of Merry
January, 1946 ± Ingram and Christmas form partnership
under name of "Merry¶s"
April, 1947 (dissolution of partnership) ± parties
agreed to dissolve partnership and Ingram gave notice to firm¶s bankers that
had ceased to be a partner
Ingram arranged with Christmas to notify those
dealing with the firm that he was no longer associated with the firm, but
Christmas did not put ad in newspaper
During 'the partnership' ± firm¶s notepaper had both
names at the top and indicated that both were partners
After 'dissolution' ± new notepaper printed and only
Christmas¶ name put on as "Director"
January, 1948 (after dissolution) ± Christmas send
order to Tower Cabinet on old note paper with both names as partners
Note: Christmas did not have Ingram¶s authority to
use paper and its use was in direct conflict with arrangements of dissolution
Tower Cabinet brought action against Ingram as a
partner of the firm
Issue: Is Ingram liable under the "holding
out" principle or as an "apparent partner" of the firm?
Decision: Ingram not liable
Ingram did not by words or spoken or written or by
conduct represent himself to be a partner of the firm
Also ± "«or who knowingly suffers himself to be
so represented" ± Ingram had NO knowledge that Christmas used the old
notepaper with his name on it
"Knowingly suffers" = does not refer to
being negligent or careless in not seeing that all the notepaper had been
destroyed when he left
RATIO: Holding out principle ± '' 'An individual will
only be deemed to be "holding out as a partner" (and therefore liable
for the partnership¶s debts/obligations) where the person "by words or
spoken or written conduct" represents himself to be a partner or "who
'''knowingly suffers'' 'himself to be so represented"
(35) Snow White Food Products Ltd v. Sohan Lal, AIR
1964 Cal. 239
Clerk of firm (Sohan Lal) entered into negotiation on
behalf of the firm with Snow White Ltd for carrying their goods. Goods were not
delivered but were wrongfully disposed off and converted to their use by Sohan
Lal. In a suit filed against the firm he denied that he had ever been a partner
of the firm.
Court however held that he held himself out as a
partner of the firm during negotiations with Snow White Ltd. He talked like a partner
one in authority and behaved so before the Snow White Ltd. Moreover the fact
that he represented the firm was also admitted by him. In various letters
written to Snow White Ltd (during negotiations) he signed the letters as if a
partner of the firm.
(36) Scarf v. Jardine (1882) 7 A.C. 345
FACTS: A firm consisted of two partners, Scarf and
Rodgers. Scarf retired and Beach joined in his place. The business was carried
on as before and no public notice about the change of partners was given to the
customers of the firm. Jardine was an old supplier to the firm. He supplied the
goods ordered without any idea about the change. He came to know about the
change when the firm failed to pay the dues and he was considering a legal
action against the firm. He preferred to sue the new firm which subsequently
went bankrupt. Then he sued the earlier partner, Scarf.
HELD: He had a right against Scarf provided he had
proceeded against the old firm and partners in the first instance itself. Now
he had acknowledged the new firm, he could not reject its identity and sue
Scarf. It was held that novation might involve either a change of parties with
the contract remaining the same or a change in the contract between the same
parties. An implied agreement is presumed from the fact that the creditor,
after the knowledge of the change, has brought a suit against the new firm.
Jardine knew of the change of the constitution of the firm when he sued and he
chose to sue the new firm. Now he could not sue the older firm for the same
cause of action as it is against principles of natural justice as well as
Partnership Act.
There are exceptions to the rule established in the
SCARF vs. JARDINE case as given below:
a) Death of
a partner constitutes sufficient notice by itself.
b) Insolvency of a partner is also sufficient
notice and attracts Section 42 of the Indian Partnership Act.
c) If one
has been a dormant or sleeping from beginning to end, notice can be dispensed
with as neither the customers nor the clients know of his participation in the
firm.
In English law, Partnership by holding out is
referred to as apparent partnership instead and the legal provisions in both
countries are very similar.
In SMITH vs. BAILEY 2 QB 432, it was decided that the
liability on the principle of Estoppel extends only on account of credit given
to the firm and not to torts or civil wrongs committed on behalf of the firm.
(37) Mathura Nath v. S Bagheshwari Rani, AIR 1928
Cal. 57
A partner hired an elephant for the purpose of
trapping wild elephants which was the business of the firm. Elephant died and
the plaintiff sued the court for recovery of penalty amount of Rs 5000 which
was agreed upon if the elephant was not returned. The court observed that
whether a firm is liable to pay money borrowed by one of its partners in its
own name is a question of fact and thus depends upon circumstances of each
case. In the present case the court held the firm liable as it was in the
course of business of the firm. The firm used to enter into similar agreements.
Court relied on the principle under Section 231,
Contract Act, the principal is as much liable for the act of the agent himself.
(38) CIT v. Dwarkadas Khetan & Co., AIR 1961 SC
680
There cannot be a partnership consisting of all
minors or of one adult and all other minors. A minor cannot even become a full
fledged partner in an existing firm. Law of partnership arises from contract.
Minor is incompetent to contract. Minor can be admitted to a benefit of
partnership but no further than that.
(39) Shivgouda Ravji Patil v. Chandrakant Neelkanth
Sadalge, AIR 1965 SC 212
A partnership firm was being run wherein one of the
partners was a minor (respondent 1) and was admitted to the benefits of the
partnership. The partnership was dissolved and subsequently the minor partner
became a major. However, he did not exercise his option to become a partner
under Section 30(5) of the Indian Partnership Act.[1] When the appellants
claimed their dues, the respondents were unable to pay them and so all three of
them were sued by the appellants for adjudicating them for being insolvent.
Issue: Is respondent 1, who did not exercise his
right to be a partner for the firm, a partner under Section 30(5) of the Indian
Partnership Act?
Judgement
Trial Court: Declared all the partners including the
minor (respondent 1) insolvent.
High Court: Respondent 1 was not a partner of the
firm.
Supreme Court
Contention [The appellants (creditor)]: Respondent 1
is a partner of the firm as he did not exercise his option not to be a partner
in the firm under Section 30(5).
Held
Under ordinary circumstances a respondent 1 would be
a partner of the firm. However, in this case he had attained majority only
after the firm had been dissolved. A minor after attaining majority cannot
elect to be a partner of a firm that does not exist. Hence Section 30 of the
Partnership Act does not apply to him.
Appeal dismissed with costs.
(40) CIT v. Shah Mohandas Sadhuram, AIR 1966 SC 15
Partnership deed executed between two adult persons,
one of whom was also signing it on behalf of two minors. All were entitled to
equal shares and the capital contribution of each was equal, but minors were
not to bear liabilities. The department disputed the validity of the firm for
IT purposes on the ground that minors were made parties to contract by the
eldest brother acting on their behalf. It was held that as long as a
partnership deed does not make minor a full partner it can’t be regarded as
invalid on the ground that a guardian has purported to contract on behalf of a
minor.
The partnership deed must be construed reasonably.
The recital set out above expressly states that it is the major members who had
decided' to constitute the partnership and admit the minors to the benefits of
the said partnership, The rest of the clauses must be construed in the light of
this recital. Clause 4 only states the
business to be carried on and the name of the business. It seems to us that the
expression 'it has been agreed between us' has reference to the agreement
mentioned in the recital. Regarding clause 7, which deals with capital contribution,
it is urged that a guardian is not entitled to agree to contribute capital. We
are unable to agree. If it is one of the terms on which benefits of partnership
are being conferred either the guardian must refuse to accept the benefits or
he must accept this term. In some cases such an agreement by a guardian may be
avoided by the minor, if it was not entered into for his benefit, but the
agreement will remain valid as long as it is not avoided by the minor.
it is necessary to consider what are the incidents
and true nature of 'benefits of
partnership' and what is a guardian of a minor competent to do on behalf of a
minor to secure the full benefits of partnership tO a minor. First it is clear
from sub-s.(2) of s. 30 of the Partnership Act that a minor cannot be made
liable for losses. Secondly, s. 30, sub. s (4) enables a minor to sever his
connection with the firm and if he does so, the amount of his share has to be
determined by evaluation made, as far as possible, in accordance with the rules
contained in s. 48, which section visualises capital having been contributed by
partners. There is no difficulty in holding that this severance may be effected
on behalf of a minor by his guardian. Therefore, sub-s.(4) contemplates that capital may have been contributed on behalf of a minor and that a
guardian may on behalf of a minor sever his connection with the firm. If the
guardian is entitled to sever the minor's connection with the firm, he must
also be held to be entitled to refuse to accept the
benefits of partnership or agree to accept the benefits of partnership for a
further period on terms which are in accordance with law. Sub-Section (5)
proceeds on the basis that the minor may or may not know that he has been admitted to the benefits of partnership.
This sub-section enables him to elect, on attaining majority, either to remain
a partner or not to become a partner in the firm. Thus it contemplates that a
guardian may have accepted the benefits of a partnership on behalf of a minor
without his knowledge. If a guardian can accept benefits of partnership on
behalf of a minor he must have the power to scrutinize the terms on which such
benefits are received by the minor. He must also have the power to accept the
conditions on which the benefits of partnership are being conferred. It appears
to us that the guardian can do all that is necessary to effectuate the
conferment and receipt of the benefits of partnership.
Referred to case of CIT v Shah Jethaji Phulchand
where HC in its decision observed that an instrument of partnership entered
into between persons, some of whom are by law incompetent to ontract, as might
happen if one of them is a minor, is not necessarily null and void, and in a case
like the present one, where the execution of the instrument of partnership on
behalf of a minor by his
guardian was for the purpose of admitting the minor to the benefits of
partnership, no question of the invalidity of the instrument can properly
arise".
Held in the present case the deed valid as it didn’t
make minors full partners and only admitted them to the benefits.
Topic 4 - Incoming & Outgoing Partners
Introduction of a partner(S31);
(1) Subject to contract between the partners and to
the provisions of section 30, no person shall be introduced as a partner into a
firm without the consent of all the existing partners.
(2) Subject to the provisions of section 80, a person
who is introduced as a partner into a firm does not thereby become liable for
any act of the firm done before he became a partner.
Retirement of a partner (S32);
(1) A partner may retire -
(a) with the consent of all the otter partners,
(b) in accordance with an express agreement by the
partners, or
(c) where the partnership is at will, by giving
notice in writing to all the other partners of his intention to retire.
(2) A retiring partner may be discharged from any
liability to any third party for acts of the firm done before his retirement by
an agreement made by him with such third party and the partners of the
reconstituted firm, and such agreement may be implied by a course of dealing
between such third party and the reconstituted firm after he had knowledge of
the retirement.
(3) Notwithstanding the retirement of a partner from
a firm, he and the partners continue to be liable as partners to third parties
for any act done by any of them which would have been an act of the firm if
done before the retirement, until public notice is given of the retirement
Provided that a retired partner is not liable to any
third party who deals with the firm without knowing that he was a party.
(4) Notices under sub-section (3) may be given by the
retired partner or by any partner of the reconstituted firm.
Expulsion of partners (S 33);
(1) A partner may not be expelled from a firm by any
majority of the partners, save in the exercise in good faith or powers
conferred by contract between the partners.
(2) The provisions of sub-sections (2), (3) and (4)
of section 32 shall apply to an expelled partner as if he were a retired
partner.
S34 INSOLVENCY OF A PARTNER
(1) Where a partner in a firm is adjudicated an
insolvent, he ceases to be a partner on the date on which the order of
adjudication is made, whether or not the firm is thereby dissolved.
(2) Where under a contract between the partners the
firm is not dissolved by the adjudication of a partner as an insolvent, the
estate of a partner so adjudicated is not liable for any act of the firm and
the firm is not liable for any act of the insolvent, done after the date on
which the order of adjudication is made.
Insolvency of a partner liability of estate of
deceased partner (S 35);
Where under a contract between the partners the firm
is not dissolved by the death of a partner, the estate of a deceased partner is
not liable for any act of the firm done after his death
Rights of outgoing partner in certain cases to share
subsequent profits (S 37);
Where any member of a firm has died or otherwise
ceased to be a partner, and the surviving or continuing partners carry on the
business of the firm with the property of the firm without any final settlement
of accounts as between them and the outgoing partner or his estate, then, in
the absence of a contract to the contrary, the outgoing partner or his estate
is entitled at the option of himself or his representatives to such share of
the profits made since he ceased to be a partner as may be attributable to the
use of his share of the property of the firm or to interest at the rate of six
per cent. per annum on the amount of his share in the property of the firm :
Provided that where by contract between the partners
an option is given to surviving or continuing partners to purchase the interest
of a deceased or outgoing partner, and that option is duly exercised, the
estate of the deceased partner, or the outgoing partner of his estate, as the
case may be, is not entitled to any further or other share of profits, but if
any partner assuming to act in exercise of the option does not in all material
respects comply with the terms thereof, he is liable to account under the
foregoing provisions of this section.
Revocation of continuing guarantee by change in firm
(S38);
A continuing guarantee given to a firm, or to a third
party in respect of the transactions of a firm, is in the absence of agreement
to the contrary, revoked as to future transactions from the date of any change
in the constitution of the firm.
(41) Syndicate Bank v. R.S.R. Engg Works (2003) 6 SCC
265
The plaintiff appellant filed two suit against the
respondents. First respondent in both the suits is a partnership firm engaged
in engineering works. Respondent Nos. 2 to 4 are its partners. In the first
suit, O.S. No. 1921/80 hich was filed for recovery of Rs. 59,775.95 with
interest thereon, the plaintiff alleged that for the purpose of expansion of
industry of the respondent, a loan of Rs. 40,000/- was sanctioned in favour of
the respondents on 5.12.1974. The loan was to be re-paid after 9 months in
instalments. They respondents had also executed the requisite documents in
favour of the plaintiff bank. spondent Nos. 2 and 3 in their written statement
admitted that the respondents had borrowed Rs. 40,000/- from the appellant, but
they contended that the first respondent firm was dissolved and the fourth
respondent took over the entire liability and, herefore, they are not liable
for the suit claim. The Trial Court passed the decree only against Respondent-1
and Respondent-4 for the suit claim. TC order was reaffirmed by the HC
SC observed and decided as follows.
Under section 32(2) of the Indian Partnership Act,
1932 the liability of a retiring partner as against the third party would be
discharged only if there is an agreement made by the retiring partner with the
third party and partners of the reconstituted firm, of course an agreement
could be implied by the course of dealing between the third party and the
re-constituted firm after the retirement of the partner. It was held further
that if a creditor takes a new security for the debt from the continuing firm,
then it shows his intention to deal with the continuing partner for debts owed
by the firm. In absence of such express or implied agreement, a public notice
is necessary.
It is perhaps self evident that a creditor's rights
will not normally be prejudiced by an agreement transferring an accrued
liability from one partner to another unless the creditor is made a party to
the agreement or assents to its operation. Otherwise the agreement will, as
regards him, be strictly res inter alias acta. Lord Lindley illustrated this
proposition for the following example:--let it be supposed that a firm of three
members, A, B, and c, is indebted to D; that a retires, and B and C either
alone, or together with a new partner, E, take upon themselves the liabilities
of the old firm. D's right to obtain payment form A, B, and C is not affected
by the by arrangement, and A does not cease to be liable to him for the debt in
question. But if, after A's retirement, D accepts as his sole debtors B and C,
or B, C, and E (if E enters the firm), then A's liability will have ceased, and
D must look for payment to B and C, or to B, C and E, as the case may be."
There is no a priori presumption to the effect that
the creditors of firm do, on the retirement of a partner, enter into an
agreement to discharge him from liability. An adoption by the creditor of the
new firm as his debtor does not by any mean necessarily deprive him or his
rights against the old firm especially when the creditor is not a party to the
arrangement and then there is no fresh agreement between the creditor and the
newly constituted firm. After the creditor has taken a new security for a debt
from a continuing partner, it may be a strong a evidence of an intention to
look only the continuing partner for the payment due form the firm.
It is also important to note that it has long been
recognized that partnership is not a species of joint tenancy and that, in the
absence of some contrary agreement, there is no survivorship as between
partners, at least so far as it concerns their beneficial interests in the
partnership assets.
Having due regard to these principles, the High Court
erred in confirming the judgment passed by the trial court and the plaintiff
appellant had every right to proceed against all the defendants in the suit.
Hence, the appeals are allowed and the impugned decree is modified to the
extent that there shall be a decree against all the respondents, namely
respondent 1 to 4, both the suits.
(42) Pamuru Vishnu Vinodh Reddy v. Chhillakuru
Chandrashekhara Reddy (2003) 3 SCC 445
The plaintiff retired from the partnership firm on a
particular date after selling his share in the firm. The firm is reconstituted
thereafter. It was held that once he had retired from the partnership firm, he
had no right to claim any further share in the profits of the firm. When the
defendants had not paid the value of the share of the plaintiff pursuant to the
agreement for retiring from the firm, it has become a debt on the defendants
and the plaintiff is entitled to recover the same with interest. The value of
the share of die plaintiff on the date of his retirement from the firm would be
regarded as a pure debt with effect from the date on which he ceased to be a
partner as per the agreement entered into between the partner. Otherwise the
result would be that he was deemed to have been continued as partner of the
firm even after he retired from the firm. If consideration is not paid as per
the agreement, he would be entitled to enforce it as per law. Mere non-payment
of consideration does not take away the legal effect of retirement from the
partnership firm.
The Commissioner is appointed by the court for
ascertaining the value of his share. The relevant date for such ascertainment is
the date of which the partner retires and not the date on which the
Commissioner makes the valuation. The unpaid share of the retiring partner was
a debt payable with interest whenever paid.
(43) Vishnu Chandra v. Chandrika Prasad Agrawal, AIR
1983 SC 523
Q before HC
(i) whether the partnership was a partnership at will
or for a fixed duration; (ii) whether the respondent (appellant before us) was
entitled for retirement from the partnership or for dissolution of the firm
itself."
HC held that the partnership was a partnership at
will. Ist question was not brought up before the SC.
The question before SC was whether a partner was
entitled to retire on the basis of partnership deed. The deed provided that a
partner may retire by giving one month notice and that a partner cannot retire
within one year of commencement of business and if he does so, his capital will
not be returned. Held that it is consistent with the provisions of Section
31(1)(b) and the partner can retire according to the deed.
Topic 5 - Dissolution of a Firm
Dissolution of a firm (S 39);
The dissolution of a partnership between all the
partners of a firm is called the "dissolution of the firm".
Dissolution by agreement (S 40);
A firm may be dissolved with the consent of all the
partners or in accordance with a contract between the partners.
Compulsory dissolution (S 41);
A firm is dissolved
(a) by the adjudication of all the partners or of all
the partners but one as insolvent, or
(b) by the happening of any event which makes it
unlawful for the business of the firm to be carried on or for the partners to
carry it on in partnership :
Provided that, where more than one separate adventure
or undertaking is carried on by the firm, the illegality of one or more shall
not of itself cause the dissolution of the firm in respect of its lawful
adventures and undertakings.
S 42 DISSOLUTION ON THE HAPPENING OF CERTAIN
CONTINGENCIES.
Subject to contract between the partners a firm is
dissolved
(a) if constituted for a fixed term, by the expiry of
that term;
(b) if constituted to carry out one or more
adventures or undertakings, by the completion thereof;
(c) by the death of a partner; and
(d) by the adjudication of a partner as an insolvent.
Dissolution by notice of partnership at will (S43);
(1) Where the partnership is at will, the firm may be
dissolved by any partner giving notice in writing to all the other partners of
his intention to dissolve the firm.
(2) The firm is dissolved as from the date mentioned
in the notice as the date of dissolution or, if no date is so mentioned, as
from the date of the communication of the notice
Dissolution by the Court (S 44);
At the suit of a partner, the Court may dissolve a
firm on any of the following grounds, namely :-
(a) that a partner has become of unsound mind, in
which case the suit may be brought as well by the next friend of the partner
who has become of unsound mind as by any other partner;
(b) that a partner, other than the partner suing, has
become in any way permanently incapable of performing his duties as partner;
(c) that a partner, other than the partner suing, is
guilty of conduct which is likely to affect prejudicially the carrying on of
the business regard being had to the nature of the business;
(d) that a partner, other than the partner suing,
willfully or persistently commits breach of agreements relating to the
management of the affairs of the firm of the conduct of its business; or
otherwise so conducts himself in matters relating to the business that it is
not reasonably practicable for the other partners to carry on the business in
partnership with him;
(e) that a partner, other than the partner suing, has
in any way transferred the whole of his interest in the firm to a third party,
or has allowed his share to be charged under the provisions of rule 49 of Order
XXI of the First Schedule to the Code of Civil Procedure, 1908, or has allowed
it to be sold in the recovery of arrears of land revenue or of any dues
recoverable as arrears of land revenue due by the partner;
(f) that the business of the firm cannot be carried
on save at a loss; or
(g) on any other ground which renders it just and
equitable that the firm should be dissolved.
Liability for acts done by partners after dossolution
(S 45);
(1) Notwithstanding the dissolution of a firm, the
partners continue to be liable as such to third parties for any act done by any
of them which would have been an act of the firm, if done before the
dissolution, until public notice is given of the dissolution :
Provided that the estate of a partner who dies, or
who is adjudicated an insolvent, or of a partner who, not having been known to
the person dealing with the firm to be a partner, retires from the firm, is not
liable under this section for acts done after the date on which he ceases to be
a partner.
(2) Notices under sub-section (1) may be given by any
partner.
Right of partners to have business wound up after
dissolution (S 46);
On the dissolution of a firm every partner or his
representative is entitled, as against all the other partners or their
representatives, to have the property of the firm applied in payment of the
debts and liabilities of the firm, and to have the surplus distributed among
the partners or which representatives according to their rights.
Continuing authority of partners for purpose of
winding up (S47);
After the dissolution of a firm the authority of each
partner to bind the firm, and the other mutual rights and obligations of the
partners, continue notwithstanding the dissolution, so far as may be necessary
to wind up the affairs of the firm and to complete transactions begun but
unfinished at the time of the dissolution, but not otherwise :
Provided that the firm is in no case bound by the
acts of a partner who had been adjudicated insolvent, but this proviso does not
affect the liability of any person who has after the adjudication represented
himself or knowingly permitted himself to be represented as a partner of the
insolvent.
Mode of settlement of accounts between partners (S
48);
In settling the accounts of a firm after dissolution,
the following rules shall, subject to agreement by the partners, be observed :
(a) Losses, including deficiencies of capital, shall
be paid first out of profits, next out of capital, and, lastly, if necessary,
by the partners individually in the proportions in which they were entitled to
share profits;
(b) the assets of the firm, including any sums
contributed by the partners to make up deficiencies of capital, shall be
applied in the following manner and order :
(i) in paying the debts of the firm to third parties;
(ii) in paying to each partner ratably what is due to
him from the firm for advances as distinguished from capital;
(iii) in paying to each partner ratably what is due
to him on account of capital; and
(iv) the residue, if any, shall be divided among the
partners in the proportions in which they were entitled to share profits.
Payment of firm debts and of separate debts (S 49);
Where there are joint debts due from the firm, and
also separate debts due from any partner, the property of the firm shall be
applied in the first instance in payment of the debts of the firm, and, if
there is any surplus, then the share of each partner shall be applied in
payment of his separate debts or paid to him. The separate property of any partner
shall he applied first in the payment of his separate debts, and the surplus
(if any) in payment of the debts of the firm.
Personal profits earned after dissolution (s 50);
Subject to contract between the partners, the
provisions of clause (a) of section 16 shall apply to transactions by any
surviving partner or by the representatives of deceased partner, undertaken
after the firm is dissolved on account of the death of a partner and before its
affairs have been completely wound up :
Provided that where any partner or his representative
has bought the good will of the firm, nothing in the section shall affect his
right to use the firm-name.
Return of premium on premature dissolution (S 51);
Where a partner has paid a premium on entering into
partnership for a fixed term, and the firm is dissolved before the expiration
of that term otherwise than by the death of a partner, he shall be entitled to
repayment of the premium or of such part thereof as may be reasonable, regard
being had to the terms upon which he became a partner, and to the length of
time during which he was a partner, unless -
(a) the dissolution is mainly due to his own
misconduct, or
(b) the dissolution is in pursuance of an agreement
containing no provision for the return of the premium or any part of it.
Rights where partnership is rescinded for fraud or
misrepresentation (S 52);
Where a contract creating partnership is rescinded on
the ground of fraud or misrepresentation of any of the parties thereto, the
party entitled to rescind is, without prejudice to any other right, entitle -
(a) to a lien on, or right of retention of, the
surplus of the assets of the firm remaining after the debts of the firm have
been paid, for any sum paid by him for the purchase of a share in the firm and
for any capital contributed by him;
(b) to rank as a creditor of the firm in respect of
any payment made by him towards the debts of the firm; and
(c) to he indemnified by the partner or partners
guilty of fraud or misrepresentation against all the debts of the firm.
Rights for refrain from use of firm name or firm
property (S 53);
After a firm is dissolved, every partner or his
representative may, in the absence of a contract between the partners to the
contrary, restrain any other partner or his representative from carrying on a
similar business in the firm-name or from using any of the property of the firm
for his own benefit, until the affairs of the firm have been completely wound
up :
Provided that where any partner or his representative
has brought the goodwill of the firm, nothing in this section shall affect his
right to use the firm-name.
Agreement of restraint of trade (S 54);
Partners may, upon or in anticipation of the
dissolution of the firm, make an agreement that some or all of them will not carry
on a business similar to that of the firm within a specified period or within
specified local limits and notwithstanding anything contained in section 27, of
the Indian Contract Act, 1872, such agreement shall be valid if the
restrictions imposed are reasonable.
Sale of goodwill after dissolution (S 55);
(1) In settling the accounts of a firm after
dissolution, the goodwill shall, subject to contract between the partners, be
included in the assets, and it may be sold either separately or along with other
property of the firm.
(2) RIGHTS OF BUYER AND SELLER OF GOODWILL.
Where the goodwill of a firm is sold after
dissolution, a partner may carry on a business competing with that of the buyer
and he may advertise such business, but, subject to agreement between him and
the buyer, he may not
(a) use the firm-name,
(b) represent himself as carrying on the business of
the firm, or
(c) solicit the custom of persons who were dealing
with the firm before its dissolution.
(3) AGREEMENTS IN RESTRAINT OF TRADE.
Any partner may upon the sale of the goodwill of a
firm, make an agreement with the buyer that such partner will not carry on any
business similar to that of the firm within a specified period or within
specified local limits, and, notwithstanding anything contained in section 27
of the Indian Contract Act, 1872 such agreement shall be valid if the
restrictions are reasonable.
(44) Saligram Ruplal Khanna v. Kanwar Rajnath, AIR
1974 SC 1094
A partnership consisting of the appellants and the
respondent had entered into a lease agreement with the Custodian of Evacuee
Property in respect of a mill and took
possession of the mill on 31st August, 1952. The period of partnership was for
5 years being the period of the said lease. The partners having failed to pay
one installment of rent the Custodian served on the partners a show cause
notice on 12-2-54 why the lease should not be terminated. On account of certain
financial difficulties the parties entered into a second agreement on February
24, 1954.
Disputes having arisen between appellants and the
respondent, the appellants filed a suit on December 20. 1960 alleging that after the termination of the
lease by the Custodian on May 25, 1954 the two appellants and the respon- dent
had orally agreed not to dissolve the partnership in spite of the termination
of the lease and prayed for a declaration that the partnership between them and the respondent was still
subsisting on the terms and conditions set out in the partnership deed dated
24th February, 1954.
They also prayed for rendition of the partnership
accounts.
The respondent on. the other hand alleged that there
was no oral agreement between the parties and that the claim for rendition of accounts was barred by
limitation.
The trial court held that the appellants had failed
to prove that there was an oral agreement between the parties and that the claim for rendition of
accounts was barred by limitation.
On appeal the High Court upheld the findings of the
trial court.
Dismissing the appeal,
HELD :-(1) No inference of implied agreement can be
drawn from the material on record. According to section 42 of the Indian
Partnership Act, subject to a contract
between the partners a firm is
dissolved if constituted for a fixed term by the expiry of that term. This provision
makes it clear that unless some
contract between the partners to the contrary is proved. the firm, if
constituted for a fixed term would be dissolved by the expiry of that term.
[371G-H] In the instant case
it was indicated in the agreement of partnership that the period of partnership
had been fixed at 5 years because that was the period of the lease of the mills and the lease was terminated on May
25, 1954. [372B-C] According to s. 47 of the Indian Partnership Act after the
dissolution of the firm
the authority of each partner to bind the
firm and the other mutual rights and obligations of the partners continue
notwithstanding the dissolution so far as may be necessary to wind up the
affairs of the firm and to
complete transactions begun but unfinished at the time of dissolution but not
otherwise. The word
'transaction' in section 47 refers not merely to a commercial transaction of
purchase and sale but would include also all other matters relating to the
affairs of the partnership. The completion of a transaction would cover also
the taking of necessary steps in connection with the adjudication of a dispute to which the firm
before its dissolution was a party. In the instant case after dissolution, the
partnership subsisted merely for the purpose of completing pending
transactions, winding up the business and 359 adjusting the rights of partners
and for these purposes and these only the authority, rights and obligations of the partners continued [374B-D, F-G]
(3)The suit for rendition of accounts brought by the appellants on December 20,
1960 was barred by limitation.
In the absence of a contract to the contrary there
could be no survival of the firm after August 30, 1957 when the period of partnership expired.
(45) Santiranjan Das Gupta v. Dasuram Murzamull, AIR
1973 SC 48
According to the plaintiff-appellant he had a mill at
Nojai where he was carrying on his milling business. The defendants represented
to him that if the milling business was carried on in partnership with them
then the plaintiff would make large profits and on that representation and
assurance he entered into a partnership with the defendants on or about January
10, 1948. The partnership business, to quote the plaint "commenced from
about the middle of January, 1948 and the work continued upto 10th September,
1948". Some disputes arose and on or about November 6, 1948 Murzamull
Agarwal told the plaintiff that the business in partnership was no longer
possible. In September 1951 the plaintiff instituted the present suit for dissolution
of partnership. Besides other legal objections taken by the defendants in their
writ ten statement it was pleaded that there was no partnership between the
parties and that there was only a milling agreement dated January 11, 1948
between them under which the defendants were getting paddy milled in the
plaintiff's rice mills for which the dues had all along been paid to the
plaintiff In accordance with the milling contract.
TC decreed in favor of plaintiff. HC reversed
decision. SC upheld HC decision. Held no partnership.
SC Observations:
(i)
No record of terms & conditions of partnership.
(ii)
No maintenance of accounts of partnership business
(iii)
No account of partnership opened in any bank
(iv)
No written information conveyed to Deputy Director of
procurement wrt to the newly created partnership.
(46) M/s Juggilal Kamlapat v. M/s Sew Chand Bagree,
AIR 1960 Cal 443
Commercial – liability – Section 45 (1) of
Partnership Act, 1932 – award holders did not admit that there was dissolution
of firm – under Section 45 notwithstanding dissolution of firm liability of
partners continues until public notice given of dissolution – Proviso to
Section 45 (1) exempts estate of partner who dies or adjudicated insolvent or
retires from firm if act done after date on which he ceases to be partner
independently – Proviso to Section 45 (1) applied and other two previous
partners not liable to pay decretal amount – application dismissed. When
appellants entered into contract the two previous partners were not known to
them.
(47) Sharad Vasant Kotak v. Ramniklal Mohanlal Chawda
(1998) 2 SCC 171
Failure to inform the Registrar about the firm does
not amount to deregistration of the firm. On the death of the partner a new
partner was inducted in his place. Court said this would not necessitate
re-registration of firm. Failure to inform registrar about changes only
attracts penalties. Status of the registered firm does not cease to exist.
(48) S.V. Chandra Pandian v. S.V. Sivalinga Nadar
(1993) 1 SCC 589
6 Brothers running partnership firm – dissolution of
firm after dispute – referred to arbitration – arbitrators gave awards –
divided firm immovable properties in question among each of them.
Some of the disputants
filed a petition praying for a direction to the arbitrators to file their award
in court.
They also filed another
petition requesting the court to pass a decree in terms of the award. Two other
disputants flied a petition under Section 30 of the Arbitration Act to set
aside the award. A Single Judge heard these matters.
It was contended before
him that having regard to the
allotment of partnership properties including
immovable properties under the award, It was Incumbent that the award should
have been registered as required by Section 17(1) of the Registration Act and
since it lacked registration,
the Court had no jurisdiction to make it the rule of the Court and grant a
decree In terms 59 thereof. The Single Judge directed taking steps for getting
the award registered.
In the meantime, one of
the arbitrators passed away. At the request
of some of the parties, the surviving arbitrators presented the award to the Registrar for
registration.
Thereupon one of the
brothers served a notice on the Registrar not to register the document.
Against the order of the Single Judge, an appeal was preferred to Division Bench and it
reversed the finding of the Single Judge. It held that the award required registration under section
17(1) of the Registration Act;
and in the absence of
registration there was no valid award and the Court had no jurisdiction to
grant a decree in terms of the award. Being
aggrieved by this order, the
present appeals were flied by four of the six brothers.
On the question whether
the award required registration under section 17(1) of the Registration Act
SC setting aside the ruling of the division bench and
upholding the ruling of the Single Judge of TC held
"The above provisions make it clear that
regardless of the character of the property brought in by the partners on the
constitution of the partnership, such property shall become the property of the
firm and an individual partner shall only be entitled to his share of profits,
if any, accruing to the partnership from the realization of this property and
upon dissolution of the partnership to a share in the money representing the
value of the property. It is well-settled that the firm is not a legal entity,
it has no legal existence, it is merely a compendious name and hence, the
partnership property would vest in all the partners of the firm. Accordingly,
each and every partner of the firm would have an interest in the property or
asset of the firm but during its subsistence no partner can deal with any
portion of the property as belonging to him, nor can he assign his interest in
any specific item thereof to anyone. On
a true reading of the award as a whole, there was no doubt that it essentially
dealt with the distribution of the surplus properties belonging to the
dissolved firms. The award, therefore, did not require registration under s.
17(1) of the Registration Act."
(49) CIT v. M/s Pigot Champan and Co., AIR 1982 SC
1085
Partnership was for a fixed period (6 years) after
the expiry of which it was stated to have been dissolved by mutual consent of
the partners and therafter the said business with its assets and goodwill shall
belong to and be carried by continuing partners. Question was whether there had
been a dissolution of old firm followed by the creation of the new firm which
succeeded to the business of the old firm (it would entitle the firm a relief
under IT act) or there was merely a reconstitution of the firm.
SC held: [Wud be a question of fact – old firm
dissolved – assets & liabilities taken over by new firm – hence entitled to
relief under IT Act]
The principle is well settled that it is on the
examination of relevant documents and relevant facts and circumstances that the
court has to be satisfied in each case as to whether there has been a
succession or a mere change in the constitution of the partnership. It cannot
be disputed that ‘dissolution’ and ‘reconstitution’ are two distinct legal
concepts, for, dissolution brings the partnership to an end while a
reconstitution means the continuation of the partnership under altered
circumstances. In law, there would be no difficulty in the dissolution of a
firm being followed by the constitution of a new firm by some of the erstwhile
partners who may take over the assets and liabilities of the dissolved firm.
Topic 6 - Registration of Firms
Power to exempt from application of this chapter (S
56);
The State Government of any State may, by
notification in the Official Gazette, direct that the provisions of this
Chapter shall not apply to that State or to any part thereof specified in the
notification.
Appointment of Registrars (S 57);
(1) The State Government may, by notification in the
Official Gazette, appoint a Registrar of Firms who shall exercise, perform and
discharge the powers, functions and duties of the Register under this Act
throughout the State of Maharashtra.
(2) The State Government may likewise appoint one or
more Deputy Registrars of Firms and Assistant Registrars of Firms who shall
exercise, perform and discharge all or such of the powers, functions and duties
of the Registrar and in such areas as the State Government may, by notification
in the Official Gazette, specify.
(3) The officers appointed under sub-section (1) and
sub-section (2) shall be deemed to be public servants within the meaning of
section 21 of the Indian Penal Code.
Application for registration (S 58);
(1) Subject to the provisions of sub-section of
sub-section (1A), the registration of a firm effected by sending by post or
delivering to the Registrar of the area in which any place of business of the
firm is situated or proposed to be situated, a statement in the prescribed form
and accompanied by the prescribed fee and a true copy of the deed of
partnership stating :
(a) the firm-name,
(aa) the nature of business of the firm;
(b) the place or principal place of business of the
firm,
(c) the names of any other places where the firm
carries on business,
(d) the date when each partner joined the firm,
(e) the names in full and permanent addresses of the
partners, and
(f) the duration of the firm.
The statement shall be signed by all the partners, or
by their agents specially authorised in this behalf.
(1A) The statement under sub-section (1) shall be
sent or delivered to the Registrar within a period of one year from the date of
constitution of the firm :
Provided that in the case of any firm carrying on
business on or before the date of commencement of the Indian Partnership
(Maharashtra Amendment) Act, 1984, such statement shall be sent or delivered to
the Registrar within a period of one year firm such date.
(2) Each person signing the statement shall also verify
it in the manner prescribed.
(3) A firm shall not have any of the names or emblems
specified in the Schedule to the Emblems and Names (Prevention of Improper Use)
Act, 1950, or any colourable imitation thereof, unless permitted so to do under
that Act, or any name which is likely to be associated by the public with the
name of any other firm on account of similarity, or any name which, in the
opinion of the Registrar, for reasons to be recorded in writing, is undesirable
:
Provided that nothing in this sub-section shall apply
to any firm registered under any such name before the date of the commencement
of the Indian Partnership (Maharashtra Amendment) Act, 1984.
(4) Any person aggrieved by an order of the Registrar
under sub-section (3), may, within 30 days from the date of communication of
such order, appeal to the officer not below the rank of Deputy Secretary to
Government authorised by the State Government in this behalf, in such manner,
and on payment of such fee, as may be prescribed. On receipt of any such
appeal, the authorised officer shall, after giving an opportunity of being
heard to the appellant, decide the appeal, and his decision shall be final.
Registration (S 59);
(1) When the Registrar is satisfied that the
provisions of section 58 have been duly complied with, he shall record an entry
of the statement in a register called the Register of Firms, and shall file the
statement. [19 On the date such entry is recorded and such statement is filed,
the firm shall be deemed to be registered.
(2) The firm, which is registered, shall use the
brackets and word (Registered) immediately after its name.
Recording of alterations in firm name and principal
place of business (S 60);
(1) When an alteration is made in the firm name or in
the nature of business of a firm or in the location of the principal place of
business of a registered firm, a statement shall be sent to the Registrar,
within a period of 90 days from the date of making such alteration, accompanied
by the prescribed fee, specifying the alteration and signed and verified in the
manner required under section 58.
(2) When the Registrar is satisfied that the
provisions of sub-section (1) have been duly complied with, he shall amend the
entry relating to the firm in the Register of Firms in accordance with the
statement, and shall file it along with the statement relating to the firm
filed under section 59.
Noting of closing and opening of branches (S 61);
When a registered firm discontinues business at any
place or begins to carry on business at any place, such place not being its
principal place of business, any partner or agent of the firm shall send
intimation thereof to the Registrar, within a period of 90 days from the date
of such discontinuance or, as the case may be, from the date on which the firm
begins to carry on business at such place. The Registrar shall then make a note
of such intimation in the entry relating to the firm in the Register of Firms,
and shall file the intimation along with the statement relating to the firm
filed under section 59.
Noting of changes in names and addresses of partners
(S 62);
When any partner in a registered firm alters his name
or permanent address, an intimation of the alteration' shall be sent, within a
period of 90 days from the date of making such alteration, by any partner or
agent of the firm to the Registrar, who shall deal with it in the manner
provided in section 61.
Recording of changes in and dissolution of a firm (S
63);
When a change occurs in the constitution of a
registered firm, every incoming, continuing or outgoing partner, and when a
registered firm is dissolved, every person who was a partner immediately before
the dissolution, or the agent of every such partner or person specially
authorised in this behalf shall, within a period of 90 days from the date of
such change or dissolution, given notice to the Registrar of such change or
dissolution, specifying the date thereof; and the Registrar shall a record of
the notice in the entry relating to the firm in the Registrar of Firms and
shall file the notice along with statement relating to the firm filed under
section 59.
(1A) Where a change occurs in the constitution of a
registered firm, all persons, who after such change are partners of the firm,
shall jointly send an intimation of such change duly signed by them, to the
Registrar, within a period of 90 days from the date of occurrence of such
change and the Registrar shall deal with it in the manner provided by section
61.
(2) RECORDING OF WITHDRAWAL OF A MINOR.
When a minor who has been admitted to the benefits of
partnership in a firm attains majority and elects to become or not to become a
partner, and the firm is then a registered firm, he, or his agent specially
authorised in this behalf, shall within a period of 90 days from the date of
his election, give notice to the Registrar that he has or has not become a
partner, and the Registrar shall deal with the notice in the manner provided in
sub-section (1).
Rectification of mistakes (S 64);
(1) The Registrar shall have power at all time to
rectify any mistake in order to bring the entry in the Register of Firms
relating to any firm into conformity with into documents relating to that firm
filed under this Chapter.
(2) On application made by the all parties who have
signed any document relating to a firm filed under this Chapter, the Registrar
may rectify any mistake in such document or in the record of note thereof made
in the Register of Firms.
Amendment of Register by order of Court (S 65);
A Court deciding any matter relating to a registered
firm may direct that the Registrar shall make any amendment in the entry in the
Register of Firms relating to such firm which is consequential upon its
decision; and the Registrar shall amend the entry accordingly.
Inspection of Register and Field documents (S 66);
(1) The Registrar of Firms shall be open to
inspection by any person on payment of such fee as may be prescribed.
(2) All statements, notices and intimations filed
under this Chapter shall be open to inspection, subject to such conditions and
on payment of such fee as may be prescribed.
Grant of Copies (S 67);
The Registrar shall on application, furnish to any
person, on payment of such fee as may be prescribed, a copy, certified under
his hand, of any entry or portion thereof in the Register of Firms.
Rules of evidence (S 68);
(1) Any statement, intimation or notice recorded or
noted in Register of Firms shall, as against any person by whom or on whose
behalf such statement, intimation or notice was signed, be conclusive proof of any
fact therein stated.
(2) A certified copy of an entry relating to a firm
in the Register of Firms may be produced in proof of the fact of the
registration of such firm, and of the contents of any statement, intimation or
notice recorded or noted therein.
Procedure for registration and effect of non
registration (S69);
S69 Effect of non registration
(1) No suit to enforce a right arising from a
contract or conferred by this Act shall be instituted in any Court by or on a
behalf of any persons suing as a partner in a firm against the firm or any
person alleged to be or to have been a partner in the firm unless the firm is
registered and the person suing is or has been shown in the Register of Firms
as a partner in the firm :
Provided that the requirement of registration of firm
under this sub-section shall not apply to the suits or proceedings instituted
by the heirs or legal representatives of the deceased partner of a firm for
accounts of the firm or to realise the property of the firm.
(2) No suit to enforce a right arising from a
contract shall be instituted in any court by or on behalf of a firm against any
third party unless the firm is registered and the persons suing are or have
been shown in the Register of Firms as partners in the firm.
(2A) No suit to enforce any right for the dissolution
of a firm or for accounts of a dissolved firm or any right or power to realise
the property of a dissolved firm shall be instituted in any Court by or on
behalf of any person suing as a partner in a firm against the firm or any
person alleged to be or have been a partner in the firm, unless the firm is
registered and the person suing is or has been shown in the Register of Firms
as a partner in the firm :
Provided that the requirement of registration of firm
under this sub-section shall not apply to the suits or proceedings instituted
by the heirs or legal representatives of the deceased partner of a firm for
accounts of a dissolved firm or to realise the property of a dissolved firm.
(3) The provisions of sub-sections (1), (2) and (2A)
shall apply also to a claim of set-off or other proceedings to enforce a right
arising from a contract but shall not affect
(a) the firms constituted for a duration upto six
months or with a capital upto two thousand rupees; or;
(b) the powers of an official assigned, receiver or
Court under the Presidency Towns Insolvency Act, 1909, or the Provincial
Insolvency Act, 1920, to realise the property of an insolvent partner.
(4) This section shall not apply
(a) to firms or partners in firm which have no place
of business in the territories to which this Act extends, or whose places of
business in the said territories are situated in areas to which, by
notification under section 56 this Chapter does not apply, or
(b) to any suit or claim of set-off not exceeding one
hundred rupees in value which, in the presidency towns, is not of a kind
specified in section 19 of the Presidency Small Cause Courts Act, 1882, or
outside the Presidency towns, is not of a kind specified in the Second Schedule
to the Provincial Small Cause Courts Act, 1887, or to any proceeding in
execution or other proceeding incidental to or arising from any such suit or
claim.
Penalty for furnishing false particulars (S70);
Any person who signs any statement, amending statement,
notice or intimation under this Chapter containing any particulars which he
knows to be false or does not believe to be true, or containing particulars
which he knows to be incomplete or does not believe to be complete, shall, on
conviction, be punished with imprisonment for a term which may extend to one
year, or with fine, or with both :
Provided that in the absence of special and adequate
reasons to the contrary to be mentioned in the judgement of the Court, the fine
shall not be less than one thousand rupees.
Power to make rules (S 71);
(1) Subject to the provisions of section 70A, the
State Government may, by notification in the Official Gazette, make rules
prescribing the fees which shall accompany documents sent to the Registrar or
which shall be paid in respect of any intimation, notice or application given
to the Registrar or which shall be payable for the inspection of documents in
the custody of the Registrar or for copies from the Register of Firms or which
shall be paid for supply of any prescribed forms.
(2) The State Government may also make rules
(a) prescribing the form of statement submitted under
sub-section (1) of section 58 and of the verification thereof;
(aa) prescribing the manner of filing an appeal under
sub-section (4) of section 58;
(b) requiring statements, intimations and notices
under sections 60, 61, 62 and 63 to be in prescribed form, and prescribed the
form thereof;
(c) prescribing the form of the Register of Firms,
and the mode in which entries relating to firms are to be made therein, and the
mode in which such entries are to be amended or notes made therein;
(d) regulating the procedure of the Registrar when
dispute arises;
(e) regulating the filing of documents received by
the Registrar;
(f) prescribing conditions for the inspection of
original documents;
(g) regulating the grant of copies;
(h) regulating the elimination of registers and
documents;
(i) providing for the maintenance and form of an
Index to the Register of Firms
(j) generally, to carry out the purposes of this
Chapter.
(3) All rules made under this section shall be
subject to the condition of previous publication.
(4) Every rule made under this section shall be laid,
as soon as may be after it is made, before each House of the State Legislature,
while it is in session, for a total period of thirty days, which may be
comprised in one session or in two successive sessions, and if, before the
expiry of the session in which it is so laid or the session immediately
following, both Houses agree in making any modification in the rule or both
Houses agree that the rule should not be made, and notify such decision in the
Official Gazette, the rule shall, from the date of publication of such
decision, have effect only in such modified form or be of no effect, as the case
may be; so, however, that any such modification or annulment shall be without
prejudice to the validity of anything previously done or omitted to be done in
pursuance of that rule.
(50) CIT v Jaylakshmi Rice & Oil Mills Contractor
cO., AIR 1971 SC 1015
Held that registration is complete only when the
requirements of S59 are complied with. A firm cannot be said to be registered
when the statement prescribed by S58 and the required fee are sent to the
registrar. The registration of the firm is effected only when the entry of the
statements is recorded in the register of firms and the statement is filed by
the registrar as provided by S59.
(51) Jagdish Chandra Gupta v Kajaria Traders (India)
Ltd, AIR 1964 SC 1882
A clause in a deed of partnership provided that in
case of dispute between the partners; the matter will be referred to
arbitration. A dispute having arisen, one partner appointed an arbitrator to
which the other partner gave no response. An action was then commenced to
enforce the arbitration clause of the agreement.
The other partner contended that the firm was not
registered and therefore the suit should be dismissed. The Supreme Court held
that the suit was not maintainable and the Court observed that
"It is impossible to think that the right to
proceed to arbitration is not one of the rights which are founded on the
agreement of parties. The word of section 69(3) or other proceedings to enforce
a right 'arising from a contract' are sufficient to cover the present
matter".
If arbitration proceedings were allowed, unregistered
firm would, by providing for arbitration in the partnership deed, to escape the
disability contained in the section.
(52) Mohatta Brothers v.Bharat Suryadaya Mills Co.
Ltd., AIR 1976 SC 1703
Plaintiff partner in firm consisting of 5 partners
(in addition one minor was entitled to some share – mother as guardian) under the name and style of Mohatta Brothers –
Plaintiff managing agents of defendant company up to Sep 4, 1960 – Sometime
before that it appears the plaintiff-firm expressed an intention of giving up
the post of managing agents. The plaintiff
firm after submitting its resignation to the board of directors of the respondent-
company, the appellant filed a suit claiming a sum of money in accordance with
an agreed scheme. Defendants held that plaintiff firm could not maintain the
suit as the constitution of the old firm had been changed on Oct 24, 1949. From
that date it was stated the plaintiff-firm consisted of 6 partners including
Satyawati (mother of minor). The newly constituted firm according to the
defendant had not been registered and as such the suit was not maintainable.
Issue: Scope of S69(2) of Partnership Act?
Observation & Decision: The court held that when
a firm is reconstituted by introduction of new partner, it would remain the
same registered firm and there would be no necessity of fresh registration if
the continuing firm was registered with the Registrar of Firms under S69(2) of
the Indian Partnership Act. The mandatory conditions u/S 69(2) of the Indian
Partnership Act was not fulfilled in the present case as the name of Satyawati
who was a partner of the reconstituted firm and in whose favor a cause of
action had accrued was not shown in the register of the firm.
For the institution of the suit all those who are
partners at the time of institution must be or have been shown in the register;
person suing in S69(2) means the partner.
Apex Court held “Looking to all the facts we are of
the opinion that the trial court took a correct view of the matter in so far as
it held that Satyavati had not become a partner of the plaintiff-firm and that
the deed of partnership dated October 24, 1949 had not been acted upon.” HC was
wrong in reversing the judgment of the TC.
(53) Seth Loonkaran Sethiya v Ivan E John AIR 1977 SC
336
Facts: Plaintiff partner in an unregistered firm –
files suit against defendant for recovery outstanding of dissolved firm.
Dismissing the plaintiff's appeal and allowing the
appeal of the defendants (first set) held: (1) Section 69 of the Partnership
Act is mandatory in character and its effect is to render a suit by a plaintiff
in respect of a right vested in him or
acquired by him under a contract which he entered into as a partner of an
unregistered firm, whether existing or dissolved, void. A partner of an
erstwhile unregistered partnership firm cannot bring a suit to enforce a right
arising out of a contract failing within the ambit of section 69 of the
Partnership Act. The suit out of which the appeals arise was for enforcement of
the agreement entered into by the plaintiff as partner of Serbia & Co. It
was never pleaded by the plaintiff not even in his replication that he was
suing to recover the outstanding of a dissolved firm. Thus the suit was clearly wharfage etc. which had been debited
to their account. It was also pleaded by the said defendants that the plaintiff
had no floating or prior charge on any of their stocks, stores etc. nor could
any such charge be claimed by him in law; that the suit was barred by the
provisions of Section 69 of the Partnership Act and that the agreement dated
July 6, 1948 which was insufficiently stamped could not form the basis of the suit.
(54) Delhi Development Authority v Kochhar
Construction Work (1998) 8 SCC 559
Held that an application filed by unregistered firm
under S20 of the arbitration act, 1940 would also be treated as a suit and
would be hit by S69(2) of the partnership act. The fact that it is an
application to be registered and numbered as a suit would not make any difference
for the obvious reason that though the sub-sections(1) & (2) of S69 refer
to a suit, sub-section (3) thereof makes those sub-sections applicable even to
other proceedings which would include an application unregistered and numbered
as a suit under S20 of the Arbitration act. It is submitted that if arbitration
proceedings were allowed unregistered firm would by providing for arbitration
in the partnership deed escape disability contained in S69.
(55) Gwalior Oil Mills v Supreme Industries (1999) 9
SCC 113
A registered firm was reconstituted and an
application was filed with the Registrar for recording of changes. The new firm
entered into a contract with a 3rd party which resulted in a
dispute. The firm filed a suit against the 3rd party for breach of contract.
The suit was filed by one of the partners who prior to reconstitution was a
partner in his individual capacity and who after the reconstitution was a
partner as Karta of HUF. Registrar recorded the changes after institution of
the proceedings but with retrospective effect from the date of the actual
reconstitution. It was held that the firm never ceased to be a registered firm.
The suit was thus held to be maintainable.
(56) Haldiram Bhujiawala v Anand Kumar Deepak Kumar
(2000) 3 SCC 250
IT is clear that the suit in question is based on
infringement of statutory rights under the Trade Marks Act. It is also based
upon the common law principles of tort applicable to passing-off actions. The
suit is not for enforcement of any right arising out of a contract entered into
by or on behalf of the unregistered firm with third parties in the course of
the firm's business transactions. The suit is, therefore, not barred by Section
69(2) of the Partnership Act, 1932.
By that order, the High Court had summarily dismissed
that appeal of the appellants against the order of a Single Judge. The
appellants wanted the plaint to be rejected on the ground that the plaintiff
was an unregistered partnership on the date of the s uit, and its subsequent
registration could not cure the initial defect.
The Supreme Court judgment was based on the following
points/reasons:
Following Raptokas Brett Co. Ltd vs. Ganesh Property
1998 (7) SCC 184, it must be held that a suit is not barred by Section 69(2) of
the Partnership Act, 1932 if a statutory right or a common law right is
enforced.
It is well settled that a passing-off action is a
common law action based on tort. Hence a suit for perpetual injunction to
restrain the opposite party not to pass-off its goods as those of the plaintiffs
by using the latter's trade mark, and for damag es is an action at common law
and is not barred by Section 69(2).
If the reliefs of permanent injunction or damages are
being claimed on the basis of a registered trade mark and its infringement, the
suit is to be treated as one based on a statutory right under the Trade Marks
Act and is not barred by Section 69(2). In both these situations, the
unregistered partnership in this case cannot be said to be enforcing any right
arising from a contract.
It was on the basis of the Report of the Special
Committee (1930-31) that the Partnership Act, 1932 was passed by the
Legislature. Para 16 of the Report states that the Bill seeks to overcome
certain difficulty by making registration optional, and by creating inducements
to register which only bear upon firms in a substantial and fairly permanent
way of business.
Para 17 of the Special Committee Report, inter alia,
says that any firm which is not registered will be unable to enforce its claim
against third parties in the civil court, and any partner who is not registered
will be unable to enforce his claims eit her against third parties or against
fellow partners.
The right that is sought to be enforced by the
unregistered firm and which is barred must be a right arising out of a contract
with a third party in respect of the firm's business transactions.
The real crux of the question is that the Legislature
when it used the words `arising out of a contract' in Section 69(2), it is
referring to a contract entered into in course of business transactions by the
unregistered plaintiff firm with its custome rs, and the idea is to protect
those in commerce who deal with such a partnership firm in business.
Section 69(2) is not attracted to any and every
contract which is referred to in the plaint as the source of title to an asset
owned by the firm. If the plaint, in the present case, referred to such a
contract it could only be as a historical fact. It has no bearing on the right
which is a statutory right. Hence the suit will be maintainable.
The Partnership Act has not prescribed that the
transactions or contracts entered into by a firm with a third party are bad in
law if the firm is an unregistered firm. On the other hand, if the firm is not
registered on date of suit, and the suit is to enforce a right arising out of a
contract with the third party-defendant in the course of its business, then it
will be open to the plaintiff to seek withdrawal of the plaint with leave, and
file a fresh suit after registration of the firm subject of course to the law
of limitation and subject to the provisions of the Limitation Act.
(57) Kamal Pushp Enterprises v D.R. Construction Co.
AIR 2000 SC 2676 : (2000) 6 SCC 659
Appellant entered into contract with unregistered
firm – arbitration clause – on dispute arising – arbitral proceedings were
carried out – arbitrator filed award in favor of respondent –respondent suo
moto filed the award before the TC u/S14(2) of arbitration act 1940 - plaintiff
challenged award on the ground that an unregistered firm cannot enforce a right
arising from a contract (i.e. contended that suit was barred by sec 69). – High Court held that the provisions of S69
do not stand in the way of an unregistered firm defending proceedings against
it and it precludes only the initiation of any proceedings by such a firm – SC
held that the provisions contained in S69 is in respect of instituting
proceedings to enforce a right arising from contract in any court by a
unregistered firm – arbitration proceedings cannot be treated as suit or other
proceedings to enforce right arising under the contract. The bar under section
69 of the Act is not applicable at the stage of enforcement of the award by
passing a decree in terms thereof because the award crystallizes the rights of
the parties under Indian Contract Act & the general law to be paid for the
work executed and not arising only and what is being enforced at that stage is
not any right arising from the objectionable contract.
Topic 7 - Agency
Agent & Principal defined;
Who may employ an agent;
Who may be appointed as agent;
Rights, Duties & liabilities of principal and
agent, scope and limitation, ratification and revocation of authority;
Appointment of sub agent (The Indian Contract Act
1872, Ss 182 - 238 )
Indian Contract Act 1872 (Ss 182 – 238)
Section 182. "Agent" and
"principal" defined -
An "agent" is a person employed to do any
act for another, or to represent another in dealing with third persons. The
person for whom such act is done, or who is so represented, is called the
"principal".
Comments
Principle of agency
D.e.s.u. is not an insurance agent within the
meanings of life Insurance Corporation Act, 1956 and the Life Insurance
Corporation of India (Agents) Regulations, 1972 but D.E.S.U. is certainly an
agent as defined in section 182 of the Act. When there is no insurance agent as
defined in the Regulations and the Insurance Act, general principles of the law
of agency as contained in the Contract Act are to be applied; D.E.S.U. v.
Basanti Devi, AIR 2000 SC 43.
Section 183. Who may employ 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 employ an agent.
COMMENTS
Scope
Since the defendant is weak, mentally infirm and
cannot comprehend for herself, the power of attorney which authorised to act as
agent of the defendant had been exhausted because of the defendant’s
incapacity; Mahendra Pratap Singh v. Padam Kumari Devi, AIR 1993 All 182.
S184. Who may be an agent -
As between the principal and third persons, any
person may become an agent, but no person who is not of the age of majority and
sound mind can become an agent, so as to be responsible to the principal
according to the provisions in that behalf herein contained.
S 185. Consideration not necessary.—- No
consideration is necessary to create an agency.
S 186. Agent’s authority may be expressed or
implied.— The authority of an agent may be expressed or implied.
S 187. Definitions of express and implied -
An authority is said to be express when it is given
by words spoken or written. An authority is said to be implied when it is to be
inferred from the circumstances of the case; and things spoken or written, or
the ordinary course of dealing, may be accounted circumstances of the case.
Illustration
A owns a shop in Serampor, living himself in
Calcutta, and visiting the shop occasionally. The shop is managed by B, and he
is in the habit of ordering goods from C in the name of A for the purposes of
the shop, and of paying for them out of A’s funds with A’s knowledge. B has an
implied authority from A to order goods from C in the name of A for the
purposes of the shop.
S 188. Extent of agent's authority -
An agent, having an authority to do an act, has
authority do every lawful thing which is necessary in order to do so such
act.An agent having an authority to carry on a business, has authority to do
every lawful thing necessary for the purpose, or usually done in the course, of
conducting such business.
Illustrations
(a) A is employed by B, residing in London, to
recover at Bombay a debt due to B. A may adopt any legal process necessary for
the purpose of recovering the debt, and may give a valid discharge for the
same.
(b) A constitutes B his agent to carry on his
business of a ship-builder. B may purchase timber and other materials, and hire
workmen, for the purpose of carrying on the business.
S 189. Agent's authority in an emergency -
An agent has authority, in an emergency, to do all
such acts for the purpose of protecting his principal from loss and would be
done by a person or ordinary prudence, in his own case, under similar
circumstances.
Illustrations
(a) An agent for sale may have goods repaired if it
be necessary.
(b) A consigns provisions to B at Calcutta, with directions
to send them immediately to C, at Cuttack. B may sell the provisions at
Calcutta, if they will not bear the journey to Cuttack without spoiling.
S 190. When agent cannot delegate -
An agent cannot lawful employ another to perform acts
which he has expressly or impliedly undertaken to perform personally, unless by
the ordinary custom of trade a sub-agent may, or, from the nature or agency, a
sub-agent must, be employed.
S 191. "Sub-agent" defined –
A "sub-agent" is a person employed by, and
acting undue the control of, the original agent in the business of the agency.
S 192. Representation of principal by sub-agent
properly appointed -
Where a sub-agent is properly appointed, the
principal is, so far as regards third persons, represented by the sub-agent,
and is bound by and responsible for his acts, as if he were an agent originally
appointed by the principal.
Agent's responsibility for sub-agent: The agent is
responsible to the principal for the acts of the sub-agent.Sub-agent's
responsibility:
The sub-agent is responsible for his acts to the
agent, but not to the principal, except in cases of fraud, or wilful wrong.
S 193. Agent's responsibility for sub-agent appointed
without – authority
Where an agent, without having authority to do so,
has appointed a person to act as a sub-agent stands towards such person in the
relation of a principal to an agent, and is responsible for his act both to the
principal and to third person; the principal is not represented, by or
responsible for the acts of the person so employed, nor is that person
responsible to the principal.
S 194. Relation between principal and person duly
appointed by agent to act in business of agency -
When an agent, holding an express or implied
authority to name another person to act for the principal in the business of
the agency, has named another person accordingly, such person is not a
sub-agent, but an agent of the principal for such part of the business of the
agency as is entrusted to him.
Illustrations
(a) A directs B, his solicitor, to sell his estate by
auction, and to employ an auctioneer for the purpose. B names C, an auctioneer,
to conduct the sale. C is not a sub-agent, but is A’s agent for the conduct of
the sale.
(b) A authorizes B, a merchant in Calcutta, to
recover the moneys due to A from C & Co. B instructs D, a solicitor, to
take legal proceedings against C & Co. for the recovery of the money. D is
not a sub-agent, but is solicitor for A.
S 195. Agent's duty in naming such person -
In selecting such agent for his principal, an agent
is bound to exercise the same amount of discretion as a man or ordinary
prudence would exercise in his own case; and, if he does this, he is not
responsible to the principal for the acts of negligence of the agent so
selected.
Illustrations
(a) A instructs B, a merchant, to buy a ship for him.
B employs a ship-surveyor of good reputation to choose a ship for A. The
surveyor makes the choice negligently and the ship turns out to be unseaworthy
and is lost. B is not, but the surveyor is, responsible to A.
(b) A consigns goods to B, a merchant, for sale. B,
in due course, employs an auctioneer in good credit to sell the goods of A, and
allows the auctioneer to receive the proceeds of the sale. The auctioneer
afterwards becomes insolvent without having accounted for the proceeds. B is
not responsible to A for the proceeds.
S 196. Right of person as to acts done forhim without
his authority, effect of ratification -
Where acts are done by one person on behalf of
another, but without his knowledge or authority, he may elect to ratify or to
disown such acts. If he ratifies them, the same effects will follow as if they
had been performed by his authority.
S 197. Ratification may be expressed or implied -
Ratification may be expressed or may be implied in
the conduct of the person on whose behalf the acts are done.
Illustrations
(a) A, without authority, buys goods for B.
Afterwards B sells them to C on his own account; B’s conduct implies a
ratification of the purchase made for him by A.
(b) A, without B’s authority, lends B’s money to C.
Afterwards B accepts interest on the money from C. B’s conduct implies a
ratification of the loan
S 198. Knowledge requisite for valid ratification -
No valid ratification can be made by a person whose
knowledge of the facts of the case is materially defective
S 199. Effect of ratifying unauthorized act forming
part of a transaction -
A person ratifying any unauthorized act done on his
behalf ratifies the whole of the transaction of which such act formed a part.
S 200. Ratification of unauthorized act cannot injure
third person -
An act done by one person on behalf of another,
without such other person's authority, which, if done with authority, would
have the effect of subjecting a third person to damages, or of terminating any
right or interest of a third person, cannot, by ratification, be made to have
such effect.
Illustrations
(a) A, not being authorized thereto by B, demands, on
behalf of B, the delivery of a chattel, the property of B, from C who is in
possession of it. This demand cannot be ratified by B, so as to make C liable
for damages for his refusal to deliver.
(b) A holds a lease from B, terminable on three
months’ notice. C, an unauthorized person, gives notice of termination to A.
The notice cannot be ratified by B, so as to be binding on A.
S 201. Termination of Agency -
An agency is terminated by the principal revoking his
authority, or by the agent renouncing the business of the agency; or by the
business of the agency being completed; or by either the principal or agent
dying or becoming of unsound mind; or by the principal being adjudicated an
insolvent under the provisions of any Act for the time being in force for the
relief of insolvent debtors.
S 202. Termination of Agency, where agent has an
interest in subject-matter -
Where the agent has himself an interest in the
property which forms the subject-matter of the agency, the agency cannot, in
the absence of an express contract, be terminated to the prejudice of such
interest.
Illustrations
(a) A gives authority to B to sell A’s land, and to
pay himself, out of the proceeds, the debts due to him from A. A cannot revoke
this authority, nor can it be terminated by his insanity or death.
(b) A consigns 1,000 bales of cotton to B, who has
made advances to him on such cotton, and desires B to sell the cotton, and to
repay himself out of the price the amount of his own advances. A cannot revoke
this authority, nor is it terminated by his insanity or death.
COMMENTS
Agent may enforce Contracts if personally enterested
A power of attorney executed in favour of an agent
recording or recognizing an interest of the Agent/Attorney in the property
which is the subject-matter of the Agency, cannot be revoked or terminated,
even if the instrument does not state specifically that it is irrevocable, as
then it would be a power coupled with an interest but a power of attorney
simplicitor which merely authorised an agent to do certain acts in the name of
or on behalf of the executant at any time in spite of the instrument that power
of attorney be revoked or cancelled by the executant at any time in spite of
the instrument stating that the Power of Attorney is irrevocable; Corporation
Bank, Bangalore v. Lalitha H. Holla, AIR 1994 Kant 133.
S 203. When principal may revoke agent's authority -
The principal may, save as is otherwise provided by
the last preceding section, revoke the authority given to his agent at any time
before the authority has been exercised so as to bind the principal.
S 204. Revocation where authority has been partly
exercised -
The principal cannot revoke the authority given to
his agent after the authority has been partly exercised, so far as regards such
acts and obligations as arise from acts already done in the agency.
Illustrations
(a) A authorizes B to buy 1,000 bales of cotton on
account of A and to pay for it out of A’s moneys remaining in B’s hands. B buys
1,000 bales of cotton in his own name, so as to make himself personally liable
for the price. A cannot revoke B’s authroty so far as regards payment for the
cotton.
(b) A authorizes B to buy 1,000 bales of cotton on
account of A, and to pay for it out of A’s money remaining in B’s hands. B buys
1,000 bales of cotton in A’s name, and so as not to render himself personally
liable for the price. A can revoke B’s authority to pay for the cotton.
S 205. Compensation for revocation by principal, or
renunciation by agent -
Where there is an express or implied contract that
the agency should be continued for any period of time, the principal must make
compensation to the agent, or the agent to the principal, as the case may be,
for any previous revocation or renunciation of the agency without sufficient
cause.
S 206. Notice of revocation or renunciation -
Reasonable notice must be given of such revocation or
renunciation; otherwise the damage thereby resulting to the principal or the
agent, as the case may be, must be made good to the one by the other.
S 207. Revocation and Renunciation may be expressed
or implied -
Revocation and renunciation may be expressed or may
be implied in the conduct of the principal or agent respectively.
Illustration
A empowers B to let A’s house. Afterwards A lets it
himself. This is an implied revocation of B’s authority.
S 208. When termination of agent's authority takes
effect as to agent, and as to third persons -
The termination of the authority of an agent does
not, so far as regards the agent, take effect before it becomes known to him,
or, so far as regards third persons, before it becomes known to them.
Illustrations
(a) A directs B to sell goods for him, and agrees to
give B five per cent. commission on the price fetched by the goods. A
afterwards by letter, revokes B’s authority. B after the letter is sent, but
before he receives it, sells the goods for 100 rupees. The sale is binding on
A, and B is entitled to five rupees as his commission.
(b) A, at Madras, by letter directs B to sell for him
some cotton lying in a warehouse in Bombay, and afterwards, by letter revokes
his authority to sell, and directs B to send the cotton to Madras. B after
receiving the second letter, enters into a contract with C, who knows of the
first letter, but not of the second for the sale to him of the cotton. C pays B
the money, with which B absconds. C’s payment is good as against A.
(c) A directs B, his agent, to pay certain money to
C. A dies, and D takes out probate to his will. B, after A’s death, but before
hearing of it, pays the money to C. The payment is good as against D, the
executor.
S 209. Agent's duty on termination o agency by
principal's death or insanity -
When an agency is terminated by the principal dying
or becoming of unsound mind, the agent is bound to take, on behalf of the
representatives of his late principal, all reasonable steps for the protection
and preservation of the interests entrusted to him.
S 210. Termination of Sub-agent's authority -
The termination of the authority of an agent causes
the termination (subject to the rules herein contained regarding the
termination of an agent's authority) of the authority of all sub-agents
appointed by him.
S 211. Agent's duty in conducting principal's
business -
An agent is bound to conduct the business of his
principal according to the directions given by the principal, or, in the
absence of any such directions, according to the custom which prevails in doing
business of the same kind at the place where the agent conducts such business.
When the agent acts otherwise, if any loss be sustained, he must make it good
to his principal, and, if any profit accrues, he must account for it.
Illustrations
(a) A, an agent engaged in carrying on for B a
business, in which it is the custom to invest from time to time, at interest,
the moneys which may be in hand, on its to make such investments. A must make
good to B the interest usually obtained by such investments.
(b) B, a broker in whose business it is not the
custom to sell on credit, sells goods of A on credit to C, whose credit at the
time was very high. C, before payment, becomes insolvent. B must make good the
loss to A.
S 212. Skill and Diligence required from agent -
An agent is bound to conduct the business of the
agency with as much skill as is generally possessed by persons engaged in
similar business, unless the principal has notice of his want of skill. The
agent is always bound to act with reasonable diligence, and to use such skill
as he possesses; and to make compensation to his principal in respect of the
direct consequences of his own neglect, want of skill or misconduct, but not in
respect of loss or damage which are indirectly or remotely caused by such
neglect, want of skill or misconduct.
Illustrations
(a) A, a merchant in Calcutta, has an agent, B, in
London, to whom a sum of money is paid on A’s account, with orders to remit. B
retains the money for a considerable time. A, in consequence of not receiving
the money, becomes insolvent. B is liable for the money and interest, from the
day on which it ought to have been paid, according to the usual rate, and for
any further direct loss—as, e.g., by variation of rate of exchange—but not
further.
(b) A, an agent for the sale of goods, having
authority to sell on credit, sells to B on credit, without making the proper
and usual enquiries as to the solvency of B. B at the time of such sale is
insolvent. A must make compensation to his principal in respect of any loss
thereby sustained.
(c) A, an insurance-broker employed by B to effect an
insurance on a ship, omits to see that the usual clauses are inserted in the
policy. The ship is afterwards lost. In consequence of the omission of the
clauses nothing can be recovered from the underwriters. A is bound to make good
the loss to B.
(d) A, a merchant in England, directs B, his agent at
Bombay, who accepts the agency, to send him 100 bales of cotton by a certain ship.
B, having it in his power to send the cotton, omits to do so. The ship arrives
safely in Engalnd. Soon after her arrival the price of cotton rises. B is bound
to make good to A the profit which he might have made by the 100 bales of
cotton at the time of ship arrived, but not any profit he might have made by
the subsequent rise.
COMMENTS
General
The defendant/respondent had grossly misconducted
himself firstly when he communicated to the appellant that the goods had been
purchased at the rate of Rs. 36 per pound when they had not been and further
stating that these goods would be despatched as soon as the transporters strike
was over. The defendant later on informed the appellant that the goods could
not be purchased as their delivery was dependant on yet another party. The
defendant had misinformed his principal and his misconduct squarely comes
within section 212 of Contract Act; and the defendant must bear the brunt to
pay the damages; Jayabharathi Corporation v. SV P.N. SN Rajasekara Nadar, AIR
1992 SC 596.
S 213. Agent's accounts - An agent is bound to render
proper accounts to his principal on demand.
S 214. Agent's duty of communicate with principal –
It is the duty of an agent, in cases of difficulty,
to use all reasonable diligence in communicating with his principal, and in
seeking to obtain his instructions.
S 215. Right to principal when agent deals, on his
own account, in business of agency without principal's consent -
If an agent deals on his own account in the business
of the agency, without first obtaining the consent of his principal and
acquainting him with all material circumstances which have come to his own
knowledge on the subject, the principal may repudiate the transaction, if the
case shows either that any material fact has been dishonestly concealed from
him by the agent, or that the dealings of the agent have been disadvantageous
to him
Illustrations
(a) A directs B to sell A’s estate. B buys the estate
for himself in the name of C. A, on discovering that B has bought the estate
for himself, may repudiate the sale, if he can show that B has dishonestly
concealed any material fact, or that the sale has been disadvantageous to him.
(b) A directs B to sell A’s estate. B, on looking
over the estate before selling it, finds a mine on the estate which is unknown
to A. B informs A that he wishes to buy the estate for himself, but conceals
the discovery of the mine. A allows B to buy, in ignorance of the existence of
the mine. A, on discovering that B knew of the mine at the time he bought the
estate, may either repudiate or adopt the sale at his option.
S 216. Principal's right to benefit gained by agent
dealing on his own account in business of agency -
If an agent, without the knowledge of his principal,
deals in the business 6f the agency on his own account instead of on account of
his principal, the principal is entitled to claim from the agent any benefit
which may have resulted to him from the transaction.
Illustration
A directs B, his agent, to buy a certain house for
him. B tells A it cannot be bought, and buys the house for himself. A may, on
discovering that B has bought the house, compel him to sell it to A at the
price he gave for it.
S 217. Agent's right of retainer out of sums received
on principal's account –
An agent may retain, out of any sums received on
account of the principal in the business of the agency, all moneys due to
himself in respect of advances made or expenses properly incurred by him in
conducting such business, and also such remuneration as may be payable to him
for acting as agent.
S 218 . Agent's duty to pay sums received for
principal -
Subject to such deductions, the agent is bound to pay
to his principal all sums received on his account.
S 219. When agent's remuneration becomes due -
In the absence of any special contract, payment for
the performance of any act is not due to the agent until the completion of such
act; but an agent may detain moneys received by him on account of goods sold,
although the whole of the goods consigned to him for sale may not have been
sold, or although the sale may not be actually complete.
S 220. Agent not entitled to remuneration for
business misconducted -
An agent who is guilty of misconduct in the business
of the agency is not entitled to any remuneration in respect of that part of
the business which he has misconducted.
Illustrations
(a) A employs B to recover 1,00,000 rupees from C,
and to lay it out on good security, B recovers the 1,00,000 rupees and lays out
90,000 rupees on good security, but lays out 10,000 rupees on security which he
ought to have known to be bad, whereby A loses 2,000 rupees. B is entitled to
remuneration for recovering the 1,00,000 rupees and for investing the 90,000
rupees. He is not entitled to any remuneration for investing the 10,000 rupees,
and he must make good the 2,000 rupees to B.
(b) A employs B to recover 1,000 rupees from C.
Through B’s misconduct the money is not recovered. B is entitled to no
remuneration for his services, and must make good the loss.
S 221. Agent's lien on principal property -
In the absence of any contract to the contrary, an
agent is entitled to retain goods, papers, and other property, whether movable
or immovable, of the principal received by him, until the amount due to himself
for commission, disbursements and services in respect of the same has been paid
or accounted for to him.
COMMENTS
General
The lien of an agent extends only to the retention of
the property till his dues are paid. At common law a legal lien merely confers
on the holder of the articles in respect of which it was claimed, a passive
right to detain the articles until the debt is paid. Such a lien cannot be
enforced by sale of the goods; Kavita Trehan v. Balsara Hygiene Products Ltd.,
AIR 1992 Del 103.
S 222. Agent to be indemnified against consequences
of lawful acts -
The employer of an agent is bound to indemnify him
against the consequences of all lawful acts done by such agent in exercise of
the authority conferred upon him.
Illustrations
(a) B, at Singapure, under instructions from A of
Calcutta, contracts with C to deliver certain goods to him. A does not send the
goods to B, and C sues B for breach of contract. B informs A of the suit, and A
authorises him to defend the suit. B defends the suit, and is compelled to pay
damages and costs, and incurs expenses. A is liable to B for such damages,
costs and expenses.
(b) B, a broker at Calcutta, by the orders of A, a
merchant there, contracts with C for the purchase of 10 casks of oil for A.
Afterwards A refuses to receive the oil, and C sues B. B informs A, who
repudiates the contract altogether. B defends, but unsuccessfully, and has to
pay damages and costs and incurs expenses. A is liable to B for such damages,
costs and expenses.
S 223. Agent to be indemnified against consequences of
acts done in good faith -
Where one person employs another to do an act, and
the agent does the act in good faith, the employer is liable to indemnify the
agent against the consequences of that act, though it causes an injury to the
rights of third persons
Illustrations
(a) A, a decree-holder and entitled to execution of
B’s goods requires the officer of the Court to seize certain goods,
representing them to be the goods of B. The officer seizes the goods, and is
sued by C, the true owner of the goods. A is liable to indemnify the officer
for the sum which he is compelled to pay to C, in consequence of obeying A’s
directions.
(b) B, at the request of A, sells goods in the
possession of A, but which A had no right to dispose of. B does not know this,
and hands over the proceeds of the sale to A. Afterwards C, the true owner of
the goods, sues B and recovers the value of the goods and costs. A is liable to
indemnify B for what he has been compelled to pay to C, and for B’s own
expenses.
S 224. Non-Liability of employer of agent to do a
Criminal Act -
Where one person employs another to do an act which
is criminal, the employer is not liable to the agent, either upon an express or
an implied promise, to indemnify him against the consequences of that act.
Illustrations
(a) A employs B to beat C, and agrees to indemnify
him against all consequences of the act. B thereupon beats C, and has to pay
damages to C for so doing. A is not liable to indemnify B for those damages.
(b) B, the proprietor of a newspaper, publishes, at
A’s request, a libel upon C in the paper, and A agrees to indemnify B against
the consequences of the publication, and all costs and damages of any action in
respect thereof. B is sued by C and has to pay damages, and also incurs
expenses. A is not liable to B upon the indemnity.
S 225. Compensation to agent for injury caused by
principal's neglect -
The principal must make compensation to his agent in
respect of injury 1caused to such agent by the principal's neglect or want of
skill.
Illustration
A employs B as a bricklayer in building a house, and
puts up the scaffolding himself. The scaffolding is unskilfully put up, and B
is in consequence hurt. A must make compensation to B.
S 226. Enforcement and Consequences of agent's
contracts -
Contracts entered into through an agent, and
obligations arising from acts done by an agent, may be enforced in the same
manner, and will have the same legal consequences, as if the contracts had been
entered into and the acts done by the principal in person.
Illustrations
(a) A buys goods from B, knowing that he is an agent
for their sale, but not knowing who is the principal. B’s principal is the
person entitled to claim from A the price of the goods, and A cannot, in a suit
by the principal, set-off against that claim a debt due to himself from B.
(b) A, being B’s agent, with authority to receive
money on his behalf, receives from C a sum of money due to B. C is discharged
of his obligation to pay the sum in question to B.
S 227. Principal how far bound, when agent exceeds
authority -
When an agent does more than he is authorised to do,
and when the part of what he does, which is within his authority, can be
separated from the part which is beyond his authority, so much only of what he
does as is within his authority is binding as between him and his principal.
Illustration
A, being owner of a ship and cargo, authorizes B to
procure an insurance for 4,000 rupees on the ship. B procures a policy for
4,000 rupees on the ship, and another for the like sum on the cargo. A is bound
to pay the premium for the policy on the ship, but not the premium for the
policy on the cargo.
S 228. Principal not bound when excess of agent's
authority is not separable -
Where an agent does more than he is authorised to do,
and what he does beyond the scope of his authority cannot be separated from
what is within it, the principal is not bound to recognise the transaction.
Illustration
A, authorizes B to buy 500 sheep for him. B buys 500
sheep and 200 lambs for one sum of 6,000 rupees. A may repudiate the whole
transaction.
S 229. Consequences of notice given to agent -
Any notice given to or information obtained by the
agent, provided it be given or obtained in the course of the business
transacted by him for the principal, shall, as between the principal and third
parties, have the same legal consequence as if it had been given to or obtained
by the principal.
Illustrations
(a) A is employed by B to buy from C certain goods,
of which C is the apparent owner, and buys them accordingly. In the course of
the treaty for the sale, A learns that the goods really belonged to D, but B is
ignorant of that fact. B is not entitled to set-off a debt owing to him from C
against the price of the goods.
(b) A is employed by B to buy from C goods of which C
is the apparent owner. A was, before he was so employed, a servant of C, and
then learnt that the goods really belonged to D, but B is ignorant of that
fact. In spite of the knowledge of his agent, B may set-off against the price
of the goods a debt owing to him from C.
S 230. Agent cannot personally enforce, nor be bound
by, contracts on behalf of principal -
In the absence of any contract to that effect, an
agent cannot personally enforce contracts entered into by him on behalf of his
principal, nor is he personally bound by them.
PRESUMPTION OF CONTRACT TO THE CONTRARY. -
Such a contract shall be presumed to exist in the
following cases :-
(1) where the contract is made by an agent for the
sale or purchase of goods for a merchant resident abroad;
(2) where the agent does not disclose the name of his
principal; and
(3) where the principal, though disclosed, cannot be
sued.
Comments
When agent can be sued
Before the agent can be sued it must be pleaded and
shown that the principal is undisclosed and the contract, the breach of which
is sued on was entered into by the agent as having contracted personally. Where
the contract is entered into by agent contracting on behalf of a foreign
principal who is named and disclosed, the agent can not be sued personally nor
made personally liable; Midland Overseas v. “CMBT Tana”, AIR 1999 Bom 401.
S 231. Rights of Parties to a contract made by agent
not disclosed -
If an agent makes a contract with a person who
neither knows, nor has reason to suspect, that he is an agent, his principal
may require the performance of the contract; but the other contracting party
has, as against the principal, the same rights as he would have had as against
the agent if the agent had been the principal. If the principal discloses himself
before the contract is completed, the other contracting party may refuse to
fulfil the contract, if he can show that, if he had known who was the principal
in the contract, or if he had known that the agent was not a principal, he
would not have entered into the contract.
S 232. Performance of contract with agent supposed to
be principal -
Where one man makes a contract with another, neither
knowing nor having reasonable ground to suspect that the other is an agent, the
principal, if he requires the performance of the contract, can only obtain such
performance subject to the rights and obligations subsisting between the agent
and the other party to the contract.
Illustration
A, who owes 500 rupees to B, sells 1,000 rupees worth
of rice to B. A is acting as agent for C in the transaction, but B has no
knowledge nor reasonable ground of suspicion that such is the case. C cannot
compel B to take the rice without allowing him to set-off A’s debt
S 233. Right of person dealing with agent personally
liable -
In cases where the agent is personally liable, a
person dealing with him may hold either him or his principal, or both of them,
liable.
Illustrations
A enters into a contract with B to sell him 100 bales
of cotton, and afterwards discovers that B was acting as agent for C. A may sue
either B or C, or both, for the price of the cotton.
S 234. Consequence of Inducing agent or principal to
act on belief that principal or agent will be held exclusively liable-
When a person who has made a contract with an agent
induces the agent to act upon the belief that' the Principal only will be held
liable, or induces the principal to act upon the belief that the agent only
will be held liable, he cannot afterwards hold liable the agent or principal
respectively.
S 235. Liability of pretended agent -
A person untruly representing himself to be the
authorised agent of another, and thereby inducing a third person to deal with
him as such agent, is liable, if his alleged employer does not ratify his acts,
to make compensation to the other in respect of any loss or damage which he has
incurred by so dealing.
S 236. Person falsely contracting as agent not
entitled to performance -
A person with whom a contract has been entered into
in the character of agent, is not entitled to require the performance of it if
he was in reality acting, not as agent, but on his own account.
S 237. Liability of principal inducing belief that
agent's unauthorized acts were authorized -
When an agent has, without authority, done acts or
incurred obligations to third persons on behalf of his principal, the principal
is bound by such acts or obligations, if he has by his words or conduct induced
such third persons to believe that such act and obligations were within the
scope of the agent's authority.
Illustrations
(a) A consigns goods to B for sale, and gives him
instructions not to sell under a fixed price. C, being ignorant of B’s
instructions, enters into a contract with B to buy the goods at a price lower
than the reserved price. A is bound by the contract.
(b) A entrusts B with negotiable instruments endorsed
in blank. B sells them to C in violation of private orders from A. The sale is
good.
S 238. Effect, on agreement, of misrepresentation or
fraud by agent -
Misrepresentations made, or frauds committed, by
agents acting in the course of their business for their principals, have the
same effect on agreements made by such agents as if such misrepresentations or
frauds had been made or committed, by the principals; but misrepresentations
made, or frauds, committed, by agents, in matters which do not fall within
their authority, do not affect their principals.
Illustrations
(a) A, being B’s agent for the sale of goods, induces
C to buy them by a misrepresentation, which he was not authorized by B to make.
The contract is voidable, as between B and C, at the option of C.
(b) A, the captain of B’s ship, signs bills of lading
without having received on board the goods mentioned therein. The bills of
lading are void as between B and the pretended consignor.
(58) Narandas Morardas Gajiwala v SPAM Papammal AIR
1967 SC 333
Agent sued principal for certain accounts –
Principals in turn sued agent for promissory notes – Agent held that an oral
agreement by principal to not enforce promissory notes during period of agency.
– TC ordered decree against promissory notes but held that it should be
adjusted with any sum found due after accounting in the agent’s suit –
Principles appealed to HC and failing there appeal to the Apex Court
Court considered the maintainability of a suit by an
agent against the principle for accounts. Negating the contention that only a
principal can sue the agent for rendering proper accounts and not vice versa,
(as Section 213 of the Contract Act provided that an agent is bound to render
proper accounts to his principal on demand without a corresponding provision in
the Contract Act enabling the agent to sue the principal for accounts), this
Court held:
"In our opinion, the statute is not exhaustive
and the right of the agent to sue the principal for accounts is an equitable
right arising under special circumstances and is not a statutory right Though
an agent has no statutory right for an account from his principal, nevertheless
there may be special circumstances rendering it equitable that the principal
should account to the agent. Such a case may arise where all the accounts are
in the possession of the principal and the agent does not possess accounts to
enable him to determine his claim for commission against his principal. The right
of the agent may also arise in a exceptional case where his remuneration
depends on the extent of dealings which are not known to him or where he cannot
be aware of the extent of the amount due to him unless the accounts of his
principal are gone into."
Held oral agreement proved in HC. Upheld the HC
decision.
(59) Kuchwar Lime and Stone Co v Dehri Rohtas Light
Rly & Co Ltd AIR 1969 SC 193
A quantity of coal was booked by a Colliery to the
appellant Company carriage to Banjari station on the respondent Railway’s line
and the freight on the consignment was to be paid by the appellant Company. The
Company declined to take delivery of a part of the consignment which reached
Banjari on November 12, 1954 on account of inferior quality of the coal. After
some correspondence between the parties as well as with the Coal Controller,
the Railway sold the coal by public auction on June 2, 1955, after serving a
notice on the appellant. It thereafter filed a suit against the Company
claiming outstanding amount of freight and demurrage charges for 202 days
during which six wagons in which the coal was loaded were detained and ‘sought
a decree for Rs. 17,625/14/- after giving credit for the amount realized from
the sale of the coal.
Issues
(i) Whether consignee liable to pay after refusing to
accept consignment?
(ii) If railway entitled to demurrage for full period
or obliged to unload and claim demurrage only for reasonable period?
Judgement
Trial court: The trial court granted a decree for
about Rs. 1,620/- with interest, but in appeal the High Court decreed the
Railway’s claim in full.
High Court: The High Court modified the decree passed
by the Trial Court and decreed the claim of the Railway against the Company in
full.
Supreme Court
Contentions
Company
(i) The Company being a consignee of the goods booked
by the Colliery there was no privity of contract between the Company and the
Railway and no claim for demurrage or freight lay at the instance of the
Railway against the Company;
(ii) In any event the Railway ought to be awarded
demurrage for only 22 days out of the total period for which the wagons were
detained.
(iii) It is only in those cases where delivery of
goods is taken by the consignee that the liability to pay demurrage may be
imposed upon him.
J.C. Shah, J.
It is clear that the Colliery supplied coal in
pursuance of the “sanction order” in favour of the Company and arranged to
transport it in wagons which were allotted for that purpose by order of the
Deputy Coal Commissioner. Under the forwarding notes the freight was made
payable by the Company. In these circumstances, it would be reasonable to infer
that the Colliery was acting as an agent of the Company in entering into the
contract of consignment and the liability for payment of freight and of demurrage
charges for failure to take delivery of the goods lay upon the Company.
The High Court erred in holding that the Company was
liable to pay demurrage for the full period of 202 days. Railway was entitled
to demurrage for the detention of wagons for only one month and cannot claim
the entire amount. The Railway was in the position of a bailee qua the Company
and was bound to minimize the loss. It could have sold off the coal under s, 56
of the Railways Act. Even assuming that in view of the Colliery Control Order,
the Railway could not sell the coal without the Coal Commissioner’s sanction,
it could have unloaded the coal from the wagons and put the wagons to use.
Hence, the consignee could be liable only for wharfage.
(w.r.t 3rd contention of the company) There was no
force in the contention that it is only in those cases where delivery of goods
is taken by the consignee that the liability to pay demurrage may be imposed
upon him. Even where the consignee does not ultimately take delivery, if the
wagon is detained for his benefit, normally the Railway would be entitled to
hold him liable for demurrage.
(60) Lakshminarayan Ram Gopal v Govt of Hyderabad AIR
1954 SC 367
Honorable Judges of the Supreme Court pointed out the
distinction between an agent, a servant and an independent contractor and
quoted the following passage from Halsbury's Laws of
England (Hail-sham Edn., Vol. I, p. 193, para 345),
as follows (p. 456 of 25 ITR) :
"An agent is to be distinguished on the one hand
from a servant and on the other from an independent contractor. A servant acts
under the direct control and supervision of his master, and is bound to conform
to all reasonable orders given to him in the course of his work; an independent
contractor, on the other hand, is entirely independent of any control or
interference and merely undertakes to produce a specified result employing his
own means to
produce that result. An agent, though bound to
exercise his authority in accordance with all lawful instructions which may be
given to him from time to time by his principal, is not subject in his exercise
to the direct control or supervision of the principal."
Factors distinguishing servant from agent - The
distinction between a servant or an agent can be summarized as follows : (i)
generally a master can tell his servant what to do and how to do it; (ii)
generally a principal cannot tell his agent how to carry out his instructions;
(iii) a servant is under more complete control than an agent; (iv) generally, a
servant is a person who not only receives instructions from his master but is
subject to his master’s right to control the manner in which he carried out
those instructions; an agent receives his principal’s instructions but is
generally free to carry out those instructions according to his own discretion;
(v) generally a servant qua servant has no authority to make contracts on
behalf of his master; generally, the purpose of employing an agent is to authorize
him to make contracts on behalf of his principal; (vi) generally an agent is paid
commission upon effecting the result which he has been instructed by his
principal to achieve; (vii) generally a servant is paid wages or salary
Bhagwati J observed that when a company is
incorporated it does not necessarily imply that the company has come into
existence for the purpose of carrying on a business. Further observed that the
objects of an incorporated company as laid down in a memorandum of association
is certainly not conclusive of the question whether the activities of the
company amount to carrying on a business.
(61) Snow White Indl Corpn v Collector of Central
Excise AIR 1989 SC 1555
Held that mere commonness of partners and Directors
between the buyer and seller was not sufficient to treat the buyer as a
'related person' even if entire production was sold through them. We have
examined the file of C.A: 9850/95. What we find is that the appeal was filed by
the Revenue which was barred by limitation and delay was condoned subject to
payment of cost Rs. 500/- payable within four weeks to the Counsel for
respondents. Since the cost had not been paid the appeal was dismissed by order
dated April 4, 1996. This dismissal of the appeal, therefore, does not help the
appellant. The Appellate Tribunal in the order, which was impugned in C.A. 9850/95,
found that the assessee had sold 95 out of 96 arc lamps to a company of which
one of the partners of the assessee firm was a Director. On this Department
took the view that the company was a related person and sought to assess the
goods at a higher price at which the assessee sold the goods to the buyer
company. Appellate Tribunal was of the view that merely because there was some
common Directors between the assessee and the company that itself would not be
sufficient ground for hold- ing that both were related persons. Appellate
Tribunal found that no evidence regarding mutuality of interest had been
brought on record except the sale of goods by the assessee to the buyer
company. It said that while this fact of sale may create one way interest of the
company in the business of the assessee firm it was not indicative of the
interest of the assessee in the business of the buyer company.
A composed and enlisted understanding fills in as a conventional understanding between at least two gatherings. Vakilsearch to Partnership Deed Format
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