Partnership Law: Rights, Duties, and Dissolution

Posted on Apr 28, 2024 in Law & Jurisprudence

Duties of Partners

  • Duty of absolute good faith (Section 9)
  • Duty not to compete (Section 16(b))
  • Duty of due diligence (Sections 12(b) and 13(f))
  • Duty to indemnify
  • Duty to render true accounts (Section 9)
  • Proper use of property (Sections 15 & 16(a))
  • Duty to account for personal profit (Trimble v. Goldberg case)

Rights of Partners

  • Right to take part in business (Section 12(a))
  • Majority rights (Section 12(c))
  • Access to books (Section 12(d))
  • Right to indemnity (Section 13(e))
  • Right to profits (Section 13(b))
  • Right to interest (Sections 13(c&d))
  • Right to remuneration (Section 13(a))

Dissolution of a Firm (Section 39)

Dissolution by All Partners

  • By agreement (Section 40)
  • Compulsory (Section 41)
  • All but one insolvent

Contingent Dissolution (Section 42)

  • Subject to contract:
    • Fixed term
    • Completed adventure
    • Insolvency
  • By notice (Section 43):
    • If at will, by notice in writing
    • Future date as mentioned (clear and not vague – Section 7)
  • By court (Section 44):
    • Unsoundness of mind
    • Permanent incapacity
    • Misconduct
    • Persistent breach of agreement
    • Transfer of interest
    • Perpetual loss
    • Just and equitable grounds

Misapplication by Partner (Section 27)

  • Money received by a partner within his apparent authority
  • Misapplied by any partner while in the custody of the firm (Rhodes v. Moules case)

Partnership Property (Section 14)

  • Subject to contract
  • All property brought into the stock of the firm
  • Acquired or purchased by or from firm money in the course of business
  • Includes goodwill unless contrary is provided
  • If used with firm money, it is considered firm property (Miles v. Clarke case)

Agency

  • Qui facit per alium per se (Section 182 of the Indian Contract Act)
  • Person employed to do such act or represent
  • Elements:
    • Assent
    • Benefit
    • Control
  • Creation by:
    • Express agreement (Section 187)
    • Implied:
      • Estoppel (Section 237)
      • Necessity
      • Ratification (Section 196)

Essentials of a Partnership (Section 4)

  • Two or more individuals
  • Agreement
  • Agreement to share profits (Grace v. Smith case)
  • Business
  • Mutual agency

Mode of Determination of Partnership (Section 6)

  • Consideration of the real relations and all relevant facts between parties
  • Case laws:
    • Cox v. Hickman (Iron merchants – Debtors case)
    • KD Kamath v. CIT (Two conditions case)
    • Mollow March v. Co Wards (Hindu Rajah case)

Consequences of Dissolution (Section 45)

  • Liability for acts after dissolution until public notice (by any partner)
  • Winding up (Section 46)
  • Continuing authority during winding up (Section 47)
  • Mode of settlement of accounts (Section 48):
    • Debts
    • Advances by partners
    • Capital
    • Residue
  • Case laws:
    • SV Chandra Pandian v. Sivalina Nada (Constitutes firm property case)
    • Saligram Ruplal Khanna v. Kawar Rajnath (Survival after expiry case)
    • Juggilal Kamlapat v. Sew Chand Bagri (Retirement knowledge case)
    • Sharad Vasant Kotak v. Ramniklal Chawda (Reconstitution does not change firm case)

Minor in a Partnership

  • Majority Act, 1875 (Section 3): Deemed to be major when completed age 18 in the domicile of India
  • Section 30: Minor admitted to partnership for the benefit of the partnership, only with the consent of all partners
  • Rights of a minor partner:
    • Right to share in property and profit as agreed upon, also access to books of accounts
    • Minor’s share is liable, not personally
    • Option to leave the partnership within 6 months of learning he is a member or upon reaching majority, by giving public notice
  • Case law: Shivagouda Ravij Patel v. Chanderkant Neelkant Sadalge

Effect of Non-Registration

  • No suit between partners and the firm
  • No suit for rights arising from a contract
  • No setoff or other proceedings
  • Case laws:
    • Haldiram Bhujiawala v. Anand Kumar (Trademark case)
    • Jagdish Chandra Gupta v. Kajaria Traders (Arbitration case)
    • Sharad Vasant Kotak v. Ramnilal Mohan Lal (Reconstitution not fresh registration case)
    • CIT v. Jayalakshmi Rice and Oil Mill (Section 58 – When Registered case)

Holding Out (Section 28)

  • Reproduces Section 115 of the Indian Evidence Act
  • More unjust and inequitable
  • Who by representation induced, repudiates such statement
  • Motive is immaterial, even if self-duped (Waugh v. Carver case)
  • Words spoken or written, or conduct
  • Represented or allowed
  • Case law: Tower Cabinet v. Ingram (Knowingly Permits case)

Implied Authority of a Partner (Section 19)

  • Authority implied when there is no express agreement
  • Act in the usual way business is carried by the firm
  • Section 22: Mode of doing an act that binds the firm:
    • In the name of the firm
    • In a manner expressing or implying the intention to bind the firm

Sale of Goods Act

Caveat Emptor (Section 16)

  • An exception to implied conditions and warranties
  • Case laws:
    • Richard Thorold Grant v. Australia Knitting Mills (Dermatitis – No implied warranty unless case)
    • Jones v. Just (Hemp – Latent defect case)

Nemo Dat Quod Non Habet (Section 27)

  • Case law: Hollins v. Fowler (Cotton case)

Perishable Goods (Section 7)

  • Specific goods (Section 2(14))
  • Perished and no longer answers to the description
  • Without the knowledge of the seller

Conditions and Warranties

  • Condition (Section 12(2)): Essential to the main purpose of the contract, can repudiate the contract, root of the contract
  • Warranty (Section 12(3)): Secondary to the main purpose of the contract

Statutory Transaction

  • Case laws:
    • Vishnu Agency v. CTO
    • Coffee Board, KA v. Comm of CT
  • Elements:
    • Competent parties
    • Mutual consent
    • Transfer of property
    • Payment of price

Sale by Sample (Section 17)

  • Bulk to correspond with the sample
  • Reasonable opportunity to compare
  • Not unmerchantable
  • Section 15: Sale by sample and description – Not enough that they correspond to the sample, also should correspond to the description

Rights of Unpaid Seller (Section 45)

  • Defined as: (a) Whole price not paid or tendered, (b) Bill of exchange was conditional and payment is dishonored
  • Section 46: Rights of unpaid seller if the property has passed, subject to provisions:
    • Lien (Sections 47-49)
    • Stoppage in transit (Sections 50-52)
    • Right to resale (Section 54)
  • Case law: Mysore Sugar Co v. Manohar Metal Indus (Delay in reselling case)