Partnership Act

Ans: Section 41 of Indian Partnership Act, 1932 mentions compulsory dissolution.  According to section 41(1) of partnership act, 1932, the partnership will be dissolved if one of the person gets insolvent. If the partners gets insolvent,  the business will have to be compulsorily dissolved. 'Delectus personae'  means personal skills and if the partners gets insolvent,  the personal skills will be compulsorily dissolved. According to section 37 of Indian Contract Act, the Contract gets dispensed and it needs not to be performed when the person who is to be performed lost his skills i.e., in case of death, physically disabled after Contract,  etc. According to section 41(2) of partnership act, 1932, if any event occurs and it becomes unlawful for any act, the partnership gets dissolved.  For instance: The prohibition of sale of liquor is illegal and the partnership becomes unlawful and gets dissolved. Suppose there are two businesses, i.e., one is of selling ...

Ans: Section 40 mentions that a firm can be dissolved either with the consent of all partners or pursuant to a contract between the partners. Dissolution by consent applies when the firm is for fixed period or at will. The consent may be implied. In case of dissolution by way of contract between the partners such contract express or may be contained in the partnership deed itself or in a separate agreement. When there is a prior agreement between the partners as to dissolution of the firm, the firm can be dissolved as per the agreement even if all the partners are not willing to dissolve the firm at the moment.

Ans: According to Section 39 of partnership act, 1932 , the "dissolution of the firm" refers to the dissolution of the partnership between all partners in a firm.

Ans: In K.D. Kamath & Co. v. CIT, (1971) 2 SCC 873 Supreme Court held that two conditions are essential to constitute partnership; firstly, there must be an agreement to share the profit or losses of the business and secondly, the business must be carried on by all the partners or any one of them acting for all. The principle of agency is implicit in second requirement.

Ans: In Wallace Brothers v. CIT, (1948) 50 Bom, LR 482 (P(C) the court observed that the expression 'acting for all' is intended to emphasize the principle that partners when they carry on business of the firm act as agents as well as principles. In Chimanram v. Jayautilal, ILR 1939 Bom. 616 , the court held that the test of liability is not merely whether there is participation or sharing of profits but whether there is such sharing of profits as to constitute relation of principal and agent between the person taking profits and those carrying on the business.

Ans: Principle of Mutual Agency:  The definition of partnership in Section 4 provides that business is carried by all or any of them acting for all. This phrase indicates the existence of mutual agency. If a person carrying on a business acts not only for himself but for others also they are partners. They are mutually principals and agents of each other. The principle of mutual agency was laid down in Cox v. Hickman, (1860) 8 HL Cas 268. The court held that the liability of one partner for the acts of his co-partner is in truth the liability of the principal for the acts of his agent. When two or more persons are engaged as partners in trade, each of them has an implied authority from the other to bind all in any others by contracts entered into according to the usual course of business. Every partner, in ordinary course of business, is an agent of other partner. The partner has authority to bind the whole firm according to ordinary usage to trade. The element of mutual agency is...

Ans: 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 1.—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 2.—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 of 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 ow...

Ans: The House of Lords held that no man is a partner unless he has the right to share in the profits of a business, but every person who received the profit is not necessarily a partner. The sharing of profits is just a prima facie test of partnership. The conclusive test is that of mutual agency. Section 6 of the Act clearly lays down that the receipt by a person of a share of the profits of a business or payment contingent upon the earning of profits or varying with the profits earned in a business does not itself make him a partner with the person carrying on the business.

Ans: Cox V. Hickman, 1860  8  HL Cas 268 In this case two persons were partners and were trading as iron merchants. They became indebted to the creditors and therefore reached a compromise with them. Under the compromise the property of the firm was assigned to creditors acting as trustee. They were empowered to carry on the business and divide the profits among themselves in rateable proportion. After the discharge of the debt the business was to be returned to the original partners. Trustees purchased some quantity of coke from Hickman. Price of the product was unpaid and Hickman brought an action for recovery of price against trustees. The court held that they were not partners and hence Cox was not liable. The court further held that the liability of one partner for the acts of his co-partner is in truth the liability of the principal for the acts of his agent.

Ans: The division of profits is an essential condition of partnership. The term 'partnership' has been derived from the word 'to part' which means 'to divide'. The Partnership Act does not prescribe any manner or method of sharing the profits. The partners are free to share the profits in any way they like. Earlier, sharing of profits was considered as a conclusive test for determination of partnership. This principle was laid down in Grace v. Smith, (1775) 2 Wm Blacks 997. The court held that every man who received any portion of the profits of a business had to incur therein the liability of a partner. This position of law was reconsidered and changed by decision in Cox v. Hickman, (1860) 8 HL Cas 268.

Ans:  Partner' 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 care, in his own case acting under similar circumstances. Example:  Wajid, Yasir and Zahid are partners in a firm. By an agreement, they decided that the partner would have authority to sell goods of the firm above the value of Rs. 50,000/ without the consent of other partners. Owing to a sudden slump in the market, the prices crashed, Yasir, in order to save the firm from loss, sold all the stock worth Rs. 5,000,000 without consulting any other partner. Such act would bind the firm.

Ans: The partners in a firm may by contract between the partners,  extend the implied authority of any partner . Therefore if a partner exceeded his actual authority,  but other partners ratify his act ,by contract , the firm shall be liable for such act. Example:  Sajid, Majid and Wajid are partners in a firm. By an agreement, they decided that no partner would have authority to sell goods of the firm above the value of Rs. 50,000/- without the consent of other partners. Sajid sold goods worth Rs. 70,000/- on credit without consulting other partners. The customer defaulted. Sajid has to compensate the firm for loss caused due to him exceeding his authority if not ratified.  However, Majid and Wajid may ratify his act and in that case the firm shall bear the loss.

Ans: In actual authority,  the partners have the knowledge of all the activities whereas in implied authority,  the partner is not aware of the activities of third person. Thus, the following acts are not included in the implied authority of partner unless there is any usage or custom of trade in law :  Arbitration: Submit a dispute relating to the business of the firm to arbitration. Bank account: Open a banking account on behalf of the firm in his own name. Compromise: Compromise or relinquish any claim or portion of a claim by the firm. Withdrawal of suit: Withdraw a suit or proceeding filed on behalf of the firm . Acceptance of liability: Admit any liability in a suit or proceeding against the firm Acquisition: Acquire immovable property on behalf of the firm. Transfer: Transfer immovable property belonging to the firm Partnership: Enter into partnership on behalf of the firm i.e., if one partnership firm enters into another partnership firm. The statutory restriction...

Ans: Scope of implied authority: Implied authority arises only in relation to ordinary business of firm, therefore every partner within the scope of his implied authority may bind the firm by the following acts: 1. Buying and Selling goods, on behalf of the firm and giving valid receipts for them. 2. Receiving payments of the debts due to the firm and giving valid receipts or discharge for them. 3. Contracting debts and paying debts on behalf of the firm. 4. Settling Accounts with persons dealing with the firm. 4. Employing Servants for the partnership of the firm . 5. Drawing cheques,  accepting or endorsing bills of exchange and promissory notes in the name of firm. 6. Pledging movable property of the firm. 7. Suing on behalf of the firm and defending suits in the name of firm. Example 1:  Naina and Raima are partners in a cash business operating a petrol station.  Naima orders in firm's name and on the firm's letter head to be supplied wit...

Ans:  Section 19: 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, and is called 'implied authority '. Example 1: Azam and Babar are partners.  The agreement between them does not state anything about who has the authority to purchase goods on behalf of the firm. Azam buys goods in the ordinary course of business of the firm. Here firm will be liable for the price of the goods because Azam acted within his implied authority. Example 2:  Imran and Kamran are working in partnership as chartered accountants. Said gives Rs 90,000  to Imran for investment in some good security.  Imran dies not tell anything to his co-partner Kamran about it and misappropriates the money.  Sajid files suit on the firm for the recovery of Rs 90,000. Sajid will not succeed.  The firm can not be made liable because it is no part of the ordinary business of chartered accountants to receive money to be...

Ans: Mode of doing an act to bind firm: In order to bind a firm, an act done or instrument executed by a partner or other person on behalf of firm shall be: 1. Done or executed in the firm name, or 2. In the manner implying an intention to bind the firm. Types of Partner's Authority: 1. Actual ; 2. Implied

Ans: The meaning of Authority of Partner means the capacity of a partner to bind the firm by his act. When the partner has the authority,  the firm will be liable and if the partner has not the authority,  the firm will not be liable. Since the partnership is not a legal person , a partner acts as an agent for the other partners.

Ans: In accordance with section 18 of partnership act, 1932, subject to the provisions of the act, a partner is the agent of the firm for the purpose of business of the firm. Example: Ali, Bilal and Chand are the partners in a business. Dawood an outsider deals with the firm through Ali. As between Ali and Dawood, Ali is the principal. As between Ali , Bilal and Chand , Ali is also the agent of Bilal and Chand. As such Ali, Bilal and Chand can all sue Dawood. Dawood can also sue Ali, Bilal and Chand. Furthermore Ali is accountable to Bilal and Chand because he is an agent of Bilal and Chand. So, the partner is an agent of firm and all the partners will be collectively responsible for the act of one partner as a agent because principal is responsible for the act of agent. It is also called Mutual Agency Relationship.

Ans: According to section 7 of partnership act, 1932, when 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". It means that the duration of partnership will depend upon the will of the partners.

Ans: Judicial stamps are paid under court fees act, 1870 and Non Judicial Stamps are paid under Indian Stamp Act, 1899 and the respective state amendments . 

Ans: PARTNERSHIP NOT CREATED BY STATUS.  In accordance with section 5 of partnership act, 1932, 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.  According to section 5 of contract act, 1932, the partnership is not created by status. The relation of partnership arises: From Contract; and not from status. Example 1:  Members of Hindu undivided family (Joint Family) carrying on a family business together. The family members are not partners of each other because although,  they are carrying business together but the relationship between them has not arisen from Contract but due to their family status according to their religion. Example 2: A Burmese Buddhist husband and wife carrying on business together according to their religion...

Ans: In accordance with section 4 of partnership act, 1932:  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 " . So persons individually are partners and collectively makes a firm and the name under which business is carried on is the firm- name.  To make partnership,  partnership deed is required. If two persons agree to share profits, they become partners in partnership firm. 

Ans: The partnership act, 1932 comprises of 74 sections and 2 schedules.