INTRODUCTION
The Indian partnership act 1932 came into force on 1st October 1932. Prior to the passing of this act, the principles of the partnership were laid down from section 239 to section 366 in part XI of the Indian contract act 1872. All grounds that make a person capable of entering into a contract also apply for entering into a partnership.
The grounds are:
- Having reached the age of majority which is the age of 18.
- Having a sound mind at time of entering the contract.
- The person should not be disqualified under any law.
Hence according to section 11 of the Indian Contract Act, a minor is barred from entering into a partnership however there is more to it regarding his/her status.
Status of minor
Section 30 of the Indian Partnership Act, clearly states that a minor is not eligible to enter into a partnership. Although, with authorization from all the adult partners, he may be admitted to the advantages of partnership[1]. Any partnership agreement involving a minor which violates this section cannot be regarded as valid for the purpose of registration. A minor is somebody who is yet to achieve a larger part under the law that must be subject to he is dependent upon.
The law that must be adhered to while determining whether an individual is minor or not is the Indian Majority Act, 1875. Section 3 of the aforementioned act classifies eighteen as the age at which an individual in India is considered to have attained the age of majority.[2] A minor is eligible to benefits of partnership if he/ she has Indian nationality, is of sound mind at the time entering into the partnership, should not be disqualified to enter into a partnership by any law should be consented to by all partners while entering into that partnership.
Shri Brojendra Lal Mitter, Mr Dinshah Fardunji Mullah, Mr Alladi Krishnaswami Iyer, and Mr Arthur Eggar were members of a special committee that was involved in drafting the partnership act[3]. They discussed the subject of partnership very carefully and took inspiration from the English partnership act and judicial precedents involving this subject both in India and England.
While designing the order of the Indian partnership act, they saw that they didn’t have an acceptable motivation to exempt the act from the overall standard in regards to dealing with minors in legal agreements established by Contract Law expressed in both Section 11 and the judgment of the Privy Council in Mohori Bibi’s case. In addition, they observed that it had been a common practice in India since 1866 to make minors eligible for the advantages of a contract. Considering these perceptions, the committee chose not to authorize minors to be a part of the partnership since a partnership is the consequence of an agreement to which a minor is unequipped for being involved as a party but permitted a minor to partake in the advantages of a partnership.
Even when being represented by his/her guardian, a minor cannot become a full-fledged partner in a partnership firm. In C.I.T Mysore v. Shah Mohandas Sadhuram[4], it was held that if the partnership agreement prevents the minor from becoming an official partner of the company and only grants the minor benefits to such partnership, it cannot be declared invalid just because the minor’s guardian claims to work on behalf of the minor before signing the contract until and unless the partnership agreement violates the provisions mentioned under article 30 of the Indian Partnership Act.
RIGHTS OF A MINOR
A minor can only be brought into an existing partnership and cannot form a new partnership. In furtherance of the same, to protect the rights of minors, the role of the minor can be only in the nature of a beneficiary thus a minor is only admitted to the benefits of the partnership. The legislative intent is to protect a minor, being unable to ascertain risk, liability, and his responsibility, from all sorts of liability thus a minor is only allowed to take the profits and other benefits of a firm leaving out the losses and liability.
In CIT v. Dwarkadas & Co.,[5] the Hon’ble Apex Court held as follows:
“Section 30 of the Indian Partnership Act, clearly lays down that a minor cannot become a partner, though, with the consent of the adult partners, he may be admitted to the benefits of a partnership. Any document which goes beyond this section cannot be regarded as valid for the purpose of registration.”
RIGHTS OF MINOR INCLUDES
- Right to his agreed shares of the profits and assets.
- Right to access and evaluate copies of the book of accounts of the firm.
Furthermore, it has been stated that the minor has no right to access other books which are not related to accounts of the firm.
- On attaining majority the minor may within 6 months decide whether to become a partner or not become a partner. If he/she decides to become a partner then he/she is entitled to the share to which he/she was previously entitled as a minor.[6]
LIABILITIES OF A MINOR
Section 30 of the Indian Partnership Act controls the admission of a minor into the partnership. This section covers the rights and responsibilities of a minor who joins the partnership. A closer examination of the provision, particularly section 30(1), reveals that a minor cannot be accepted to the partnership as a full-fledged partner, but can be authorized to avail the partnership’s benefits with the approval of the other partners.
The Apex Court declared in CIT v. Dwarkadas Khetan & Co. that minors in an established firm should not become qualified partners. The Indian Partnership Act’s concession is that a minor can be allowed to avail the profits of an existing business under section 30. It was decided that the Internal Revenue Service cannot register a partnership in which a minor is a partner to the extent that he is personally accountable for losses and has the power to vote and participate in the company.
In the critical decision of Commissioner of Income Tax versus D. Khaitan and Co.,[7] the Calcutta HC held that if a minor is declared a full-fledged partner in a firm, that partnership firm cannot be registered with the Income Tax Department. If the partnership needs to be registered with the IRS, a whole new contract must be written, with minors admitted exclusively to the firm’s benefits, and the old contract will be nullified once the new contract is in effect. It was also stated that the new contract must expressly specify that the minor was allowed to the partnership solely for the purpose of receiving advantages and that the minor is not responsible for any losses.
In the case of Banka Mal Lajja Ram & Co. v. Commissioner of Income Tax, Delhi[8] the Punjab-Haryana high court determined that even if all of the partners of the partnership firm agree to recognize the minor as a full-fledged partner, the decision cannot be implemented. A juvenile/minor partner can sue the other partners of the firm for his benefits under Section 30(4) of the Indian Partnership Act, although this privilege is not available to the full-fledged partners of the firm. The rule also specifies that if a minor break all relations with the company, his share must be valued in line with Section 48 of the Indian Partnership Act to the extent practicable. The Andhra Pradesh High Court declared in Addepally Nageswara Rao and Bros v. CIT[9] that: “In case if he (minor) contributes capital or is entitled to a share of the firm’s profits, the liability might be attached to the minor to that extent”.
CONCLUSION
It can be concluded that although minors cannot be recognized as complete partners in a firm, they can however be entitled to receive profits arising out of such partnership. Minors can only enter into partnerships with existing firms and entry of a minor has to be allowed through the consent of all partners. Minors have limited rights and liabilities when they enter into partnerships.
Author(s) Name: Naman Tarun Khulbe (Dr. BR Ambedkar National Law University, Sonipat)
References:
[1] Section 30, Indian Partnership act, 1932.
[2] Section 03, Indian Majority act, 1875.
[3] Universal’s, Indian Partnership Act 1932 bare act (Universal law publishing co Ltd, 2011)
[4] Commissioner of Income-Tax v. Shah Mohandas Sadhuram, 1966 AIR 15.
[5] Commissioner of Income-Tax v. R. Dwarkadas And Co., 1961 AIR 680.
[6] Pritam Banik., “Rights and Liabilities of a Minor in Partnership – Section 30” (Strictly Legal, July 29, 2021) <https://strictlylegal.in/rights-and-liabilities-of-a-minor-in-partnership/> accessed September 11, 2021.
[7] Khaitan & Co. v. Commissioner Of Income-Tax, 1979 118 ITR 728 Cal.
[8] Banka Mal Lajja Ram & Co. vs Commissioner of Income-Tax, AIR 1953 P&H 270.
[9] Nageswara Rao and Bros vs CIT, 1971 79 ITR 306 AP.
