INTRODUCTION: Historical overview
The Indian Partnership Act was passed in the year 1932 and had gone into effect from first October of the same year. The earlier laws relating to partnerships, which were in the Indian Contract Act of 1872 within chapter X1, was superseded by the new Act. The Act is unexhaustive in nature. Its aim is to clarify and amend the law governing partnerships. Since a partnership is formed by a contract, it is controlled not only by the Partnership Act’s rules in this regard, but also by the law of contracts in cases where the partnership act is not having special provisions.
POSITION OF MINOR AS A PARTNER
‘Partnership’
The term ‘partnership’ is outlined in section 4 within the Indian Partnership Act, 1932 as “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”. The stated definition consists an essential element which was not there in the definition given by Indian Contract Act and i.e., of “mutual agency”[1].
Position of minor
The Indian Majority Act of 1875, defines a minor as anyone who has not yet attained the age of majority. As per the statue, a domiciled person in India will at the age of eighteen reach the age of majority[2]. The Indian Partnership Act within section 30 talks about a minor being admitted into the partnership[3]. At a closer examination of the clause, especially section 30(1), it is said that a minor can be admitted to the benefits of the partnership firm with the due consent of the other partners, but a minor cannot be a full-fledged partner in cases of partnership.
As per the well-established principle a contract cannot be entered into with a minor as the minor is not eligible/capable for the same. In the case of Dwarkadas[4] and Hardutt Ray[5], the country’s Highest Court, i.e., Supreme Court agreed with this.
RIGHTS OF MINOR AS A PARTNER
Minor can be admitted to partnership benefits
As previously discussed, section 30 of the Partnership Act deals with the provisions of a minor in case of a partnership. Thus, it is specified that a person who is not of the age of majority, i.e., 18 cannot be a party to a contract as per the Contract Act 1872. Subsequently it is also clear that since partnerships are contract between the partners, minors cannot be partners in a partnership firm.
However, under the above mentioned act, in cases of partnership, a minor is eligible to be entitled to its benefits. That is, he will be entitled to all of the privileges of one without being a partner. But in such a case, all the partners of a firm must be in an agreement to admit such minors in the partnership and up to its benefits.
Rights of a minor as a partner
Now, when a minor had been admitted into the Partnership for the benefits, there are some rights that automatically gets entitled to him. Following are the rights of a minor as a partner: –
- A minor partner would, of course, be entitled to a share of the firm’s profits. However, the minor partner is not responsible for any damages that are not related to his firm’s interests[6].
- He, like any other partner, has the right to inspect the firm’s books of accounts[7].
- He can take any or all of the other partners to the court for his stake of the profits or benefits if necessary.
Position of Minor after the attainment of majority
At reaching majority, a minor can choose between two options: i.e., either to break his link with the firm or be a partner of the firm in a full-fledged manner, as per section 30(5) of the Partnership Act[8]. This minor partner is supposed to take this decision within a time period of 6 months after reaching majority. If the minor choses the latter option out of the two, he should give a public notice about the same as is required by Section 72 of the Indian Partnership Act[9].
Now it is essential to understand that as per Section 7(a) of the IPA, 1932, it is said that if a minor has been recognized as a partner in full-fledged terms, he will be held accountable for both- the liabilities of the firm that would incur in future and the past liabilities too, dating back to the date when he was admitted into the partnership.[10]. Section 7(b) of the act stipulates that his share after he obtains majority and becomes full-fledged partner will be the same as it was when he was a minor.[11]
According to Section 8 of the IPA, 1932[12], it is held that if a minor chooses not to be full-fledged partner, he is responsible for all of the partnership’s liabilities until a public notice has been provided by him as required by Section 72 of the same act.
CASE STUDY
The Commissioner of Income-Tax, Bombay v. Dwarkadas Khetan & Co.[13]:
Facts: In the present case there was a partnership deed entered by M/S Dwarkadas Khetan, one of the persons in the partnership was a minor. The same partner had been stated in the instrument of partnership as a full-fledged partner having rights and liabilities, at par with the other adult partners. The partnership deed that was signed by the minor had been produced in front of the Registrar of Firms for the purpose of registration of the firm. The certificate which was granted by the registrar to the firm portrayed the minor to be a full-fledged partner and not just as a partner being admitted only for the partnership’s benefits. When the matter was presented before the Income tax department, the person in-charge, denied registering the firm as per the provisions of S.26A of the Indian Income-tax Act[14]. The evaluation of the officer was reiterated by the Income tax authorities as well as the appellate tribunal of Income tax. The State High Court was of a different opinion. It said that as per the provisions of the Income tax act the firm should be duly registered. The Income-tax commissioner appealed to the apex court for the same, and the matter was then entertained by the Supreme Court.
Judgement: The Supreme Court in the case held that “The Rules which have been framed under S. 26A quite clearly show that a minor who is admitted to the benefits of partnership need not sign the application for registration. The law requires all partners to sign the application, and if the definition were to be carried to the extreme, even a minor who is admitted to the benefits of partnership would be competent to sign such an application. The definition is designed to confer equal benefits upon the minor by treating him as a partner; but it does not render a minor a competent and full partner.
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 partnership. Any document which goes beyond this section cannot be regarded as valid for the purpose of registration. Registration can only be granted of a document between persons who are parties to it and on the covenants set out in it”. Thus, it became a landmark judgement in which it was pronounced that a minor in a partnership cannot be a full-fledged partner.
CONCLUSION
Thus, a conclusion which can be derived from the preceding discussion is that with a minor as the sole other member, a partnership firm cannot be established. A contract establishes the relationship of a partnership. As per S.11 of the Contract Act of 1872, a minor is incompetent to be a party to a contract.[15]. Even in the case of Dwarkadas Khetan[16], the Hon’ble Apex Court had ruled out that a minor is not eligible to be a full-fledged partner in a company. In the case of Shah Mohandas[17], the apex court ruled out that the admission of a minor to a firm can only be for the purpose of benefits.
We enter into partnership agreements often and thus it is an essential part of our daily lives. The purpose of forming partnerships is to achieve large goals with the aid of a group of people. The combined efforts of all members result in the successful completion of duties, which can be readily funded. Task efficiency among diverse partners improves as a result of work division. So, as per my personal opinion, a partnership is a better way to do business than a sole proprietorship.
Author(s) Name: Chetan Yadav (Rajiv Gandhi National University of Law, Punjab)
References:
[1] Indian Partnership Act 1932, s. 4.
[2] The Indian Majority Act 1875, s. 3.
[3] The Indian Partnership Act 1932, s. 30.
[4] Commissioner of Income Tax v. R. Dwarkadas & Co., [1971] 80 ITR 283 (Bom).
[5] Hardutt Ray Gajadhar Ram v. Commissioner of Income Tax, [1950] 18 ITR 106 (All).
[6] The Indian Partnership Act 1932, s. 30(3).
[7] The Indian Partnership Act 1932, s. 30(2).
[8] The Indian Partnership Act 1932, s. 30(5).
[9] The Indian Partnership Act 1832, s. 72.
[10] The Indian Partnership Act 1932, s. 7(a).
[11] The Indian Partnership Act 1932, s. 7(b).
[12] Section 8 of the Indian Partnership Act 1932, s. 8.
[13] The Commissioner of Income-Tax, Bombay v. Dwarkadas Khetan & Co. [1961] AIR 680 (SC).
[14] The Income-tax Act 1961, s. 26A.
[15] The Indian Contract Act 1872, s. 11.
[16] Supra Note 13.
[17] Commissioner of Income tax v. Shah Mohandas Sadhuram [1966] AIR 15 (SC).
