Indian Partnership Act .1932 - Copy

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INDIAN PARTNERSHIP ACT:

INDIAN PARTNERSHIP ACT 1932 12/17/2011 1 Indian Partnership Act.1932

Brief history of partnership:

Brief history of partnership Frederich Pollock drafted English Partnership bill 1879 and English Partnership Act was passed in 1890. In India prior to 1932 it was Chapter 11 of Indian Contract Act. Special Committee drafted the bill enacted as Indian Partnership Act in 1932 taking in to account the difficulties of o the English Act and Indian conditions between 1890 and 1931. American Uniform Partnership Act is also based on English Act. 12/17/2011 2 Indian Partnership Act.1932

Definitions and interpretation.:

Definitions and interpretation. Definitions clause Section.2.of Indian Partnership Act (a) to (e). Expressions not defined in section 2 but defined in section 2 of Indian contract Act shall be applicable. If not defined there than General Clauses Act but for the definition of ‘person’ in section 4 of Indian Partnership Act. Supreme court in Dulichand Laxminarayan Vs.CIT AIR 1956 SC 354. If not found there go to judicial decisions . If not there go to Authors/Jurists. If not there cultivate your logical meaning. 12/17/2011 3 Indian Partnership Act.1932

Essential elements:

Essential elements Two or more competent parties(persons). (Minor may be admitted to the benefits of Partnership ,S.30) Valid offer and acceptance. Valid consideration . Valid consent and free consent. The contract between the persons (partners) must be to share the profits, Of the business,(S.2.b. includes every trade, occupation and profession.) .Meaning of profession: Sodan Singh Vs. New Delhi Municipal Committee AIR 1989 page 1988(Confusion).See Indian Medical Association Vs. Shantha (1995) 6SCC 651.(some idea) The business must be carried on by all or any of them acting for all, by mutual agency. 12/17/2011 4 Indian Partnership Act.1932

Partnership contract.:

Partnership contract. Definition.S.4: Partnership is a relation (contractual) between persons who have agreed to share the profit of a business carried on by all or any of them acting for all. Person: Definition of General Clauses Act 1897 is not applicable which includes any company or association or body of individuals whether incorporated or not, S.C held in Dulichand Laxminarayan Vs.CIT AIR 1956 SC 354. Partners not more than 10 for banking business and 20 for others businesses.? May be express (oral or in writing) or implied. But if benefits of Income tax Act is to be claimed it is required to be in writing. A firm. ? 12/17/2011 5 Indian Partnership Act.1932

Share the profits:

Share the profits Is sharing of profit one of the essential for partnership, yes. (Cox Vs. Hickman 1860 8HLC 277:Cox and Haywood were appointed two creditor-trustees but Cox did not accept the trusteeship, Haywood signed the bill of exchange on behalf of the firm.) :It is prima facie evidence but not conclusive evidence of partnership. If no proportion of sharing of loss is expressly agreed it is to be shared in the proportions of profit sharing. Is sharing profit and losses between all partners essential element.? S.C in K.D.Kamath and Co v. CIT (1971)2 SCC 873 case yes, but wisdom of legality of the seems to be doubtful ? Is sharing losses by all the partners essential element.? According to Supreme Court in K.D.Kamath and Co v. CIT (1971)2 SCC 873,yes but wisdom of legality seems to be doubtful ? Sharing in what proportion: As per contract. If no specific sharing profit and losses is expressly agreed.? 12/17/2011 6 Indian Partnership Act.1932

Profit: Exploitation of surplus labour:

Profit: Exploitation of surplus labour Capitalist economic system point of view. Economic resources and contract. Contract and market and market forces. Business and contract. Business and profit. Profit is a privilege? Socialist economic system point of view. Economic resources and administrative law. No contract no market. No market no business. No business no profit. Profit is a crime.? 12/17/2011 7 Indian Partnership Act.1932

S 2(b):Business:

S 2(b):Business Business(any human activity which creates surplus labour) includes every trade, occupation and profession: Every trade . Trade: Always intended to creates surplus labour. Hence partnership contract is always possible. Occupation. Occupation .(Which not intended to creates surplus labour):Not business. Hence no partnership contract is possible. Occupation .(Which intended to create surplus labour):Business. Profession Profession(which is not intended to create surplus labour.):Not business. Hence no partnership contract is possible. Profession.(Which is intended to create surplus labour):Business. 12/17/2011 8 Indian Partnership Act.1932

Supreme court on profession.:

Supreme court on profession. Sodan Singh v New Delhi Municipal Committee AIR (1989)SC 1988.Supeme court is not clear? Indian Medical Association v Shantha (1995) 6SCC 651.Lays down four principles: Work is skilled and specialised , substantial part is mental rather than manual. Commitment to moral principles…? Professional association regulation…? High status in the society…? 12/17/2011 9 Indian Partnership Act.1932

Profession ,occupation and business:

Profession ,occupation and business Profession Human activities. Combination of muscular and nervous system. More contribution of nervous system than muscular system. If it creates surplus labour is a business and can become the subject matter of partnership. Occupation Human activities. Combination of muscular and nervous system. More contribution of muscular system than nervous system. If it creates surplus labour is a business and can become the subject matter of partnership. 12/17/2011 Indian Partnership Act.1932 10

Relative evidentiary value of contract’s essential elements :S.6:

Relative evidentiary value of contract’s essential elements :S.6 Real relations between the persons as shown by the relevant facts. The rules below may be noticed. Sharing of profit: Prima facie evidence of contract of partnership between persons sharing profit. Mutual agency method of business doing: Conclusive proof of contract of partnership between mutual agent. House of Lords in Cox v Hickman,1860(11)ER 431. Goods were purchased from Hickman. Cox was one of trustee who did not participate in business. 12/17/2011 11 Indian Partnership Act.1932

Partners:

Partners Partner. Nominal partner, not entitled for profits but liable for the acts of firm to third person. Sleeping partner. A real partner but not active in the conduct of business. Partner only for profits. But it shall liable to third person as any other partner. A person who have agreed to share the losses only.? 12/17/2011 12 Indian Partnership Act.1932

Kinds of Partnership:

Kinds of Partnership Partnership at will. Term partnership. Venture or particular partnership. Term partnership Vs. Partnership at will. Venture partnership Vs. Partnership at will. 12/17/2011 13 Indian Partnership Act.1932

Partnership Vs. Company:

Partnership Vs. Company Partnership Not a legal person. Affected by the death of partner. Affected by the insolvency of partner. No perpetual succession. Contractual management body. Partners,10 (banking)or 20(non Banking). Company Legal person. Not effected by the death of the shareholder. Not affected by the insolvency of shareholder. Perpetual succession. Statutory Board of Management. Public company no limit private company 50. 12/17/2011 14 Indian Partnership Act.1932

Hindu joint family.(Who is Hindu?):

Hindu joint family.(Who is Hindu?) Common answers: Who is born in India.(Ethnicity fallacy) Any body of Indian origin (Indian origin) If parents are Hindu (Familial argument) Born in a certain caste (Genetic basis) Who believe in re-birth.(Faith in re-birth) Who believes in Vedas and Bhagwat gita.(Faith basis) 12/17/2011 Indian Partnership Act.1932 15

Partnership and business carried on by Joint Hindu Family:

Partnership and business carried on by Joint Hindu Family Partnership Created by contract. Parties are partners. Liability, joint and several and personal. Partners are accountable to each other. Partners may added through Contract only. Joint Hindu family Created by law. Members are coparceners. Karta has personal, other no personal liability. Karta is not accountable for coparceners. Coparceners are added by birth. 12/17/2011 16 Indian Partnership Act.1932

Continued.:

Continued. Partnership Effect of death of partner. Non-registration effect. Management: Subject to Contract Continuity and succession. Legal organization, found in various legal systems. Dissolution. Joint Hindu family business. Effect of death of co-parcener. Non-registration effect. Management: Karta 9. Continuity and succession. 10. Hindu (Indian)specialty. 11. Partition. 12/17/2011 Indian Partnership Act.1932 17

PARTERSHIP Vs.CO-OWERSHIP:

PARTERSHIP Vs.CO-OWERSHIP PARTERSHIP Origin: Contract only. Transfer of interest to third person: No. Mutual agency: Yes. End :Dissolution. Lien for expenses: Yes. Minor as partner: No. Partnership has joint ownership. CO-OWERSHIP Origin: Contract and law. Transfer of interest to third person: Yes. Mutual agency: No. End :Partition. Lien for expenses: No. Minor as co-owner: Yes. Ownership does not have partnership. 12/17/2011 Indian Partnership Act.1932 18

Rights and duties of the partners inter-se and with the third persons:

Rights and duties of the partners inter-se and with the third persons Relations of the partners 12/17/2011 19 Indian Partnership Act.1932

RELATIONS(RIGHTS AND DUTIES) OF PARTNERS:TWO KINDS:

RELATIONS(RIGHTS AND DUTIES) OF PARTNERS:TWO KINDS Relations inter-se: Relations between the partners. It includes mutual contractual and statutory rights and duties. Contractual rights and duties are contract specific. Statutory rights and duties are statute specific. Relations of the partners with the third persons. It includes contractual and statutory rights and duties. Contractual rights and duties are contract specific. Statutory rights and duties are statute specific. 12/17/2011 20 Indian Partnership Act.1932

Duties of partners.:

Duties of partners. Two kinds duties: Contractual duties: Any number and kind. Statutory duties: As specified in the Indian Partnership Act 1932. Conflict between contractual duty and statutory duty. Statutory duties subject to contract to the contrary. Statutory duties not subject to the contract to the contrary. 12/17/2011 21 Indian Partnership Act.1932

Statutory duties: Absolute duties.:

Statutory duties: Absolute duties. Duty to be just and faithful to each other: S.9. Existence of mutual faith may lead to partnership contract and continuance thereof continue it, Mutual loss of faith leads to the end of partnership contract. Conduct the business to greatest common advantage. S.9. Duty to render true accounts :S.9. To have access to inspect and take copies of accounts personally or through agent. If denied may file a suite in the court for the same. Duty to render full information affecting the business of partnership to all the partners:S.9. Duty to indemnify for the loss caused to the firm by fraud by the partners.(S.10). Misrepresentation ,undue influence, coercion ? 12/17/2011 22 Indian Partnership Act.1932

Qualified duties: Duties subject to contract to the contrary.:

Qualified duties: Duties subject to contract to the contrary. Duty to be diligent in the conduct of business.S.12(b). Duty to indemnify for loss caused by willful neglect in the conduct of business.S.13(f). Duty to share the losses of the firm.S.13(b): Subject to the contract to the contrary. Duty not to use firm’s property for personal gains. Agreements in restrain of trade under section 27 of Indian Contract Act (Section 11.2 Indian Partnership) Premji V.Govind ji AIR 1943 SIND 197: The out going partner restrained not do the firms business(craft insurance any where except Karachi, restraint held unreasonable. 12/17/2011 23 Indian Partnership Act.1932

Rights of the Partners:

Rights of the Partners Right to share profit.S.13(b) As per contract. If no contract equally. Right to interest on capital. S.13(c):Payable out of profit only. As per contract. If no contract at the rate of 6%. Payable out of profits only. Right to interest on advances(loans).S13(d). Subject to the contract to the contrary. If no interest agreement,6%. Payable out of profit and capital. Right to indemnity.S.13(e):Reimbursement by the firm for payments made and liabilities incurred by the partner. In the ordinary course of business, or In doing an act in emergency for protecting the firm from loss. 12/17/2011 24 Indian Partnership Act.1932

Continued…:

Continued… Right to conduct business as mutual agent. As per partnership contract. If partnership deed is silent, every partner has a right to conduct the business. Capital contribution, or labour contribution model. Right to be consulted.Ss.12(c),31,33. Unanimous decisions. Fundamental issues to the partnership Change of business. Place of business. Admission of partner. Expulsion of partner.( Subject to the contract to the contrary and good faith). Majority decisions: Collateral issues to the partnership contract . 12/17/2011 25 Indian Partnership Act.1932

Continued…:

Continued… Right to access to accounts. Personally. Through an agent. Right extends to inspection, copies and extracts. 12/17/2011 26 Indian Partnership Act.1932

Relation of partners with third persons.:

Relation of partners with third persons. Act of firm relates the partners with third persons. Act of the partner is the act of the firm if it falls with in the express or implied authority of the partner. Express authority of partners.? Implied authority of partners.? 12/17/2011 27 Indian Partnership Act.1932

Important legal concepts:

Important legal concepts Four concepts: Express authority or contract authority. Implied authority: Interpretation of contract authority (Object clause). Apparent authority: Act of partner which is restricted with in the scope of express or contract authority but Falls with in scope of implied authority. Act of firm. 12/17/2011 Indian Partnership Act.1932 28

When act of partner becomes the act of firm. :

When act of partner becomes the act of firm. Importance of act of firm.? Business is done through act of firm. Generate unlimited personal and joint and several liability of partners. Sources of authority of partners for the act of firm. Express authority of partner: Expression of Contract. Implied authority of partner: Interpretation of Contract. Nature of business. Usual method of doing that kind business. Nature of business. Will decide the subject matter of contract and The kind of contract Process of doing that kind business should be the same as the people of that society usually do that kind of business. Usual process: Will fall with in the domain of “act of firm”. Unusual process: Will not fall with in the domain of “act of firm”. In case unusual method is more cost effective probably it should fall with in the domain of “act of firm”. 3. Apparent authority. Consequences of ‘act of firm’. Liability of the partners for the act of firm ,unlimited, Joint, several and personal 12/17/2011 29 Indian Partnership Act.1932

Some exercises: Implied and express authority:

Some exercises: Implied and express authority Partnership in conducting the business of running the canteen in NLU Delhi. Partnership in conducting a milk and juice shop in NLU Delhi. Partnership in conducting the business of Photostatting in NLU Delhi. Partnership for conducting the business of tea-stall in NLU Delhi. 12/17/2011 30 Indian Partnership Act.1932

Limitations on implied authority.:

Limitations on implied authority. Statutory limitations on implied authority of partner.(S.19.2). Contractual limitations on implied authority of partner. Binding if third person has the notice. Not binding if no notice. Contractual expansion of implied authority. By expanding (by Ex.A)implied authority, By removing statutory restrictions on it. Binding notice or no notice. 12/17/2011 31 Indian Partnership Act.1932

Limitations on implied authority: Ss.19(2), 22 (Subject to usage and custom of trade):

Limitations on implied authority: Ss.19(2), 22 (Subject to usage and custom of trade) These limitations are subject to the contract to the contrary. Submission of dispute to arbitration. Opening of bank account in ones name. Compromise or relinquish claim. Withdraw a suit or proceedings. Admit a liability in a suit or proceedings. Acquire immovable property on behalf of firm. Transfer immovable property of firm. Enter in to partnership on behalf of firm. 12/17/2011 32 Indian Partnership Act.1932

Liability of the firm for the wrongful acts or misapplication of partner Ss.26,27:

Liability of the firm for the wrongful acts or misapplication of partner Ss.26, 27 Where wrongful act or omission is done in the ordinary course of business, or with the authority of other partners, Loss or injury caused to any third party or any penalty incurred, the firm is liable. Partner acting with in apparent authority receives any money or property from third person, ( Lloyds Vs. Grace and Smith and Co.1912 AC 716:Solicitor receiving money case) and misappropriates it Firm receives any money or property and the same is misapplied by any partner the firm is liable. 12/17/2011 33 Indian Partnership Act.1932

Holding out .S 28:

Holding out .S 28 Anyone who By words spoken or written, or By conduct represents 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 on the faith of the 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 giving the credit. 12/17/2011 34 Indian Partnership Act.1932

Proof of ‘Holding out’:

Proof of ‘Holding out’ Whether the credit is given on the faith of representation is matter of fact but If making of representation by the defendant is proved and The knowledge of the representation of the plaintiff is proved, The giving of credit on the faith of representation may inevitably be presumed. 12/17/2011 35 Indian Partnership Act.1932

Dissolution of Partnership:

Dissolution of Partnership Meaning: Dissolution of Partnership relation means bringing an end to this relationship.(S.40). Effect of dissolution vis-à-vis third party. Public notice and holding out. Kinds of Partnerships: Partnership in general. Partnership at will. Term partnership. Venture or particular partnership. Modes of dissolution: Court dissolution: Mixed questions law and fact involved. Extra court dissolution: No such questions involved. 1. Contractual dissolution. i.Inclusive contract in Partnership deed. ii.Exclusive contract independent of Partnership deed.S.40 Compulsory dissolution.S.41 Contingent or optional dissolution.S.42 12/17/2011 36 Indian Partnership Act.1932

Dissolution of partnership at will. S.43:

Dissolution of partnership at will. S.43 Notice in writing. Date of dissolution: Importance? Formally conduct of business stops. Winding up starts. Date as mentioned in the notice: But the If notice is received by the partners at different dates. Before the date mentioned. After the date mentioned. Some before some after the date mentioned. If no date is mentioned: Date of communication of the notice. If the date of communication is different to different partners.? If any partner has become insane.? Before the notice is served.? After the notice is served.? 12/17/2011 37 Indian Partnership Act.1932

Compulsory dissolution. S. 41.(2 Grounds):

Compulsory dissolution. S. 41.(2 Grounds) Insolvency: All the partners. All but one. Business becoming unlawful Death: All partners die. All but one die. 12/17/2011 38 Indian Partnership Act.1932

Contingent dissolution. S.42 (Subject to the contract to the contrary):

Contingent dissolution. S.42 (Subject to the contract to the contrary) Partnership applicable. Term partnership. Adventure partnership. Death: At least two partners remain alive. Insolvency: At least two partners remain solvent. 12/17/2011 39 Indian Partnership Act.1932

Dissolution by court. S 44:

Dissolution by court. S 44 Unsound mind. Permanent incapacity: Whitwell Vs. Arthur,147 RR 73.Paralysis case. Misconduct: Misconduct is a relative term ? Co-relation of nature of Business with nature of conduct. Adverse implications of conduct on the business : Snow Vs. Milford 1868 (18) LT 142.Adultrous banker case. Willful persistent breach of duty: Violation to be willful, persistent and substantial . Transfer/charge of interest by the partner. Persistent losses. Any other equitable ground. 12/17/2011 40 Indian Partnership Act.1932

Mode of settlement of accounts. S 48:

Mode of settlement of accounts. S 48 Subject to the contract to the contrary following rules shall be observed: Losses including deficiencies of capital shall be paid: First out of profits. Next out of capital. If necessary by partners individually in proportion in which they share the profits. 12/17/2011 Indian Partnership Act.1932 41

Continued…:

Continued… Assets of firms shall be applied in the following order: In paying the debts of the third parties. In paying the debt of the partners rateably. In paying rateably on account of capital contribution. The residue to be divided among the partners in the proportion in which they are entitled to share the profits. 12/17/2011 Indian Partnership Act.1932 42

Payment of firm debts and of separate debts .S.49.:

Payment of firm debts and of separate debts .S.49. Partnership property: Firms debts at the first instance. Surplus for partners debts. Partners property: Partners debt first. Residue to pay firm’s debts. 12/17/2011 Indian Partnership Act.1932 43

Registration of Firm.S.58:

Registration of Firm.S.58 Registration application: In prescribed form with prescribed fee, stating: The firm name, The place and the principal place of business. The names of any other places where firms carries business, The date when each partner joined the business, The names and the addresses of the partners, The duration of the firm, The statement shall be signed and verified by the partners or their specially appointed agents. 12/17/2011 Indian Partnership Act.1932 44

Rectification of mistakes.Ss,64,65: (Three kinds rectifications):

Rectification of mistakes.Ss,64,65: (Three kinds rectifications ) Rectification by the registrar if entries in the register which are not in conformity with documents. Rectification in documents by the partners. Amendment of entries in the register on court orders. 12/17/2011 Indian Partnership Act.1932 45

Inspection ,copies, and rules of evidence,:

Inspection ,copies, and rules of evidence, It is a public document. Any body can inspect or have copies on payment of prescribed fees. Contents of certified copies to be conclusive proof. 12/17/2011 Indian Partnership Act.1932 46

Effect of non-registration:

Effect of non-registration No suit can be filed by partner or ex-partner against the firm on the basis of any contract. Unless such partner is shown as the partner in the firms register. No suit can be filed by or on behalf of the firm. No set-off may be claimed under any suit. 12/17/2011 Indian Partnership Act.1932 47

Continued…:

Continued… Proved it is suit for: Dissolution. Or it is insolvency proceedings. The Act do not extend to the territories of the place of business. Unless in case set-off value do not exceed Rs.100 in subject to Small Cause Courts Act of 1882 in the presidency towns, and subject to the Small Causes Courts Act,1887 outside the presidency towns. 12/17/2011 Indian Partnership Act.1932 48