The Indian Partnership Act 1932

 Q. 1.  What are the essential determinants of partnership? Distinguish partnership from a company.

Ans.  Partnership Defined. Section 4 of the Indian Partnership Act, Partnership Defined  under Section 4 of the Indian Partnership Act 1932  as under:

"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."

Essentials of Partnership: - According to Section 4 the following essentials are necessary to constitute a 'partnership':

1. There should be an agreement between the persons who want to be partners.

2. The purpose of creating a partnership should be carrying out business.

3. The motive for the creation of a partnership should be acquiring and sharing profits.

4. All of them or any of them acting for all, i.e. in a mutual agency should carry on the business of the firm.

 

All these elements must be present before a group of persons can be held to be partners. The first element relates to the voluntary contractual nature of part nership. It emphasizes the fact that partnership can only arise as a result of an agreement, express or implied, between parties and it cannot be the result of status.

 

The second element in the definition of partnership gives the motive, which leads to the formation of a firm, i.e., sharing of profits. The members of religious or charitable societies or clubs are not partners, as the idea of sharing of profits is not involved in these associations. The sharing of losses is not involved in the definition because an agreement to share losses is not a test of the existence of partnership but is generally implied in a partnership agreement. It may, however, be agreed between the partners that any one of them shall not be liable for losses. [Raghunandan v. Harmusji (1926) 51 Bombay 342].

 

Distinction between Partnership and Company:

 

(1) In a partnership the persons who have entered into partnership, are indi vidually called partners and collectively is a firm. A partnership firm, therefore, is merely a collective name of all the partners. A partnership firm does not have a separate legal personality. A company is a legal entity different from its members.

 

(2) A partnership firm means all the partners put together. If all the partners cease to be partners, e.g. all of them die or become insolvent, the partnership firm gets dissolved. A company being a person different from the members, the members may come and go but the company's life is not affected thereby.

 

(3) The shareholder of a company can transfer his share to anybody he likes but a partner cannot substitute another person in his place unless all other partners agree to the same. Similarly, on the death of the member of a company his legal representative will step into his shoes for the purpose of the rights in the company, but on the death of a partner his legal representatives do not get substituted in his place in partnership.

 

(4) The minimum number of members in partnership is two and maximum in case of partnership carrying on banking business is 10 and in case of any other business is 20. In the case of a private company the minimum number is 2 and the maximum is 50 whereas in the case of a public company the minimum of members should be 7 but there is no limit to the maximum and, therefore, any number of members can hold shares in a public company.

(5) The liability on the members of a company is limited but the liability of the partners is unlimited.

 

Q. 2.  "Partnership by holding out is the extension of the doctrine of estoppel". Explain how can such a partner save himself from any future liability of such firm?

Ans.  Doctrine of Holding Out

The doctrine of Holding out' is enunciated in Section 28 of Indian Partnership Act and is a branch of the doctrine of Estoppel. The rule in substance is that a person may not really be a partner in a firm but will be treated as a partner qua third person if he by words spoken or written or by conduct represents himself or knowingly permits himself, to be represented to be partner to those who have on the faith of any such representation given credit to the firm whether he does or does not know that the representation has reached the person so giving credit."

 

Section 28(1) of Act lays down "Any one 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 any one who has on the faith of any such representation given credit to the firm, whether the person representing himself or represented to be partner does or does not know that the representation has reached the person so giving credit.

 

Sub-section (2) to Section 28 says "Where after a partner's death the business is continued in old firm name, the continued use of that name or of deceased partner's name as a part thereof shall not by itself make his legal representatives or his estate liable for any act of the firm done after his death."

 

In Oriental Bank of Commerce v. M/s S.R. Kishore and Co., AIR 1992 Delhi, 174, a person not only represented himself to be a partner, but he signed the partnership deed, actively participated in various transactions of the firm, and signed various partnership documents from time to time. It was held that he was liable for the acts of the firm on the basis of principle of 'holding out'.

 

The conditions of liability of holding out are as follows:

 

1. REPRESENTATION: The person sought to be charged with liability for holding out must have represented himself to be a partner in the firm. Repre nisentation may be made either by words written or spoken or by conduct.

 

2. KNOWLEDGE OF REPRESENTATION: The person seeking to hold another liable by holding out, must show that he had knowledge of representation and acted on the faith of it.

 

When a partner retires from the firm without giving public notice to this effect can be held liable by holding out to those customers of firm who transacted with the firm without knowledge of retirement. However principle of holding out on retirement without giving public notice does not apply in following cases:

 

(1) Deceased Partner: Legal representative or estate of a deceased partner is not liable for any act of firm done after his death even if business is continued by surviving partners in same name and with using name of deceased partner.

(ii) Insolvent Partner: A person ceases to be a partner from the date of in solvency and his estate is no more liable for any act of firm done after property or has perfected his title by adverse possession.

Q. 3 (a) What do you understand by the implied authority of a partner? Discuss the scope of implied authority and statutory restrictions thereon?

Ans. 3(a) Section 18 of the Partnership Act provides that "subject to the pro visions of this Act, a partner is the agent of the firm for the purposes of the business of the firm." Partners when they carry on the business of the firm are agent as well as principal. Section 19(1) of Partnership Act provides:

 

"Subject to the provisions of Section 22 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.

 

The authority of a partner to bind the firm conferred by this section is called his implied authority."

 

So the scope of implied authority of partner in a firm is linked with nature of business and usual manner of carrying it on. As every partner in contemplation of law is the general and accredited agent of partnership, he binds all the other partners by his acts in all matters which are within the scope and object of the partnership. This authority of a partner to bind all the partners by an act done to carry on, in the usual way, business of the kind carried on by the firm is called the implied authority of a partner. The implied authority does not come into ex istence unless the act is done in the conduct of the business of the kind carried on by the firm name or in a way usual in such a business. [Section 19(1)]. It is also necessary that the act must have been done in the firm name or in any other manner expressing or implying an intention to bind the firm. (Section 22).

 

In Raghavaveera Sons v. Padmavathi AIR 1978 Mad. 81. it was observed "In law each partner in a merchantile firm of ordinary trading partnership is liable upon bill drawn by a partner in recognised trading name of the firm for a transaction incidental to business of firm although his name does not appear on the face of instrument or he may be a sleeping partner."

 

Statutory Restrictions.; Sub-section (2) of Section 19 of Act then provide statutory restrictions as in the absence of any usage or custom of trade to the contrary, the implied authority of a partner does not empower him to do the following acts:

 

(i) To submit a dispute relating to the business of the firm to arbitration, because it is no part of the ordinary business of partnership to refer disputed matters to arbitration.

 

(ii) To open a banking account on behalf of the firm in his own name, because section 22 lays down that no act of a single partner binds the firm unless it is done on behalf of the firm and in the firm's name.

 

(iii) To compromise or relinquish any claim or portion of a claim by the firm unless the claim is fully satisfied or all the partners assent to the compromise or relinquishment..

 

(iv) To withdraw a suit or proceeding filed on behalf of the firm. But it has nothing to do with the power of a partner to institute a suit or to defend a suit on behalf of the firm.

 

 (v) To admit any liability in a suit or proceeding against the firm. In other words a partner cannot consent to a judgment against the firm.

(vi) To acquire immovable property on behalf of the firm. A partner, therefore, has no implied authority to take a lease of immovable property on behalf of the firm.

 

(vii) To transfer immovable property belonging to the firm. Therefore a partner in the exercise of his implied authority cannot mortgage or lease immovable property belonging to the firm.

(viii) To enter into partnership with other person on behalf of the firm.

 

Section 20 of the Act then provide "The partners in a firm may by contract between the partners extend or restrict the implied authority of any partner.

 

Notwithstanding any such restriction, any act done by a partner on behalf of firm which falls within his implied authority binds the firm, unless the person with whom he is dealing knows of restriction or does not know or believe that partner to be partner."

 

Q.3(b) Discuss the situations in which a person who is not a partner infact, is li able as if he were partner. Refer to statutory provisions and decided cases.

 

(c) What are the limitations on the implied authority of a partner in a firm ? When such authority is automatically extended and upto what extent?

 

 

Ans. . Every partner is liable for all acts of the firm done while he is a partner. Therefore, generally a person who is not a partner in the firm cannot be made liable for an act of the firm. In certain cases, however, a person who is not. a partner in the firm may be deemed to be a partner or held out to be a partner for the purpose of his liability towards a third party. The basis of liability of such a person is not that he was himself a partner or was sharing the profits or was taking part in the management of the business, but the basis is the application of the law of estoppel because of which he is held out to be a partner or is deemed to be a partner by 'holding out'.

 

The doctrine of holding out is a branch of the law of estoppel. According to the law of estoppel if a person, by his representation, induces another to do some act which he would not have done otherwise, then the person making the representation is not allowed to deny what he asserted earlier.

 

Therefore, if a person who is not a partner, by his representation, creates an impression in the mind of the third party that he is a partner, on the basis of which the third party gives credit to the firm, the person making such a representation will be held out to be a partner.

 

"For example, a partnership firm consists of A, B and C. D, who is not a partner, makes a representation to X that he is also a partner and on the faith of this representation X gives credit to the firm. In this case X can make D liable on the basis of holding out and D is estopped from denying that he is a partner in the firm.

 

Section 28 makes the following provision for liability under the doctrine,

 

28. Holding out. -(1) Any one who by words spoken or written or by conduct represents himself, or knowingly permits himself to be represented, to be a part ner in a firm, is liable as a partner in that firm to any one who has on the faith of any such 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 so giving credit.

 

(2) Where after a partner's death the business is continued in the old firm name, the continued use of that name or of the deceased partner's name as a. part thereof shall not of itself make his legal representative or his estate liable for any act of the firm done after his death.

As stated in Section 28(1) for the application of the doctrine of holding out the presence of the following essentials is required:

 

1. The person sought to be made liable under the doctrine of holding out either has himself represented, or knowingly permitted somebody else to represent, that he is a partner in the firm.

 

2. The third party who wants to bring an action must have acted on the faith of the representation and give credit to the firm.

 

Q. 4(a) Examine the correctness of the following statements.

(i) "Registration of firm though not compulsory, is practically necessary".

Ans. (a)(i) The Indian Partnership Act does not make registration of a firm compulsory nor does it impose any penalty for non-registration. It is left entirely to the option of firm and partners to get themselves registered. But by providing certain disabilities Section 69 renders the registration of partnership necessary.

 

Legal consequences of Non-Registration of a firm. Section 69 of the Partnership Act, mentions the consequences of non-registration of a firm as follows:

 

(1) No suit to enforce a right arising from a contract by this Act, shall be instituted in any court by or on behalf of any person suing as a partner in a firm against the firm or any person alleged to be or to have been a partner in the unless the firm is registered and the persons suing are or have been shown in the Register of Firms as partners in the firm.

 

(2) The provisions of sub-sections (1) and (2) shall apply also to a claim of setoff or other proceedings to enforce a right arising from a contract, but shall not affect :

 

(a) The enforcement of any right to sue for the dissolution of a firm or for accounts of a dissolved firm or any right or power to realize the property of a dissolved firm, or

 

(b) the powers of an official assignee, receiver or Court under the Presidency Towns Insolvency Act, 1919, or the Provincial Insolvency Act 1920, to realize the property of an insolvent partner.

 

(3) This section shall not apply:

 

(a) to firms or to partners in firms which have no place of business in the territories to which this Act extends or whose places of business in the said territories are situated in areas, to which by notification, under section 56, this Chapter does not apply, or

 

(b) to any suit or claim of setoff not exceeding one hundred rupees in value which, in the Presidency towns is not of a kind specified in Section 19 of the Presidency Small Causes Courts Act, 1882, or outside the Presidency towns, is not of a kind specified in the Sec ond Schedule of the Provincial Small Cause Courts Act, 1887 or to any proceeding in execution or other proceeding incidental to or arising any such suit or claim.

 

In Ram Adhar v. R.K. Tiwari, AIR 1981 All. 405 it was held Registration of firm though not compulsory and nor there is any penalty for non-registration of a firm yet Section 69 of Act cut short the capacity of unregistered firm and its partner to sue. This disability is too great compelling force to bring the firm to registration.

 

Q.4 a (ii) "Partners are bound to be just and faithful to each other". or

 

Ans. 4(a)(ii). Sections 9 and 10 of Partnership Act incorporate certain duties of partners which are not subject to contract between the partners.

 

General Duties of Partners (Section 9): Section 9 of Act says "Partners are bound to carry on the business of the firm to the greatest common advantage, to be just and faithful to each other and to render true accounts and full information of all things affecting the firm to any partner or his legal representative."

 

Duties as contained in Section 9 of the Act are being discussed below:

 

(1) Duty to Carry on Business to Greatest Common Advantage: Partnership is based upon mutual confidence and trust. It is therefore necessary that no partner should gain any personal advantage at the cost of other. Section 9 says one of the duties is that partners must carry on business of firm to the greatest common advantage. This provision is to be read with Section 16(a) of the Act, according to which if a partner derives any profit for himself from any transaction of the firm, he shall account for that profit and pay it to the firm.

 

In Bentley v. Craven (1853) 104 R.R. 373 a firm, which had been established for refining sugar, consisted of four partners. One of the part ners, who was considered to be expert in the job, was authorised to purchase sugar for the firm for refining. Instead of purchasing sugar from market, he supplied his own sugar, which he had purchased ear lier at much lower price and thus made considerable profit. He did not disclose this fact to other partners. It was held that the firm was entitled to recover the profit thus made by such partner.

 

(2) Duty To be Just and Faithful: Another duty mentioned in Section 9 of the Act is that partners must be just and faithful to each other. Persons enter into partnership with others on the basis of their mutual confidence and trust. There is mutual agency between the partners and every partner is the agent of copartners and he can bind them to an unlimited extent. Every partner therefore is expected to be just and faithful to his copartners.

 

(3) Duty to Render True Accounts Section 9 also says every partner is bound to keep and render true and complete accounts of all partnership money with him. He also must make these accounts available to other partners because every partner has a right under Section 12(d) of Act to have access to and to inspect and to copy any of the books of accounts of firm.

 

(3) Duty to Render Full Information: Every partner is an agent of the firm. According to law of agency information to agent is deemed to be information to principal. Section 9 therefore makes it incumbent on every partner to pass on full information of all things affecting the firm to his copartners.

 

Duty to indemnify for loss caused by Fraud: Section 10 of the Act says "Every partner shall indemnify the firm for any loss caused to it by his fraud in the conduct of the business of the firm."If the partner of firm commits a fraud against third party during the course of business of firm, the third party can make the firm liable for the same. Section 10 entitles the firm to be indemnified by partner guilty of fraud, because of which firm had to suffer the loss.

 4. Duty To Be Diligent: According to Section 12(b) of Act, every partner is bound to attend diligently to his duties in the conduct of the business of firm. If a partner is negligent in the performance of his duties this may cause loss to whole firm therefore Section 13(f) of Act says "if firm suffers any loss by the willful neglect" of a partner, he shall indemnify the firm for the same.

5. Duty Not To Compete: Section 16(b) makes it the duty of partner not to carry on any business similar to or in competition with the business of firm and if a partner does this, he is bound to pay to the firm all profits made to him in that business.

 

6. Duty to Properly Use the Firm's Property: The property of the firm has got to be used exclusively for the purpose of the business of the firm (Section 15). If any partner derives any profit or personal advantage by the use of property of the firm, he has to account for that profit and pay the same to the firm (Section 16(A)). This rule is subject to contract between the partners.

 

 

 

Q.4 (b)Discuss the mutual rights and liabilities of partner's inter se

Ans. 4 (b). Mutual Rights and liabilities Of the Partners Inter Se.: Rights and duties of the partners contained in Sections 12 to 17 are subject to contract between the partners. Therefore, unless it has been agreed otherwise the following rights as contained in the above mentioned provisions are there.

 

1. Right to take part in the conduct of the business [Section 12(a)]. Accord ing to Section 12(a) every partner has a right to take part in the conduct of the business. Since the business of partnership belongs to all the partners every part ner is entitled to take part in the conduct of the business. The partners are free to provide in their agreement that only some of them will take part in the conduct of the business and certain other partners will not. If such a right is wrongfully denied to a partner he can seek the enforcement of the right through a court of law. If the right to manage the business has been conferred on only some of the partners, they alone will be entitled to this right.

 

2. Right to express opinion [Section 12(c)]. Section 12(c) contains the following provision with regard to the right of a partner to express the opinion in the partnership matters.

 

 Any difference arising as to ordinary matters connected with the business may be decided by a majority of the partners, and every partner shall have the right to express his opinion before the matter is decided but no change may be made in the nature of the business without the consent of all the partners.

 

So when the difference of opinion pertains to an ordinary or routine matter connected with the business the same may be resolved by a decision of the majority of the partners. But before the matter is decided every partner must be provided with an opportunity to express his opinion.

When the matter is of fundamental importance consent of all the partners is needed. Admission of a new partner to the firm or a change in the nature of the business are the matters of this nature..

 

3. Right to have access to books of the firm. [Section 12(d)]. According to Section 12(d) every partner has a right to have access to and to inspect and copy any books of the firm. This right is available to both active and dormant partners. This right is not only in respect of books of accounts but in respect of any books of the firm. A partner could exercise this right either personally or by engaging an agent for the purpose.

 

4. Right to share profits. [Section 13 (a) and (b)]. Every partner has right to share the profits. Generally the partners provide in their agreements as to what will be the proportion in which they will share the profits. For example, in a firm of three partners, it may be agreed that the profit sharing proportion will be 1/2 :  1 / 4 : 1 / 4 According to Section 13(b), in the absence of any such agreement the partners are to share the profits equally and also to contribute equally to the losses sustained by the firm.

 

Section 13(a) says that a partner is not entitled to receive remuneration for taking part in the conduct of the business, unless otherwise agreed. Thus, it is only if the partners so agree a partner may be entitled to additional salary, commission etc. for the efforts made by him in running the business of the firm.

 

5. Right to interest on capital and advances. [Section 13(c) and (d)]. Gen erally no interest on capital subscribed by the partners is to be given because the partners share the profits of the business of the firm. In case the partners agree that interest on capital is to be given, according to section 13(c) such interest shall be payable only out of profits.

 

Section 13(d) says: In case a partner makes any payment or advance beyond the amount of capital he has agreed to subscribe, he is entitled to interest thereon at the rate of six per cent per annum..

 

6. Right to indemnify. [Section 13(e)]. A partner while acting on behalf of the firm may make certain payments and also incur some liabilities. According to Section 3(e) he is entitled to claim indemnity for the same. The indemnity can be claimed for the acts done by a partner in the ordinary and proper conduct of the business and also for doing some act in an emergency for the purpose of protecting the firm from the loss.

Q 4. (c) Ram and Shyam entered into a contract to carry on wheat business in partnership. The contract is silent as to the duration of the business. Ram thereafter, denies to carry on business in partnership. Shyam files a suit for specific performance of contract against Ram. Will he succeed?

 

Ans. 4(c) This problem comes under Section 7 of the Indian partnership Act according to Section 7 Partners are free to decide as to how long partnership between them shall continue. It may be partnership for a fixed term, say for 2 years or 5 years to it may be until the completion of certain adventures or undertakings, for instance, until the production of a firm. Sometimes the agreement may stipulate about the determination (end) of partnership on the happening of certain events, e.g., if the business runs into loss for consecutively five years. When the partners have decided about the duration of partnership, such a partnership is known as partnership at will.

 

According to section 7:

 

Where 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".

 

In the present case as Ram and Sham entered into a contract to carry on wheat business in partnership. The contract is silent as to the duration of the business. Ram there after denies to carry on the business and partnership, the partnership between Ram and Sham is a partnership at Will. Therefore, this contract of partnership cannot be specifically enforced against Ram.

Q. 5 (a) "The relation of Partnership arises from Contract and not from status". Elaborate. How does Partnership differ from Joint Hindu Family?

Ans. 5(a) Section 5 of Indian Partnership Act lays down :

 

"The relation of partnership arises from contract and not from status and in particular, the member 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."

 

Section 5 of the Act must be read with Section 4 of Act which define "Partnership" as "a relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all."

 

So Section 5 of Act emphasises one of the elements in definition of partnership namely that partnership is the result of voluntary agreement express or implied. In view of the fact that in India there exists a large number of non-contractual quasi partnership relations of which the Hindu trading firm is the outstanding example, it became necessary to make an explicit declaration in sec tion 5 that partnership arises from contract and not from status. Such non-contractual relations are founded on special rules of personal law and vastly differ from partnership as defined in the Act. Take the case of a joint Hindu family firm which is a creature of Hindu Law. In this the rights and liabilities of the coparceners are not governed solely by the Partnership Act but regard must be had to the general rules of Hindu Law which regulate the transactions of joint families. For example in a joint Hindu family the death of one of the coparceners does not dissolve the family partnership but the death of a partner does dissolve a partnership created under the Partnership Act unless there is a contract to the contrary [Section 42(c)]. In a trading firm under the Partnership Act a person can become a partner only by a definite agreement but in a joint family business every coparcener gets an interest in it (the family business) by virtue of the status of belonging to the coparcenary.

 

Therefore partnership is the outcome of an agreement between two or more persons and not of any status.

 

Q 5 (c) Write short notes on the following:

(i) Compulsory dissolution of the firm.

 

 

Ans. 5 (c)(i) . Compulsory dissolution (Section 41): Section 41 mentions certain events on the happening of which there is compulsory dissolution of the firm.

 

According to Section 41, Compulsory dissolution occurs under following circumstances:

 

(i) When all the partners or all except one are adjudicated insolvent, the firm is compulsorily dissolved.

 

(ii) If the business of the firm though lawful when the firm came into existence, subsequently becomes unlawful there has to be dissolution of the firm.

 

If the firm was carrying on more than one adventures or undertakings the il legality of one or more of them shall not of itself result in the dissolution of the firm in respect of those adventures or undertakings which are still lawful. There is also compulsory dissolution of the firm if some event happens because of which it becomes unlawful for the partners to continue as partners with each other.

Q. 5.C (ii) Rights of an outgoing partner.

 

Ans. 5(c)(ii) Sections 27 and 36 of the Indian Partnership Act deal with the rights of an outgoing partner. It may be noted that an outgoing partner has received, presumably, payment for the value of his share in the property of the firm, and this property includes the good-will of the business. A retiring partner, therefore, may be regarded as having sold his share of the good-will of the business along with his share in the other assets to his fellow partners.

 

Section 37 lays down that where any member of a firm has died or otherwise ceased to be a partner, and the surviving or continuing partners carry on the business of the firm with the property of the firm without any final settlement of accounts as between them and the outgoing partner or his estate, then, in the absence of a contract to the contrary, the outgoing partner or his estate is entitled at the option of himself or his representatives to such share of the profits made since he ceased to be a partner as may be attributable to the use of his share of the property of the firm or to interest at the rate of six per cent per annum on the amount of his share in the property of the firm :

 

Section 36(1) enacts that an outgoing partner may carry on a business competing with that of the firm and he may advertise such business, but, subject to contract to the contrary, he may not-(a) use the firm name, (b) represent himself as carrying on the business of the firm, or, (c) solicit the customers or persons who were dealing with the firm before he ceased to be a partner. Subsection (2) makes clear that a partner may make an agreement with his partners that on ceasing to be a partner he will not carry on any business similar to that of the firm within a specified period or within specified local limits; and, notwithstanding anything contained in section 27 of the Indian Contract Act, 1872 (IX of 1872), such agreement shall be valid if the restrictions imposed are reasonable.

Q 6  What are the Right and Liabilities of a minor admitted to the benefits of a partnership firm.

RIGHTS AND LIABILITIES OF A MINOR ADMITTED TO THE BENEFIT OF A PARTNERSHIP

Section 30 of the Indian Partnership Act reads as under-

 "Minors admitted to the benefits of Partnership.-

(1)   A person who is a minor according to the law to which he is subject may not be a partner in a firm, but, with the consent of all the partners for the time being, he may be admitted to the benefits of partnership.

(2) Such minor has a right to such share of the property and of the profits of the firm as may be agreed upon, and he may have access to and inspect and copy any of the accounts of the firm.

(3) Such minor's share is liable for the acts of the firm, but the minor is not personally liable for any such act.

(4) Such minor may not sue the partners for an account or payment of his share of the property or profits of the firm, save when severing his connection with the firm, and in such case the amount of his share shall be determined by a valuation made as far as possible in accordance with the rules contained in section 48:

Provided that all the partners acting together or any partner entitled to dissolve the firm upon notice to other partners may elect in such suit to dissolve the firm, and thereupon the court shall proceed with the suit as one for dissolution and for settling accounts between the partners, and the amount of the share of the minor shall be determined alongwith the shares of the partners.

 

(5) At any time within six months of his attaining majority, or of his obtaining knowledge that he had been admitted to the benefits of partnership, whichever date is later, such person may give public notice that he has elected to become or that he has elected not to become a partner in the firm; and such notice shall determine his position as regards the firm:

 

Provided that, if he fails to give such notice, he shall become a partner in the firm on the expiry of the said six months.

 

(6) Where any person has been admitted as a minor to the benefit of partnership in a firm, the burden of proving the fact that such person had no knowledge of such admission until a particular date after the expiry of six months of his attaining majority shall lie on the persons asserting that fact.

 

(7) Where such person becomes a partner,-

 

(a) his rights and liabilities as a minor continue up to the date on which he becomes a partner, but he also becomes personally liable to third parties for all acts of the firm done since he was admitted to the benefits of partnership, and

 

(b) his share in the property and profits of the firm shall be the share to which he was entitled as a minor.

 

(8) Where such person elects not to become a partner,-

 

(a) his rights and liabilities shall continue to be those of a minor under this section up to the date on which he gives public notice, (b) his share shall not be liable for any acts of the firm done after the date of the notice, and

 

(c) he shall be entitled to sue the partners for his share of the property and profits in accordance with sub-section (4).

 

(9) Nothing in sub-sections (7) and (8) shall affect the provisions of section 28."

 

A minor is a person who has not attained the age of majority according to the law to which he is subject. The age of majority of a person as regards matters other than marriage, divorce and adoption is regulated by the Indian Majority Act, 1875.

 

Section 3 of that Act declares that every person domiciled in India shall be deemed to have attained majority when he shall have completed 18 years, and not before. In the case, however, of a minor of whose person or property or both, a guardian has been appointed by a court, or of whose property the superintendence is assumed by a court of wards before the minor has attained the age of 18, the Act provides that the age of majority will be deemed to have been attained on the minor completing 21 years of age.

Minor may not be a partner in a firm.-Partnership is based on an agreement or contract between the partners. As the effect of section 11 of the Contract Act is to render a minor's contract void, it is obvious that a minor cannot become a partner.

The guardian of a minor cannot enter into an agreement of partnership on behalf of his ward with any third party or parties so as to make the minor a full fledged partner with the latter so as to clothe the minor with all the rights and obligations of a partner.

 

Minor may be admitted to the benefits of partnership

 

The guardian can however enter into an agreement, the effect of which would be to secure the minor's benefits of partnership. The fact that the guardian himself is one of the partners will not affect the question.

 

Admission to the benefits of partnership, in case of a minor, implies some definite act such as allotment of a share, or a distribution of part of the profits or something similar in character. There must be unanimous assent of the partners indicating that the minor has been admitted to the benefits of partnership.

 

The true nature of benefits of partnership and the role of the guardian of minor in this regard has been explained by the Supreme Court in Commissioner of Income-Tax v. Shah Mohandas Sadhuram, AIR 1966 SC 15: (1965) 57 ITR 415 (SC) as under:

"First it is clear from sub-section (2) of section 30 that a minor cannot be liable for losses. Secondly section 30(4) enables a minor to sever his connection with the firm and if he does so, the amount of his share has to be determined by evaluation made as far as possible in accordance with the rules contained in Section 48, which section visualizes capital having been contributed by partners. There is no difficulty in holding that this severance may be effected on behalf of a minor by his guardian.

 

Therefore section 30 (4) contemplates that capital may have been contributed on behalf of a minor and that a guardian may on behalf of a minor sever his connection with the firm. If the guardian is entitled to sever the minor's connection with the firm, he must be held to be entitled to refuse to accept the benefit of partnership or agree to accept the benefits of partnership for a further period the terms which are in accordance with law. Clause (5) proceeds on the basis that he has been admitted to the benefits of partnership. This sub-section enables him to elect on attaining a majority, either to remain a partner or not to become a partner in a firm. Thus, it contemplates that a guardian may have accepted the benefits of a partnership on behalf of a minor without his knowledge. If a guardian can accept benefit of partnership on behalf of a minor he must have the power to scrutinise the terms on which such benefits are received by the minor. He must also have the power to accept the conditions on which the benefits of partnership are being conferred. It appears to us that the guardian can do all that is necessary to effectuate the conferment and receipt of the benefits of partnership".

Q. 7 What are the right and liabilities of incoming and out going partners?.

RIGHTS AND LIABILITIES OF INCOMING AND OUTGOING PARTNERS OF A FIRM

Incoming Partners

 

A person, who is introduced as a partner into a firm, does not thereby become liable for any act of the firm done by the firm, except by his own consent, before his admission into the firm. The mere existence of such an agreement, with his co-partners to bear past liabilities can only bind the partners

 

A person, who is admitted into an existing partnership with the consent of all the partners, or in accordance with the provisions of the agreement between the partners permitting the introduction of a partner, is called a new or incoming partner inter se. It will not entitle the creditor of the firm to hold him liable for debts incurred by the firm before he joined, in spite of the agreement, as there is no privity of contract between the incoming partner and the creditors, and the other partners were not his agents when they acted. The liability of an incoming partner begins from the date of his admission into the partnership. In order to make the incoming partner liable for the debts incurred before his joining, it should be shown that-

 

(1) the firm as constituted after his admission assumed the liability to pay the old debts, and

 (2) the creditor agreed to accept the new firm as his debtor and to discharge the old partnership from liability.

 

Rights and duties of an incoming partner.-A partner is only liable for acts of the firm done while he is a partner. A person may be introduced as a partner in a firm with the consent of all the partners; but he does not thereby become liable for any act of the firm done before he became a partner. He will of course become liable for the previous debts and obligations of the firm if he has agreed with his co-partners to do so; this will be as between the partners themselves; so far as third parties are concerned he will be liable to them in such a case only if he can be shown to have either expressly or impliedly agreed with them to be so liable.

 

Outgoing Partners

 

A partner, who goes out of a firm, in which the remaining partners continue to carry on the business, is called an outgoing or retiring partner. A partner may retire:-

 

(1) with the consent of all the other partners;

(2) in accordance with an express agreement by the partners; or

(3) where the partnership is at will, by giving notice in writing to all the other partners of his intention to retire. [Section 32]

 

Rights and duties of an outgoing partner.-A partner who retires from a firm does not thereby cease to be liable for the debts or obligations of the firm to a third party incurred before his retirement, unless such third party agrees to discharge his liability. And even after retirement, he will continue to be liable for the acts of his co-partners binding on the firm until he gives public notice of his retirement. A retired partner, however, will not be liable for the subsequent acts of his co-partners to a third party who deals with the firm without knowing that he was a partner.

 

An outgoing partner may, in the absence of an agreement to the contrary, carry on a competing business but he cannot use the firm name, or represent himself as carrying on its business or solicit its customers. An outgoing partner has, where the continuing partners have continued the same business of the firm without any final settlement of accounts, an option to claim such a share of the subsequent profits as may be attributable to the use of his share of the property of the firm, or interest on the amount of his share in the property of the firm at the rate of six per cent per annum.

Q. 8 what are the various mode of dissolution of partnerships firm. What are the liabilities of partners for the Act done after dissolution?  What are the rules for settlement of account at the time of dissolution?

MODES OF A DISSOLUTION OF A PARTNERSHIP FIRM

 

Chapter VI of the Indian Partnership Act, 1932 deals with dissolution of firm.

The dissolution of a partnership between all the partners of a firm is called the "dissolution of the

firm." [Section 39] Thus, it is clear that where only some of the partners cease to carry on the partnership business there can be no dissolution of the firm. Where some of the partners make an agreement between themselves for carrying on a partnership on the dissolution of the old firm, the firm so constituted will be a new firm and not a continuation of the old one.

Modes of dissolution

A firm may be dissolved in any of the following ways:

1. By consent

A firm may be dissolved at any time with the consent of all the partners. This applies to all cases whether the firm is for a fixed period or at will. [Section 40]

2. By agreement

A firm may be dissolved in accordance with a contract between the partners. The contract providing for dissolution may be contained in the partnership deed itself or in a separate agreement. [Section 40]

3. Compulsory dissolution

A firm is dissolved-

(a) by the adjudication of all the partners or of all the partners but one as insolvent, or

(b) by the happening of any event which makes it unlawful for the business of the firm to be carried on for the partners to carry it on in partnership:

Provided that, where more than one separate adventure or undertaking is carried on by the firm, the illegality of one or more shall not of itself cause the dissolution of firm in respect of its lawful adventures and undertakings. [Section 41]

 

Partnership is not dissolved on insolvency or even on adjudication of a partner and the insolvent partner is still a partner and is competent for and on behalf of the firm, to make a valid transfer of a decree obtained by the firm, especially when it is necessary for the winding up of partnership; Laxmichand v, Amirchand, AIR 1932 Sind 164: 139 1C 846.

 

4. Contingent dissolution

A firm is dissolved on the happening of any of the following contingencies, provided that there is no agreement to the contrary-

(a) If the firm is constituted for a fixed period, by the expiry of that term;

(b) If the term is constituted to carry out one or more adventures or undertakings, when they are completed;

(c) By the death of a partner; and

(d) By the adjudication of a partner as an insolvent. [Section 42]

 

If there is no provision under the deed of partnership, that the firm would continue in spite of the death of a partner. On death of a partner, surviving partners have no option to continue the partnership. The firm is treated as dissolved. Separate assessments have to be made for the period upto the date of death of a partner, from the date of death to the date of constitution of the new firm and after constitution of the new firm; C.I.T. v. Nalli Silk Emporium, (1991) 89 CTR 288: 102 Tax 534 (Mad).

 

5. By notice

 

(1) Where the partnership is at will, the firm may be dissolved by any partner, giving notice in writing to all the other partners of his intention to dissolve the firm.

(2) The firm is dissolved from the date mentioned in the notice as the date of dissolution or, if no date is so mentioned, as from the date of the communication of the notice. [Section 43]

In case of a partnership-at-will, mere filing of a suit for dissolution does not amount to a notice of dissolution. The section contemplates the mentioning of a date in the notice of dissolution, from which the firm would stand dissolved. Assuming that term of the notice is wide enough to include within Partnership Act, 1932, the plaint, it would follow that the partnership would be dissolved when the summons accompanied by a copy of the plaint is served on the defendant, where there is only one defendant and on all defendants, where there are several defendants. Since a partnership would be dissolved only from one date, the date of dissolution would have to be regarded to be the one on which the last summons was served: Banarsi Das v Kanshi Ram, AIR 1963 SC 1165

 

6 Dissolution by Court

At the suit of a partner, the court may dissolve a firm on any of the following grounds, namely

(a) that a partner has become of unsound mind, in which case the suit may be brought as well by the next friend of the partner who has become of unsound mind as by any other partner.

 (b) that a partner, other than the partner suing has become in any way permanently incapable of performing his duties as a partner ,

(c) that a partner, other than the partner suing, is guilty of conduct which is likely to affect prejudicially the carrying on of the business, regard being had to the nature of the business

(d) that a partner, other than the partner suing, wilfully or persistently commits breach of agreements relating to the management of the affairs of the firm or the conduct of business, or otherwise so conducts himself in matters relating to the business that it is not reasonably practicable for the other partners to carry on the business in partnership with him;

 

(e) that a partner, other than the partner sung, has in any way transferred the whole of his interest in the firm to a third party, or has allowed his share to be charged under the provisions of Rule 49 of Order XXXI of the First Schedule to the Code of Civil Procedure, 1906 (5 of 1908) or has allowed it to be sold in the recovery of arrears of land revenue or of any dues recoverable as arrears of land revenue doe by the partner

(f) that the business of the firm cannot be carried on save at a low or

(g) on any other ground which renders it just and equitable that the firm should be dissolved [Section 44]

 

Wherever dissolution of partnership is sought under section 44(g), then it is for the court to decide, whether it would be just and equitable to dissolve the partnership or not and such a matter cannot be left to be decided by the arbitrator in pursuance of the arbitration clause contained in the partnership deed: Narinder Singh Randha Herdial Singh Dhillon, AIR 1985 P&H 41

 

Liability for acts of partners done after dissolution

 

(1) Notwithstanding the dissolution of a firm, the partners continue to be table as such to third parties for any act done by any of them which would have been an act of the firm if done before the dissolution, until public notice is given to the dissolution

 

Provided that the estate of a partner who dies, or who is adjudicated an insolvent, or of a partner who, not having been known to the person dealing with the firm to be a partner, retires from the firm, is not liable under this section for acts done after the date on which he cases to be a partner

(2) Notices under sub-section (1) may be given by any partner [Section 45]

 

The first step in the process of dissolution is to give a public notice of dissolution. The notice may be given by the firm or any partner This is necessary to terminate the liability of the partners by holding out and of the firm by estoppel, for, without it, the firm and every partner would continue to be liable to third parties for any act done by them which would have been an act of the firm if done before its dissolution

 

Even after the dissolution of the firm, the liability of the partners which would otherwise have been binding on all partners, continues until public notice is given that the firm is dissolved. This general rule is subject to the proviso that even where public notice of dissolution is not given, there will be no liability in case of:-

 

(a) The estate of a deceased partner,

(b) The estate of a partner who is adjudged an insolvent, or

(c) A partner who was not known to the person dealing with the firm to be a partner, i.e. who was, what is commonly known as a dormant partner.

 

Further, section 47 of the Act provides that-

 

"Continuing authority of partners for purposes of winding up. After the dissolution of a firm the authority of each partner to bind the firm, and the other mutual rights and obligations of the partners, continue notwithstanding the dissolution, so far as may be necessary to wind up the affairs of the firm and to complete transactions begun but unfinished at the time of the dissolution, but not otherwise:

 

Provided that the firm is in no case bound by the acts of a partner who has been adjudicated insolvent; but this proviso does not affect the liability of any person who has after the adjudication represented himself or knowingly permitted himself to be represented as a partner of the insolvent."

 

The commencement of dissolution does not at once terminate the authority of the partners. The partner's authority to act for the firm and to bind their co-partners continues at least for two purposes. The authority continues, firstly, so far as it is necessary to wind up the affairs of the firm, and secondly, to complete the transactions begun but not finished at the time of the dissolution.

 

The proviso to section 47 provides that the firm in dissolution would not be liable for the act of any partner who has been adjudicated insolvent. But the proviso does not affect the liability of any person who represents or knowingly permits himself to be a partner of the insolvent.

Therefore, the other partners are liable to third persons for acts done by a partner after dissolution under the circumstances mentioned in section 47 of the Act.

Rules by which partnership accounts are to be settled at the time of dissolution

 

Section 48 of the Indian Partnership Act, 1932 enumerates-

 "Mode of settlement of accounts between partners. In settling the accounts of a firm after dissolution, the following rules shall, subject to agreement by the partners be observed:-

 

(a) losses, including deficiencies of capital shall be paid first out of profit, next out of capital, and, lastly, if necessary, by the partners individually, in the proportions, in which they were entitled to share profits;

(b) The assets of the firm, including any sums contributed by the partners to make up deficiencies of capital, shall be applied in the following manner and order-

(i) in paying the debts of the firm to third parties;

(ii) in paying to each partner rateably what is due to him from the firm for advances as distinguished from capital;

(iii) in paying to each partner rateably what is due to him on account of capital; and

(iv) The residue, if any, shall be divided among the partners in the proportions in which they were entitled to share profits".

 

The Act contemplates complete liquidation of assets of partnership as a preliminary to settlement of accounts between partners upon dissolution of firm. The share of each partner is his proportion of partnership assets after they have been all realised and converted into money and all the partnership debts and liabilities have been paid and discharged; Ajudhia Parshad Ram Parshad v. Sham Sunder, AIR 1947 Lah 13 (FB). During subsistence of partnership, no partner can deal with any portion of property as his own. Nor can he assign his interest in specific item of partnership property to any one. His right is to obtain such profits, if any, as fall to his share from time to time and upon dissolution of firm to a share in the assets of firm which remain after satisfying liabilities set out in clause (a) and sub-clauses (i), (ii) and (iii) of clause (b); Addanki Narayanappa v. Bhaskara Krishnappa, AIR 1966 SC 1300.

 

In the leading case of Garner v. Murray, (1904) 1 Ch 57: 52 WR 208, it was observed that where A, B and C went into partnership under a parole agreement that the capital of the business should be contributed by them, in certain share, but that profits should be divided equally; and upon a dissolution of the partnership, after satisfying all liabilities to the creditors and the advances of two of the partners, the assets were insufficient to make good the capital and a considerably larger sum was due in respect of capital to A than to B, it was held that the true principle of division of assets was for each partner to be treated as liable to contribute an equal third share of the deficiency, and then to apply the assets in paying to each partner rateable what was due to him in respect of the capital.

Q. 9 Write a short note on the Registration of the Firm, what are the effects of non-registration of the firm?

 REGISTRATION OF A FIRM

Chapter VIII of the Indian Partnership Act, 1932 deals with the registration of firms, Section 58 enunciates-

 

"Application for registration. (1) The registration of a firm may be effected at any time by sending by post or delivering to the Registrar of the area in which any place of business of the firm is situated or proposed to be situated, a statement in the prescribed form and accompanied by the prescribed fee, stating,-

 

(a) the firm name,

(b) the place or principal place of business of the firm,

(c) the names of any other place where the firm carries on business,

 

(d) the date when each partner joined the firm, (e) the name in full and permanent address of the partners, and

 

(f) the duration of the firm.

 

The statement shall be signed by all the partners, or by their agents specially authorised in this behalf,

 

(2) Each person signing the statement shall also verify it in the manner prescribed.

 

(3) A firm name shall not contain any of the following words, namely-

 

"Crown", "Emperor", "Empress", "Empire", "Imperial"; "King", "Queen", "Royal", or words expressing or implying the sanction, approval or patronage of Government, except when the State Government signifies its consent to the use of such words as part of the firm name by order in writing".

 

Rules regarding Registration of firms are as follows:-

 

(1) When the Registrar is satisfied that the provisions of section 58 have been duly complied with, he shall record an entry of the statement in a register called the Register of Firms, and shall file the statement. [Section 59]

 

(2) When an alteration is made in the firm name or in location of the principal place of business of a registered firm, a statement may be sent to the Registrar accompanied by the prescribed fee, specifying the alteration, and signed and verified in the manner required under section 58. [Section 60 (1)]

 

(3) When the Registrar is satisfied that the provisions of sub-section (1) have been duly complied with, he shall amend the entry relating to the firm in the Register of Firms in accordance with the statement, and shall file it along with the statement relating to the firm filed under section 59. [Section 60 (2)

(4) When a registered firm discontinues business at any place or begins to carry on business at any place, such place not being its principal place of business, any partner or agent of the firm may send intimation thereof to the Registrar, who shall make a note of such intimation in the entry relating to the firm in the Register of Firms, and shall file the intimation along with the statement relating to the firm in the Register of Firms, and shall file the intimation along with the statement relating to the firm filed under section 59. [Section 61]

 

(5) When any partner in a registered firm alters his name or permanent address, an intimation of the alteration may be sent by any partner or agent of the firm to the Registrar, who shall deal with it in the manner provided in section 61. [Section 62]

 

(6) When a change occurs in the constitution of a registered firm any incoming, continuing or outgoing partner, and when a registered firm is dissolved any person who was a partner immediately before the dissolution, or the agent of any such partner or person specially authorised in his behalf, may give notice to the Registrar of such change or dissolution, specifying the date thereof; and the Registrar shall make a record of the notice in the entry relating to the firm in the Register of Firms, and shall file the notice along with the statement relating to the firm filed under section 59. [Section 63 (1)]

 

(7)When a minor who has been admitted to the benefits of partnership in a firm attains majority and elects to become or not to become a partner, and the firm is then a registered firm, he, or his agent specially authorised in this behalf, may give notice to the Registrar that he has or has not become a partner, and the Registrar shall deal with the notice in the manner provided in sub-section (1). [Section 63(2)]

 

(8) The Registrar shall have power at all times to rectify any mistake in order to bring the entry in the Register of Firms relating to any firm Into conformity with the documents relating to that firm under this chapter. [Section 64(1)]

 

(9) On application made by all the parties who have signed any document relating to a firm filed under this chapter, the Registrar may rectify any mistake in such document or in the record or note thereof made in the Register of Firms. [Section 64(2)]

 

(10) A court deciding any matter relating to registered firm may direct that the Registrar shall make any amendment in the entry in the Register of Firms relating to such firm which is consequential upon its decision; and the Registrar shall amend the entry accordingly. [Section 65]

 

(11) The Register of Firms shall be open in inspection by any person on payment of such fee as may be prescribed. [Section 66(1)]

(12) All statements, notice and intimation filed under this chapter shall be open in inspection, subject to such conditions and on payment of such fee as may be prescribed. [Section 66(2)]

 (13) The Registrar shall on application furnish to any person, on payment of such fee as may be prescribed, a copy, certified under his hand, of any entry or portion thereof in the Register of Firms. [Section 67]

 

(14) Any statement, intimation or notice recorded or noted in the Register of Firms shall, as against any person by whom or on whose behalf such statement, intimation or notice was signed, be conclusive proof of any fact therein stated. [Section 68(1)

 (15) A certified copy of any entry relating to a firm in the Register of Firms may be produced in proof of the fact of the registration of such firm, and of the contents of any statement, intimation or notice recorded or noted therein. (Section 68(2))

EFFECT OF NON-REGISTRATION OF A FIRM

 Chapter VII of the Indian Partnership Act deals with the registration of partnership firms. However, the Act makes registration-optional and not compulsory. The said chapter does not prohibit

 (a) an unregistered firm from making contracts with third parties, nor

 (b) the partners of an unregistered firm from making contracts with each other; nor

(c) the acquisition of property by such firm.

Section 69 of the Indian Partnership Act lays down:

 

"Effects of non-registration. (1) No suit to enforce a right arising from a contract or conferred by this Act shall be instituted in any court by or on behalf of any person suing as a partner in a firm against the firm or any person alleged to be or to have been a partner in the firm unless the firm is registered and the person suing is or has been shown in the Register of Firms as a partner in the firm.

 

(2) No suit to enforce a right arising from a contract shall be instituted in any court by or on behalf of a firm against any third party, unless the firm is registered and the persons suing are or have been shown in the Register of Firms as partners in the firm.

 

(3) The provisions of sub-sections (1) and (2) shall apply also to a claim of set-off or other proceeding to enforce a right arising from a contract, but shall not affect,-

 

(a) the enforcement of any right to sue on the dissolution of a firm or on account of a dissolved firm, or any right or power to realise the property of a dissolved firm, or

 

(b) the powers of an official assignee, receiver or court under the Presidency Towns Insolvency Act, 1909 (3 of 1909) or the Provincial Insolvency Act, 1920 (5 of 1920) to realise the property of an insolvent partner.

 

(4) This section shall not apply-

 

(a) to firms or to partners in firms which have no place of business in the territories to which this Act extends, or whose places of business in the said territories are situated in areas to which, by notification under section 56, this chapter does not apply, or

 

(b) to any suit or claim of set-off not exceeding hundred rupees in value which, in the Presidency towns, is not of a kind specified in section 19 of the Presidency Small Cause Court Act, 1882 (5 of 1882) or outside the Presidency towns, is not of a kind specified in the Second Schedule to the Provincial Small Cause Courts Act, 1887 (9 of 1887) or to any proceeding in execution or other proceeding incidental to or arising from any such suit or claim."

 

Registration of firms is not compulsory, it is optional and there is no penalty for non-registration. Yet registration becomes necessary at one time or the other, because section 69 seriously cuts short the capacity of an unregistered firm. The firm cannot, for example, sue any person for the price of the goods supplied by it. This disability itself is a compelling force to bring the firm to be registered.

In Lonkaram Sethia v. Von Ellon, AIR 1977 SC 336: (1977) 1 SCR 853, S filed a suit, which it was found, was for the benefit and in the interest of the firm of S and company, and on behalf of that firm, of which S was a partner with another person. The suit was on a contract entered into by S with the defendant, as a partner of S and Company. There was nothing to show that S was suing to recover the outstanding of a dissolved firm and it was held that the suit was not maintainable in the absence of registration as required by section 69(2).

 

A contract entered into by a partner personally may constitute a personal agreement, and therefore the partner would in such a case be entitled to bring a suit on the contract in his own name without joining the other partners as plaintiffs in the action. Such a suit does not fall within the operation of sub-section (2) of section 69.

 

In Sheo Dutt v. KushiFfam, 1 LR 1964 All 59: AIR 1947 All 229: 1947 ALJ 181, the Allahabad High Court expressed the view that the words "any right or power to realise the property of a dissolved firm" in sub-clause (iii) of clause (a) are wide enough to include not only the right to recover any such property of the firm from a third party but also the right to recover any such property from another partner.

 

Applicability of bar to "claim of set-off or other proceedings".-In Jagdish Chandra Gupta v. Kajaria Traders (India) Ltd., AIR 1964 SC 1882, the question that came up before the Supreme Court was, whether a petition to the court by an unregistered firm under section 8 of the Arbitration Act, 1940, for appointment of an arbitrator was hit by the provisions regarding registration enacted in section 69 of the Partnership Act. There was an arbitration clause in the partnership agreement and disputes having arisen between the partners, one of the partners called upon the other partners to name his arbitrator, which the latter failed to do. Thereupon, there was an application to the court for the appointment of an arbitrator, which was allowed by the Bombay High Court, which was of the opinion that such an application was not a 'proceeding' to enforce a right arising from a contract.

 

The Supreme Court reversed the decision and observed: "In our judgment, the word proceeding in sub-section (3) must receive its full meaning untrammelled by the words 'a claim of set off. The latter words neither intend nor can be construed to cut down the generality of the words 'other proceeding'. The sub-section provides for the application of the provisions of sub-sections (i) and (ii) to claims of set-off and also to the other proceedings of any kind, which can properly be said to be for the enforcement of any right arising from the contract. The proceeding must be for enforcement of a right arising directly from a contract and not a right, which in some way may be related to a contract, nor a right, which may only be indirectly or remotely connected with a contract.