The Indian Partnership Act and the Case of Minors

I. introduction

The Indian Partnership Act, when drafted by the judicial committee did have intended to make a provision so as to include the benefits of the minors with regard to their partnership with the firms. This provision was made taking into considerations the previous cases which had come up before the courts with respect to the Law of contract.

The provision related to the minors has been titled as “Minors admitted to the benefits of partnership”[1] under Indian Partnership Act, 1932. It contains (9) sub-sections within it, each enumerating a different conditions as to how a minor may have the right to get the benefits of the partnership or rather broadly mentioning, the ways in which a minor may enter into a partnership, his liability on attaining the age of majority etc. The first clause itself starts with a negating clause “a person who is minor according to law to which he is subject may not be a partner in the firm…”[2] He may only be admitted to the benefits of the partnership with the consent of all the partners. Some clauses are added by the drafters in order to save the minors from any personal liability, although, he may be liable for the acts of the firms.[3]

Under the aforementioned section the minor is also barred to sue any of the partners in the firm subject to a saving clause which confers him the right to sue only in the case while severing from the firm. He may, albeit, inspect into the books of account of the firm and may access the property and shares as has been agreed upon by the terms of the partnership.

In the paper, all these clauses shall be dealt in detail in the light of various views presented in different case of the Hon’ble Supreme Court and High Court.

II. minor’s admission to the partnership of a firm

A. Partnership of Minor under English Law

The minor, under English law may enter into a partnership contract but he may not incur any liability to the third part unless he attains the age of majority. As stated in the book Lindley and Banks on Partnership “A minor i.e. a person under age of 18, may enter into a partnership but will, as a general rule, incur no liability to his partners or to any third party, whilst he remains under age”[4]

It is thus recognized under English Law that a minor may enter into a partnership. However, he has no liability towards the partners or the firm until he may attain the age of majority. But the partnership property in which he has a share can be sold in execution of decree passed against the firm keeping in mind that the creditor shall not be able to do anything with the minor’s personal property.[5]

B. Partnership of Minor under Indian Law

The Indian Partnership Act takes a bit different stand than the English Law. It has been explicitly mentioned in the Act that a minor cannot be a partner in the firm. He may only be admitted to the benefits of the firm.[6] The logic behind this contention was explained by the Hon’ble High Court as that the relationship of partnership arises out of a contract. As a minor cannot enter into a contract with anyone, he is incompetent to enter into a partnership.[7] This implies that even if a partnership firm defines a minor to be a partner in the firm he shall not be treated as a partner and the agreement to that extend shall be void. The only concession allowed by sec. 30 of the Act is that a minor may only take the benefits of the firm which is also subject to the consent of all the partners in the firm and the same should be proved in order to prove that the minor is only admitted to the benefits of the partnership.

III. minor’s right in a partnership

Minors in a partnership enjoy several rights including the right to the share of property and the profits of the firm. Also, he may access to and inspect any of the accounts of the firm.[8] A minor is entitled to only the benefits of the partnership and cannot be held responsible for any of the losses. Even in a deed if the majors and the minors share the profits and the losses, the deed would be invalid[9] on the account that the minor can only take the share of his profit but not the loss. If such a deed is allowed, the result would be same as a minor being a partner to the firm, which has been explicitly denied by the law. If in a situation a members of a family carry on a business and there are minor members in the family, there must be a positive conduct from which a court can infer that the members who are major intended to the benefits of the partnership to minor members.[10] This implies that the even in the family business the limit of the minors will only be up to the extent of the benefits of the minors.

A minor also enjoys the right to file a suit against the firm or partners for accounts and for his share of his profit even though he is not a full-fledged partner of the firm. This situation mostly arises when a person is minor and his father becomes insolvent and the firm in consideration of the service rendered to it by the father agreed to have the minor as a partner in respect of a certain share. Even though, the minor in such a case does not become a partner but can maintain his suit against the firm for his share of profits.[11]

Conclusively, it can be mentioned that a minor enjoys a bunch of rights against the firm and in no way a firm can put a minor in jeopardy.

IV. position of minor admitted to benefit of business

A minor admitted to benefit of the partnership is not a full-fledged member of the firm. Thus, he shall not actively engage in the in the business of the firm. This leads to the conclusion that he has no say in the matters of the firm and the procedure or the rules to carry on the business. He cannot even question the policies of the business. Sec.30 drew a limit of his inspection to the books of account and no other book which do not contain any of the account.[12] However, the benefit of being excluded from actively engaging in the business of the firm, the minor gets exempted from the income tax for his income from the firm is not an earned income.[13]

Also, as long as a minor remains a minor his share shall only be liable for the act of the firm but the minor shall not personally be liable for any such act. So his share in profit may only be affected by any act of firm but he will not be liable to any loss for any act of the firm personally.

The act also provide that a minor cannot sue his co-partners for an account or payment of share or profit of the firm unless he severs all his connection with the firm and in such a case his share shall be determined by a valuation made as far as possible in accordance with the rule contained in sec. 48[14][15]

Proviso of the said sec. also provides that all partners acting together or any partner on notice to the other partners may elect, in such a suit filed by a minor severing connections with the firm, to dissolve the firm and the court in such a suit may dissolve the firm and settle the account between the partners and the amount of share with the minor.[16]

V. consequences of a minor attaining a majority

A. Obligation of a minor who is admitted to the benefits of Partnership as he attains majority

The Act provides a provision for the minor who has been admitted to benefits of partnership as to when a he attains the majority different options as to his partnership with the firm.[17] A minor under the mentioned sec. may within six months of his attaining majority or of his obtaining knowledge that he had been admitted to the benefits of partnership may give notice whether he has elected to become or not to become a partner of the firm failing which after six months he shall become a partner of the firm. Additionally, for the six months, the position of the person who has been admitted to benefits of partnership shall remain same i.e. he shall have no personal liability or so for the firm or any third party.

Sub –sec. 6 provides that the burden of proving that the person has no knowledge of such admission till the expiry of the six months of his attaining majority shall lie on him. Hence, if such a case is disputed and presented before the court for its consideration, it shall be the person who had been enjoying the benefit of partnership on whom the responsibility of proving his innocence would lie.

B. Position of minor admitted to the benefits of Partnership on his attaining majority

The position of a minor when he attains majority depends upon his decision as to whether he wants to be a partner of the firm or not as has been aforementioned. This clause was explained in the Bhogilal Laherchand[18] case. The Hon’ble court elaborated that

1. If a minor on the attainment of majority elects to continue as a partner then the partnership does not come to an end. The rights and liabilities as a minor continue up to date on which he becomes a partner as according to sub-sec 7(a)[19].
2. If, contrary to the above proposition, a minor elects not become a partner then he is entitled to claim whatever amount was due to him as computed at the date when the public notice provided in sub-sec (5). Further, his share no more liable for any acts of the firm done after the date of the notice. The minor also becomes entitled to sue the partners for his share of the property and profits in accordance with sub-sec (4).

a.) Effects of minor becoming a partner

Sub-sec 7(a) contemplates after the minor elects to become a partner of the firm after attaining the age of majority. In such a case, the rights and liabilities remain the same as they were during the minority and after the date on which he becomes the partner he becomes personally liable for all the acts of the firm done since he was admitted to the benefits of the firm. The effect of the provision is that the personal liability of such a person who has admitted to the benefits of a partnership firm, in such a case commences not from the date of majority but right from the date of his admission to the benefits of the firm. The object is that the election to become a partner is, is as it were, an automatic ratification of the minor of all acts of the firm done since such admission. [20]

b.) Effect of minor not becoming a partner

There are three effects as to when a minor decides not to become a partner of the firm. Firstly, that his rights and liabilities shall continue as it was when he was a minor up to the date he does not give any public notice as mentioned in sec. (5) of the Act. Secondly, his share his share will not be liable for any acts of the firm done after the date of the notice. Hence, it means that he shall not be personally liable to any of the creditors for any act of the firm thereafter. Thirdly, that he shall be entitled to sue the partners for his share of property and profit in accordance with sub-sec (4); so as to receive the amount of share determined by a valuation made under sec 48 of the act.

In an exception to both the situation, if the minor after attaining the majority does not give any notice he shall be deemed to elect being a partner to the firm in accordance with the proviso mentioned in sub-sec (5) of the Act.

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[1] §30,Indian Partnership Act,1932

[2] §30 (1) Indian Partnership Act,1932

[3] §30 (3), Indian Partnership Act,1932

[4]Lindley and Banks, Lindley and Banks on Partnership 58 ( 18^th ed , 2002)

[5] M.R. Mallick, The Law of Partnership 289 (2^nd ed, 2006)

[6] § 30 (1), Indian Partnership Act, 1932

[7] Lachhmi Narain v Beni Ram AIR 1931 All 327

[8] § 30 (2), Indian Partnership Act,1932

[9] CIT v Balkishan Das Harnam Das AIR 1968 Punj 469

[10] Supra note 5

[11] P C Markanda, The Law of Partnership 333 (1^st ed, 2010). Also see, Tulsidas v Gangaram Ghanshamdas AIR 1925 Sind 272 (DB)

[12] Supra note 8

[13] M.R. Mallick, The Law of Partnership 292 (2^nd ed, 2006)

[14] § 30(4), Indian Partnership Act, 1932

[15] § 48, Indian Partnership Act, 1932- Mode of settlement of account between the partners.

[16] § 30(1) (4), Indian Partnership Act, 1932

[17] § 30 (5), Indian Partnership Act, 1932

[18] Bhogilal Laherchand v CIT AIR 1956 Bom 411

[19] § 30 (7) (a), Indian Partnership Act,1932

[20] Justice K. Kannan, Mulla: The Sale of Goods Act and The Indian Partnership Act (10^th ed, 2012)