Minors As Partners of Firm

Indian Partnership Act, 1932 defines persons as a partner who have agreed to share profits of the business carried on by all are any of them acting for all.[1]

A minor is a person who hasn’t yet attainted the age of majority according to the Indian Majority Act, 1875.[2] It is stated that a person who is domiciled in India will attain majority at the age of eighteen in the Indian Majority Act.[3]

The Indian Partnership Act governs the admittance of a minor into the partnership in Section 30. This section deals with the rights and liabilities of a minor who is admitted un the partnership.[4] A deeper reading of the provision, specifically section 30(1) makes it very clear that a minor cannot be admitted in the partnership as a full-fledged partner, but with the consent of the other partners, a minor can be admitted in the partnership to the benefits of the partnership.

It is an established principle that a minor is incompetent to enter in a contract, and therefore, a contract of partnership cannot be entered with a minor.[5] The same was also assented by the apex court of the country in the Dwarkadas Case[6] and the Hardutt Ray Case[7].

Minors Admitted Only For Benefits

The general principle has been laid down by Section 11 of The Indian Contract Act, 1872, where it is discussed that who is competent to a contract and thereby stating that a minor doesn’t have the ability to contract.[8] The same was supported in the Andhra Pradesh High judgement of Addepally Nageshwar Rao[9].

The Indian Partnership Act was drafted by a special committee. Before the enactment of The Indian Partnership Act the provision in partnership was governed by The Indian Contract Act and therefore the special committee thought that there was no requirement to deviate from the principle of incapability of a minor to enter into a contract of partnership as provided by Section 11 of The Indian Contract Act.

Following this the special committee did not allow the minors to become a partner in a partnership, although they allowed a minor to be admitted to the benefits of a partnership with the consent of all the existing partners in the partnership.[10]

The same kind of principle is also pronounced in judicial pronouncements like the S. C. Mandal case.[11] It was observed that under Section 4 of The Indian Partnership Act[12], a firm means a group of people who has entered into a contract of partnership among themselves and reading it with Section 11 of the Indian Contract Act,[13] it can be interpreted that a minor cannot be a part of a partnership contract.

It was held that a minor can only be in the partnership only for the benefits of the partnership. It also stated that there should partnership between two major partners before a minor can be admitted to its benefits.

The high court of Allahabad even declared a partnership deed to be void where the rights and liabilities of a partnership firm was divided between the minor and majors in the partnership.[14] The court held that in the present situation not only the benefits of the partnership but also the liabilities of the partnership are being put on the minor which is contradictory to the Indian Partnership Act[15].

Although the various judgements in the same line was there but still there was a huge confusion regarding the question as to can a minor become a full-fledged partner in the partnership firm as there were some contrary judgement to this effect also.

Finally, the Supreme Court in the landmark judgement of Commissioner of Income Tax vs D. Khaitan and Co.[16] took a legal stand that in a situation where a minor is made a full-fledged partner in the firm in that case the partnership cannot be registered by the Income Tax Department.

In case the partnership has to be registered by the Income Tax Department then a totally new contract has to be formulated where the minor is to be admitted only to the benefits of the firm, and the old contract will be invalid with the new contract coming in force. It was also stated that the new contract has to specifically mention that the minor has been admitted in the partnership only for benefits and no the minor is not liable for any losses.

Even in the judgement of Banka Mal Lajja Ram & Co. vs. Commissioner of Income Tax, Delhi[17], it was held that even if all the other partners of the partnership consent in making the minor a full-fledged partner still that can be brought into effect.

In the Guwahati High Court judgement of Commissioner of Income Tax vs. Kedarmall Keshardeo[18] the court held that a contract deed is valid when a guardian enters into a partnership on behalf of the minor but again no liability should be imposed on the minor, even the income of a minor from the firm should not be considered for the purpose of income tax.

The courts even came to the view that when a guardian is contracting for a minor then the damages must be calculated in the basis of what damage the guardian has suffered and not the minor.[19] It is also established by the courts that if a minor is contracting through a guardian then the benefits that are being conferred that has to be accepted by the guardian[20], but the minor may do away with the agreement id it is not entered for his benefits.[21]

Rights And Liability of A Minor

Section 30(2) of the Indian Partnership Act states that a minor is entitled to share of profits and the property of the firm which may have decided at the time the minor was admitted to the benefits of the partnership.[22] Under this provision, a minor has the right to inspect the accounts of the partnership but to that fact does not have any right to inspect other documents of the partnership.

Even in Section 30(3) of the Indian Partnership Act a minor can only be liable to the extent of his share in the partnership and can’t be liable personally to the partnership for the losses of the firm.[23] Even the same notion was taken in a Calcutta High Court judgement where it was stated that the creditors can only recover the amount from a minor to the extent of his share in the firm, but they can’t sue the minor personally, this benefit is not enjoyed by the major member in the firm.[24]

The Supreme Court went a step ahead when it adjudged that a minor can’t be declared insolvent even if the major partners of the firm are declared insolvent.[25] The apex court also came out with the same view as to when can a minor sue the other full-fledged partner in the partnership.[26]

Section 30(4) of The Indian Partnership Act states that a minor can sue the other partners of the firm for his benefits in the firm but the same right is not available to the full-fledged partners of the firm. The provision also states that in the case the minor severs all ties with the firm then valuation of his share is to be done according to Section 48 of The Indian Partnership Act[27] as far as possible.

Position of Minor Attaining Majority

According to section 30(5) of The Indian Partnership Act, a minor has two option after attaining majority, either he can sever the connection with the firm or become a full-fledged partner in the firm.[28] The minor has to make dis decision within six months of his attaining majority.

The minor has to furnish a public notice specified under Section 72 on The Indian Partnership Act[29] if he chooses to become a full-fledged partner. The minor continues to enjoy the rights as a minor till he makes his final decision as to he will join the partnership as a full-fledged partner or sever the connection from the partnership.

Section 7(a) of The Indian Partnership Act also states that after a minor partner has been admitted in the partnership as a full-fledged partner then he will be liable not only for the future liabilities of the firm but also the past liability from the date of his admission in the partnership.[30]

Section 7(b) states that a the share of the minor after he attains majority will be the same which was given to him when he was a minor as because when a minor chooses to become a full-fledged member of the partnership, there is no break in the partnership and it continues as it is just that the liabilities of being a full-fledged partner are now upon him.

Section 8 of The Indian Partnership Act[31] states that if the minor declines to continue as a full-fledged member of the partnership he will be liable for all the liabilities of the partnership till he furnishes the public notice as per Section 72 of The Indian Partnership Act. After serving the ties with the partnership, the minor may file a suit as to recover the benefits he was entitled to.

Conclusion
From the above discussion, we can say that a partnership firm cannot be formed with a minor as the only other member. The relationship of the partnership arises from a contract. According to Section 11 of The Indian Contract Act[32], a minor is not competent to a contract. Even in the Dwarkadas Khetan case[33] the Supreme Court of the country declares that a minor cannot be a full-fledged partner in the firm. The apex court in Shah Mohandas Case[34] stated that a minor may be admitted in the firm only for its benefits.

End-Notes:

  1. Section 4 of The Indian Partnership Act, 1932
  2. http://admis.hp.nic.in/himpol/Citizen/LawLib/C0141.htm; (last viewed on 22/3/19 at 09:54)
  3. Section 3 of The Indian Majority Act, 1875
  4. Section 30 of The Indian Partnership Act, 1932
  5. Shriram Sardarmal Didwani vs. Gourishankar Alias Rameshwar, AIR 1961 Bom 136
  6. Commissioner of Income Tax vs R. Dwarkadas And Co., [1971] 80 ITR 283 Bom
  7. Hardutt Ray Gajadhar Ram vs. Commissioner of Income Tax, [1950] 18 ITR 106 (All)
  8. Section 11 of The Indian Contract Act, 1872
  9. Addepally Nageswara Rao vs. Commissioner of Income-Tax, [1971] 79 ITR 306 AP
  10. Section 30(1) of The Indian Partnership Act, 1932
  11. Sanyasi Charan Mandal vs. Krishnadhan Banerjee, 1922 (24) BOMLR 700
  12. Supra, Note 1
  13. Supra, Note 8
  14. Hardutt Ray Gajadhar Ram vs. Commissioner of Income Tax, [1950] 18 ITR 106 (All)
  15. Supra, Note 4
  16. Supra Note 4
  17. Banka Mal Lajja Ran and Co. vs. Commissioner of Income Tax, Delhi, AIR 1953 Punj 270 (DB)
  18. Commissioner of Income Tax vs. Kedarmall Kessardeo, AIR 1968 Gau 68
  19. Khirnji Kuverji vs Lalji Karamasi, AIR 1941 Bom 129
  20. Commissioner of Income Tax Mysore, Bangalore vs Shah Mohandas Sodhuram, AIR 1966 SC 15
  21. Duaram Vir vs Jagan Nath, AIR 1968 Punj 84
  22. Section 30(2) of The Indian Partnership Act, 1932
  23. Section 30(3) of The Indian Partnership Act, 1932
  24. Sanyasi Charan Mandal vs. Asutosh Ghose, AIR 1915 Cal 482
  25. Shivagouda Ravji Patil and Ors. vs. Chandrakant Neelkanth Sedalge and Ors, AIR 1965 SC 212
  26. S. V. Chandra Pandian and Ors. vs S. V. Sivalinga Nadar and Ors., (1993) 1 SCC 589
  27. Mode of settlement of accounts between partners
  28. Section 30(5) of The Indian Partnership Act, 1932
  29. Mode of giving public notice
  30. Section 7(a) of The Indian Partnership Act, 1932
  31. Section 8 of The Indian Partnership Act, 1932
  32. Section 11 of The Indian Contract Act, 1872
  33. Supra Note 4
  34. Commissioner of Income Tax vs. Shah Mohandas Sadhuram, AIR 1966 SC 15

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