UNIVERSITY OF DELHI, LL. B. III Term Paper – LB – 3031 - Business Association - I (Partnership and Agency)

Objectives of the Study

The law recognizes two types of business associations, viz.

(i) company and 

(ii) partnership. 

The law relating to partnership has gone a drastic change with the enactment of
the Limited Liability Partnership Act, 2008. The limited liability partnerships are more akin to
companies but not exactly the same. The traditional concept of partnerships with unlimited
liability, joint ownership and flexibility in registration permissible under the Indian
Partnership Act, 1932 has been drastically modified under the Limited Liability Partnership
Act, 2008. The need to have two kinds of partnerships along with registered companies
deserves to be studied by keeping in mind the rationale in retaining these three forms of
business associations.

The present course is aimed at a study of the Limited Liability Partnership Act, 2008 and
the Indian Partnership Act, 1932 in the light of judicial pronouncements. The provisions of
the Indian Contract Act, 1872 dealing with agency particularly the provisions of sections 182-
238 will also be covered in this course.

Prescribed Legislations:

1. The Indian Partnership Act, 1932
2. The Limited Liability Partnership Act, 2008 (6 of 2009)
3. The Indian Contract Act, 1872

Prescribed Books:

1. Sanjiv Agarwal and Rohini Agarwal, Limited Liability Partnership : Law and Practice
(2009).
2. G.C ., Bharuka, The Indian Partnership Act
(7th ed., 2007)
3. Avtar Singh, Law of Partnership (3rd ed., 2001 with supplement 2003)
4. V.P. Verma (Rev.), S. D. Singh and J.P. Gupta, Law of Partnership in India
(5th ed., 1996)
5. R.G. Padia (ed.), Pollock & Mulla, Indian Contract and Specific Relief Acts
(13th ed., 2006)
ii

PART – I (Limited Liability Partnership Act, 2008)

Topic I - Limited Liability Partnerships (LLP)

Concept and nature of Unlimited Liability Partnerships; Distinction between a partnership, a
limited liability partnership and a company; Incorporation of LLPs; Effect of registration;
Partners and their relations; Liability of LLPs and its partners; Holding out; Protection to
whistle blowers; Investigation.

PART – II (The Indian Partnership Act, 1932)

Topic 2 – The Nature of Partnership

Definition of “partnership”, “partner”, “firm” and “firm name” (section 4); partnership not
created by status (section 5); Mode of determining existence of partnership (section 6);
partnership at will (section 7); Particular partnership (section 8)
1. Steel Bros. and Co. v. CIT, AIR 1958 SC 315 1
2. K.D. Kamath & Co. v. CIT (1971) 2 SCC 873 7
3. K. Jaggaiah v. K. Venkatasatyanarayana, AIR 1984 AP 149 15
4. Helper Girdharbhai v. Saiyed Mohmad Mirasaheb Kadri,
AIR 1987 SC 1782 17
5. Commissioner of Sales Tax v. K. Kelukutty (1985) 4 SCC 5 21
6. Mahabir Cold Storage v. CIT, AIR 1991 SC 1357 24
7. Bhagwanji Morarji Goculdas v. Alembic Chemical Works,
AIR 1948 P.C. 100 27
8. Nanchand Gangaram v. Mallappa Mahalingappa Sadalge
(1976) 2 SCC 429 : AIR 1976 SC 835 28
9. Lachhman Das v. CIT, AIR 1948P.C. 8 31
10. Chandrakant Manilal Shah v. CIT, AIR 1992 SC 197 34
11. Champaran Cane Concern v. State of Bihar, AIR 1963 SC 1737 40
12. Laxmibai v. Roshanlal, AIR 1972 Raj. 288 45
13. Cox v. Hickman (1860) 8 H.L.C. 268 50
14. Mollwo, March & Co. v. The Court of Wards (1872) L.R. 4 P.C. 419 56
15. Abdul Latiff v. Gopeswar Chattoraj, AIR 1933 Cal. 204 : 141 I.C. 225 61
16. Holme v. Hammond (1872) 7 Ex. 218 : 41 L.J. Ex. 157
17. Badri Prashad v. Nagarmal, AIR 1959 SC 559 66
18. Narayanlal Bansilal Pittie v. Tarabai Motilal (1970) 3 SCC 293 70
19. Uduman v. Aslum, AIR 1991 SC 1020 78
20. Chandrika Prasad Agarwal v. Vishnu Chandra, 1981 All LJ 967 84
21. Gherulal Parakh v. Mahadevdas Maiya, AIR 1959 SC 781 89

Topic 3 - Relations of Partners to One Another

General duties of partners (section 9); duty to indemnify for loss caused by fraud (section 10);
determination of rights and duties of partners by contract between the partners (section 11);
the conduct of the business (section 12); Mutual rights and liabilities (section 13); The
property of the firm (section 14); Application of the property of the firm (section 15);
Personal profits earned by partners (section 16); Rights and duties of the partners (section 17).
22. Chennuru Gavaraju Chetty v. Chennuru Sitaramurthy Chetty,
AIR 1959 SC 109 97
23. Miles v. Clarke (1953) 1 All ER 779 105
24. Arjun Kanoji Tankar v. Santram Kanoji Tankar (1969) 3 SCC 555 109
25. ARM Group Enterprises Ltd. v. Waldorf Restaurant
(2003) 6 SCC 423 113
26. Gattulal v. Gulab Singh, AIR 1985 SC 547 120
27. Lachhman Dass v. M.T. Gulab Devi, AIR 1936 All. 271
28. Shashi Kapila v. R.P. Ashwin (2002) 1 SCC 583
29. Trimble v. Goldberg (1906) AC 494 (PC) 123
30. Pulin Bihari Roy v. Mahendra Chandra Ghosal, AIR 1921 Cal. 72 128

Topic 4 - Relations of Partners to Third Parties

Partners to be agent of the firm (section 18); Implied authority of partner as agent of the firm
(section 19); Extension and restriction of partner’s implied authority (section 20); Partner’s
authority in an emergency (section 21); Mode of doing act to bind firm (section 22); Effect of
admissions by a partner (section 23); Effect of notice to acting partner (section 24); Liability
of partner for acts of the firm (section 25); Liability of the firm for wrongful acts of a partner
(Section 26); Liability of firm for misapplication by partners (section 27); Holding out
(section 28) Rights of transferee or a partner’s interest (section 29); Right of transferee or a
partner’s interest (section 30); Minors admitted to the benefits of partnership.
31. Holme v. Hammond (1872) L.R. 7 Ex. 218 : 41 L.J. Ex. 157 132
32. Rhodes v. Moules (1895) 1 Ch. 236 (CA) 136
33. Hamlyn v. Houston & Co. (1903) 1 K.B. 81 140
34. Tower Cabinet Co., Ltd v. Ingram (1949) 1 KBD 1032 142
35. Snow White Food Products Ltd. v. Sohan Lal, AIR 1964 Cal. 239
36. Scarf v. Jardine (1882) 7 A.C. 345
37. Mathura Nath v. S. Bageshwari Rani, AIR 1928 Cal. 57
38. CIT v. Dwarkadas Khetan & Co., AIR 1961 SC 680 147
39. Shivgouda Ravji Patil v. Chandrakant Neelkanth Sadalge,
AIR 1965 SC 212 149
40. C.I.T. v. Shah Mohandas Sadhuram, AIR 1966 SC 15 152

Topic 5 - Incoming and Outgoing Partners

Introduction of a partner (section 31); Retirement of a partner (section 32); expulsion of
partners (section 33); Insolvency of a partner liability of estate of deceased partner (section
35); rights of outgoing partner to carry on competing business (section 36); Rights of
outgoing partner in certain cases to share subsequent profits (section 37); Revocation of
continuing guarantee by change in firm (section 38).
41. Syndicate Bank v. R.S.R. Engg. Works (2003) 6 SCC 265 156
42. Pamuru Vishnu Vinodh Reddy v. Chhillakuru Chandrasekhara Reddy
(2003) 3 SCC 445 159
43. Vishnu Chandra v. Chandrika Prasad Agarwal, AIR 1983 SC 523 164

Topic 6 - Dissolution of a Firm

Dissolution of a firm (section 39); Dissolution by agreement (section 40); Compulsory
dissolution (section 41); Dissolution on the happening of certain contingencies (section 42);
Dissolution by notice of partnership at will (section 43); Dissolution by the Court (section
44); Liability for acts of partners done after dissolution (section 45); Right of partners to have
business wound up after dissolution (section 46); Continuing authority of partners for purpose of winding up (section 47); Mode of settlement of accounts between partners (section 48); payment of firm debts and of separate debts (section 49); Personal profits earned after dissolution (section 50); Return of premium on premature dissolution (section 51); Rights were partnership contract is rescinded for fraud or misrepresentation (section 52); Rights for retrain from use of firm name or firm property (section 53); Agreements of restraint of trade (section 54); Sale of goodwill after dissolution (section 55).
44. Saligram Ruplal Khanna v. Kanwar Rajnath, AIR 1974 SC 1094 167
45. Santiranjan Das Gupta v. Dasuram Murzamull, AIR 1973 SC 48 177
46. M/s. Juggilal Kamlapat v. M/s. Sew Chand Bagree, AIR 1960 Cal. 463 180
47. Sharad Vasant Kotak v. Ramniklal Mohanlal Chawda (1998) 2 SCC 171 183
48. S.V. Chandra Pandian v. S.V. Sivalinga Nadar (1993) 1 SCC 589 191
49. CIT v. M/s. Pigot Champan and Co., AIR 1982 SC 1085

Topic 7 - Registration of Firms

Power to exempt from application of this Chapter (section 56); Appointment of Registrars
(section 57); Application for registration (section 58); Registration (section 59); Recording of
alternations in firm name and principal place of business (section 60); Noting of closing and
opening of branches (section 61); Noting of changes in names and addresses of partners
(section 62); Recording of charges in and dissolution of a firm (section 63); Rectification of
mistakes (section 64); Amendment of Register by order of Court (section 65); Inspection of
Register and field documents (section 66); Grant of copies (section 67); Rules of evidence
(section 68); Effect of non-registration (section 69); Penalty for furnishing false particulars
(section 70); Power to make rules (section 71).

50. CIT v. Jaylakshmi Rice & Oil Mills Contractor Co.,
AIR 1971 SC 1015 201
51. Jagdish Chandra Gupta v. Kajaria Traders (India) Ltd.,
AIR 1964 SC 1882 204
52. Mohatta Bros. v. Bharat Suryadaya Mills Co. Ltd., AIR 1976 SC 1703 208
53. Seth Loonkaran Sethiya v. Ivan E. John, AIR 1977 SC 336 214
54. Delhi Development Authority v. Kochhar Construction Work
(1998) 8 SCC 559 226
55. Gwalior Oil Mills v. Supreme Industries (1999) 9 SCC 113 228
56. Haldiram Bhujiawala v. Anand Kumar Deepak Kumar
(2000) 3 SCC 250 230
57. Kamal Pushp Enterprises v. D.R. Construction Co.,
AIR 2000 SC 2676 : (2000) 6 SCC 659 237

Topic 8 – Agency

‘Agent’ and ‘Principal’ defined; Who may employ an agent; who may be appointed as agent;
Rights, duties and liabilities of principal and agent, scope and limitation, ratification and
revocation of authority; appointment of sub-agent (The Indian Contract Act, 1872).
58. Narandas Morardas Gajiwala v. SPAM Papammal, AIR 1967 SC 333
59. Kuchwar Lime and Stone Co. v. Dehri Rohtas Light Rly. & Co. Ltd.,
AIR 1969 SC 193
60. Lakshminarayan Ram Gopal v. Govt. of Hyderabad, AIR 1954 SC 367
61. Snow White Indl. Corpn. v. Collector of Central Excise,
AIR 1989 SC 1555

IMPORTANT NOTE:

1. The cases/topics mentioned above are not exhaustive. The teachers teaching the course
shall be at liberty to add new cases/topics.
2. The students are required to study the legislations as amended from time to time and
consult the latest editions of books.
3. The question paper shall include one compulsory question. The question papers set for the
examinations held during 2007-08 and 2008-09 are printed below for guidance of the
students.

LL.B. III Term Examinations, December, 2007

Note: Answer five questions including Question No. 1, which is compulsory.
All questions carry equal marks.

1. Attempt briefly any four of the following:
(a) Distinguish between partnership and Hindu undivided family;
(b) Grounds on which a court can order the dissolution of partnership firm;
(c) Position of minor in a firm;
(d) Retirement of a partner;
(e) Can a partner conduct business of the firm as per his whims and fancies?

2. (a) Post-Cox v. Hickman (1860) 8 HLC 268 has added a new dimension to the concept
of partnership by agreeing that sharing of profit is prima facie evidence of the
existence of partnership while conclusive test is that of mutual agency.” Comment.
(b) A advanced Rs. 30, 000 to the firm of X and Y. Both X and Y agreed to carry on
business subject to control of A on payment of commission of 10% out of profit. Is
‘A’ a partner in the firm? Give reasons for your answer.

3. (a) Four persons purchased a piece of land jointly. Subsequently, a cinema hall was
constructed with their joint money. They then formed a firm to exhibit films.
Determine whether the above two properties viz. (i) piece of land and (ii) cinema
hall are the properties of the firm.
(b) A partner purchasing the property with the funds of the firm did not obtain the
consent of the other partners as required by partnership deed. Will it be the property
of firm? Comment.

4. (a) What is partnership by holding out?
(b) A, B and C became partners in a firm for a period of 7 years. After 3 years, ‘A’
developed intimacy with the wife of ‘B’. B seeks your advice whether he can get the
firm dissolved before expiry of 7 years.

5. (a) A partner cannot be expelled or introduced except by the majority of the partners.
Comment.
(b) X, Y and Z were partners in a firm. The firm borrowed Rs. 2 lacs from a bank.
Subsequently, X died. What would be the position of X for liability for the loan taken
from the bank?

6. (a) Distinguish between dissolution of partnership and dissolution of firm. What is
dissolution by notice?
(b) X and Y agreed to carry on a partnership business. The agreement provided that
partnership should only be terminated by mutual agreement. After one year, X wants
dissolution. Can he ask for dissolution?

7. “Partnership firms can carry on business without registration. However non-registration
works acutely against the interest of partners and firm. Hence registration is compulsory.”
Discuss.

8. (a) What do you mean by agency by ratification? State the conditions that must be
fulfilled before the doctrine of ratification can apply to an act of agent.
(b) ‘A’ has an authority from ‘P’ to buy certain goods at the market rate. He buys
at a higher rate but ‘P’ accepts the purchase. Afterwards, ‘P’ comes to know
that the goods purchased belonged to ‘A’ himself. Is ratification binding on
‘P’?

* * * * *

LL.B. III Term (Supplementary) Examinations, May-June, 2008

Note: Answer five questions including Question No. 1, which is compulsory.
All questions carry equal marks.

1. Attempt briefly any four of the following:
(a) How can a partner be introduced in a firm?
(b) What are the rights of buyers and sellers of goodwill of a firm?
(c) Define an illegal association. What is the effect of carrying on business by such
an association?
(d) How are the losses of a partnership firm shared by partners?
(e) Define “Partnership at Will”.

2. What are the essentials of the partnership? Briefly discuss.
“Although sharing of profits is one of the essential elements of every partnership but
every person who shares the profits need not always be a partner.” Comment on the
correctness of the above statement.

3. Is registration of a partnership firm compulsory under the Indian Partnership Act, 1932.
State the effects of non-registration with the help of decided cases.

4. (a) Ratification relates back to the date when the agent first purported to contract.
Discuss.
(b) A holds a lease from B terminable on three months’ notice. C, an unauthorized
person, gives notice of termination to A. Can the notice be ratified by the B so as to
be binding on A.

5. Discuss the circumstances under which a firm may be dissolved by the court.
X, Y and Z enter into a partnership for a period of five years. At the end of two years,
X wishes to dissolve the partnership. Advise X.

6. (a) Analyse the term, “Implied Authority” of a partner in a firm.
(b) A and B are partners in a firm dealing in cotton fabrics. A without the knowledge and
consent of B, secretly bribes the clerk of a rival firm of C and D to obtain some secret
information pertaining to the business of the said rival firm. Is B liable for the acts of
A? Discuss.

7. (a) What is a partnership property ? Discuss the relevance of goodwill as an asset of the
firm.
(b) Decide the validity of partnership consisting of two major and one minor person.

8. (a) M, a minor was getting a share of the profits of a business carried on by A and B in
partnership. The firm was dissolved before M attained majority. C, a creditor, files a
suit against A, B and M after M had attained majority for an amount due to him from
the erstwhile firm. Decide.
(b) M, a minor, admitted to the benefits of a partnership firm, represents to T that he had
become a partner in the firm. T, believing it to be true, advances Rs. 60,000 to the
firm. Subsequently, M within six months of his attaining majority, gives notice of his
disassociation with the firm. Can T make M liable for the loan?

* * * * *

LL.B. III Term Examinations, December, 2008

 

Note: Answer five questions including Question No. 1, which is compulsory.
All questions carry equal marks.

1. Attempt briefly any four of the following:
(a) There can be any number of partners in a firm;
(b) Implied authority of a partner of a firm;
(c) Property acquired with the money of the firm is the property of the firm;
(d) Status of an association of 12 persons;
(e) Liability of a partner for acts done after dissolution of a partnership firm.

2. Partnership firm is not a ‘legal entity’ or ‘person’ and has no separate and distinct
existence apart from the partners composing it but is merely an association of individuals
and the firm is only a collective name of those individuals who compose the firm. Give
your comments.

3. (a) What is meant by partnership at will? What are the rights enjoyed by the partners
with regard to dissolution when the partnership is at will.
(b) A and B, two brothers, inherit a building which they immediately let out to a bank.
A lives in Haryana. B, being a resident of Delhi, agrees to collect rent regularly
from the bank. He also agrees to see the maintenance of the building, payment of
taxes and then to remit the proportionate share of the balance to A every month.
Are they partners? Decide.
 

4. What are the grounds on which a court can order dissolution of a partnership firm? Does
dissolution result in the winding up of partnership.

5. Discuss the status of a minor in a partnership firm. Is a partnership valid which has a
minor as partner? What are the right and liabilities of a minor during and after minority.

6. X, Y and Z are three partners in a firm. A holds himself out as one of the partners in the
said firm before M. M reports this conversation to F. Finding A to be a partner in the
firm, F advance Rs. 25,000 to the firm. Discuss the liability of A, if any, in the above
case.

7. (a) Ratification relates back to the date when the agent first purported to contract.
Discuss.
(b) A holds a lease from B terminaable on three months notice. C, an unauthorized
person gives notice of termination to A. Can the notice of termination be ratified by
B, so as to be binding on A.

8. (a) X, Y and Z are three partners in a firm. The firm is not registered. The firm files a
suit against H for Rs. 1,000 for goods supplied to him. After filing the suit but
before the actual hearings in the suit, the firm is registered. Is the suit maintainable?
(b) A and B are partners in an unregistered firm. C destroys some property of the firm
and the partners claim Rs. 20,000 as damages. C takes the plea that the firm is not
registered. Will he succeed?

* * * * *

LL.B. III Term (Supplementary) Examinations, May-June, 2009

Note: Attempt five questions including Question No. 1 which is compulsory.
All questions carry equal marks.

1. Attempt briefly any four of the following:
(a) Distinguish between partnership and company;
(b) Firm’s personality for tax purposes;
(c) Personal profits earned by partners;
(d) Expulsion of a partner;
(e) Sale of goodwill after dissolution of a firm.

2. “Partnership is the relation which subsists between persons who have agreed to combine
their property, labour or skill in some business and to share the profits thereof between
them.”
How does this definition of partnership differ from the one given under Section 4 of
the Indian Partnership Act, 1932?
Discuss the essential ingredients of partnership.

3. (a) What are the duties of partners?
(b) A, B, C and D are partners in a firm ‘X’. A, without consent of B, C and D transferred
his interest in the firm to P. What are rights of P against B, C and D ?

4. (a) What is ‘Express Authority? Discuss the statutory restrictions on implied authority of
a partner.
(b) One of the partners committed a test of inducing breach of contract by bribing a clerk
of a rival businessman in order to know the secrets of the rival businessman. The
other partner was not aware of this tort. Can the other partner be held liable for the
tort?

5. (a) Generally a person who is not a partner in the firm cannot be made liable for an act of
the firm.
Discuss cases where the liability of a non-partner can arise as a partner.
(b) A and B were partners in a furniture shop. B retired and A continued to carry on
business in the firm’s name. A places an order for furniture with P on a letterhead that
contained the names of A and B as partners on it. Can P succeed to bring a suit
against B for the price of furniture supplied to A on credit?

6. Discuss the ways in which a partner may cease to be a partner.
What is the liability for acts done after retirement by him.
A partner in a firm is adjudicated an insolvent. Will the firm be dissolved after the
order of adjudication?

7. Write notes on any two of the following:
(a) Effect of non-registration of a partnership firm.
(b) What are the ways for dissolution of a firm?
(c) Position of minor under the Partnership Act, 1932.

8. Who may be an agent? What are his rights, duties and liabilities? Discuss the
circumstances in which agency is terminated.