In Section 30 of the Indian Partnership Act 1932, there are legislative provisions involving a minor in a partnership. The Indian Contract Act 1857 states explicitly that no person under the age of 18, i.e. a minor may be a party to a contract. The partnership essentially means that it’s a contract between partners. And that implies a minor cannot be a partner in a partnership company. However, a minor may be admitted to the benefits of a partnership, under the Partnership Act. So while the minor won’t be a partner, he’ll enjoy all of a partnership ‘s benefits. To admit all the minor to the partnership’s benefits all of the company’s partners must agree.
The general principle was set down in Section 11 of The Indian Contract Act, 1872, where it is specified who is qualified to a contract and thus claiming that a minor is not capable of contracting. In Addepally Nageshwar Rao’s Case[1], Andhra Pradesh High court accepted the same.
A special committee had drawn up the Indian Partnership Act. Before the Indian Partnership Act was passed, the partnership rules were regulated by the Indian Contract Act and hence the Special Committee found that there was no need to deviate from the concept of a minor’s incapacity to enter into a partnership agreement as provided for in Section 11 of The Indian Contract Act. Continuing to follow this, the special committee did not permit minors to become a partner in a partnership, although with the consent of all the existing partners in the partnership, they allowed a minor to be admitted to the benefits of a partnership.
In judicial pronouncements such as the SC Mandal case[2], the same sort of rule is also pronounced. It was recognized that under Section 4 of The Indian Partnership Act, a firm means a group of persons who have entered into a partnership agreement between themselves and read it in accordance with Section 11 of the Indian Contract Act, it can be interpreted that a minor cannot form part of a partnership agreement.
It has been held that only for the purposes of the partnership should a minor be in the partnership. It also stated that two major partners should form partnerships before a minor can be admitted to its benefits. Allahabad ‘s high court also ruled a partnership deed be invalid where a partnership firm’s rights and liabilities were split into the partnership between the minor and majors. In the present situation, the court held that not only the benefits of the partnership but also the partnership’s liabilities are being placed on the minor which contradicts the Indian Partnership Act.
While there were different judgments in the same line, there was still a lot of uncertainty about the issue as to whether a minor could become a full-fledged partner in the partnership firm as there was also some contrary judgment to that effect.
According to sub-section (2), the right to share the profits as well as the property is granted to a minor entitled to the benefits of a partnership, as may have been decided upon at the time of admission of a minor to the benefits of the partnership concerned. Additionally, the minor has the right to audit all of the firm’s accounts. Nevertheless, this privilege is restricted to the accounts only and the minor is not allowed to read other books, such as those that may contain trade secrets. However, this limitation on the minor ‘s right seems eminently reasonable and equitable as the minor is not liable to the degree to which the absolute partners are liable.
According to sub-section (3), the liability of a minor who has the right to benefits arising from a partnership is limited in relation to that of a full partner. According to the holding in the case of Sanyasi Charan Mandal v. Asutosh Ghose[3], the company’s creditors can only proceed to the extent of minor interest in the company but not against the minor personally. This defense, however, is not enjoyed by the firm’s full-fledged partners who may be directly liable against the creditors. The status of a minor Hindu in a joint family trade is similar to that of a minor admitted to the benefits of a partnership insofar as the former always cannot be held personally responsible for the debts of the family business and only his equity in the trade can be made liable.
As mentioned in subsection (4), the foregoing right of minor to sue for the benefits of a partnership to which he is entitled is reduced. The minor is only entitled to sue for his share while severing his ties with the company. The sub-section further stipulates that the resolution shall be drawn up as far as possible in compliance with Section 48.
Within six months of gaining information that he or she has been agreeing to the advantages of the partnership whatever the date is, at any period. Such a person may give public notice that they have chosen to become, or have chosen not to become a partner in the company. Such notification shall evaluate his or her position with respect to the firm which also provides that if he or she fails to give such notice then on the expiry of the six months he or she becomes a partner in the company. Where any person has been insinuated as a minor to a company’s partnership benefits, the burden of proving that such person had no knowledge of such admission until a specific date after the expiry of his or her six months lies with the person himself. His rights and obligations as a minor continue until the date he or she becomes a partner, but he or she becomes personally liable to the third party as well. The share of the minor in the property and the profits shall be the share he or she was entitled to be under. Therefore, up to the date he gives public notice, his or her rights and liabilities will remain as of a minor. His or her share is not liable for any of the companies’ actions. He or she shall have the right to sue the partners for his own share of the property and the profits.
By fulfilling all the requirements of an agreement, the minor as a partner can enjoy all the benefits of the partnership. The minor enjoys the different rights and fulfills his duty as a partner too. Under the Partnership Act, 1932 the company can not be built with a minor as the partnership firm’s sole partner.
References:
[1] Addepally Nageswara Rao vs. Commissioner of Income-Tax, [1971] 79 ITR 306 AP.
[2] Sanyasi Charan Mandal vs. Krishnadhan Banerjee, 1922 (24) BOMLR 700.
[3] AIR 1915 Cal 482.
This article is authored by Swikruti Mohanty, First-Year, BBA. LL.B, student at National Law University Odisha.
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