Law of Partnership (Principles, Practice and Taxation) along with Limited Liability Partnership by Avtar Singh – Edition 2015

The new 4^th Edition, 2012 of the well researched work Law of Partnership (Principles, Practice & Taxation) by Avtar Singh.

A fresh interest in the subject has been aroused with the enactment of Limited Liability Partnership (LLP) Act, 2008. The new edition of this authoritative work on the Law of Partnership is thoroughly revised and updated with latest statutory enactments and case laws. Even foreign cases have found attention of the author. The book is divided into following parts:

1. General Partnership, Practice Notes, Taxation, Rules
2. Limited Liability Act
3. Appendices containing State Rules and specimen forms of deeds

Written in lucid and easy to understand language the book will prove to be immensely useful to students of LL.B and LL.M, researchers, administrators, academicians. Judges, Lawyers and accounting professionals will also find the book useful as today most law and accounting firms are changing their business structures to LLPs.

The book will definitely be a prized collection for any library.

About The Author

Dr. Avtar Singh, B.Com., LL.M., LL.D, is a multi-faceted personality, who has adorned his cap with multiple feathers- Author, Advocate, Professor. He has been awarded with numerous prestigious honours like Saraswati Sammaan by the U.P. Government and Vidya Bhushan Sammaan by the Hindi Sansthan in U.P., for his contributions in the field of legal education. In his decades long career he has been a visiting professor of Business Laws at IIM, Lucknow and Reader in Law at Lucknow University.

Titles written by him have been prescribed by many leading universities and have been lauded by both students and teachers. His works and writing style have been appreciated both Nationally and Internationally.

He has followed his signature style of writing in all his works- the most comprehensive study of the subject that he takes in his hands in a simple and lucid language. He has written in both English and Hindi languages.

His list of works include: Business Law, Company Law (in English and Hindi), Competition Law, Consumer Protection: Law and Practice, Contract Law (Easy Law Series), Introduction to Company Law (in English and Hindi), Introduction to Law of Negotiable Instruments, Introduction to Partnership (including Limited Liability Partnership) (in English and Hindi), Intellectual Property Law, Law of Arbitration and Conciliation (in English and Hindi), Laws of Banking and Negotiable Instruments (in English and Hindi), Law of Carriage (Air, Land and Sea), Law of Contract and Specific Relief (in English and Hindi), Law of Insolvency, Law of Insurance, Law of Partnership (Principles, Practice & Taxation), Law of Sale of Goods (in English and Hindi), Negotiable Instruments (in English and Hindi), Textbook on Law of Contract and Specific Relief.

Reviews

Easy language for students to understand the concepts. Limited Liability Partnership explained very well. A good reference book for students of Law”.

– Dr. Ashinandan Basri,
Asst Professor of Law,
Rajiv Gandhi National University of Law, Punjab

One of the best reference books for the topic as is wide, exhaustive and updated.

– Niyati Pandey,
Assistant Prof. Of Law,
GNLU, Gujarat

Part I

General Partnership, Practice Notes, Taxation, Rules

Preliminary ……………………………………………………………………………………………….  3

Brief history …………………………………………………………………………………………  4

Act not exhaustive …………………………………………………………………………………  5

Definitions ………………………………………………………………………………………………..  5

Act of firm [clause (a)] …………………………………………………………………………..  6

Business [clause (b)] ……………………………………………………………………………..  7

Application of Contract Act ……………………………………………………………………  7

Retrospective effect ……………………………………………………………………………….  7

Nature of Partnership …………………………………………………………………………..  9

Definition and Essentials …………………………………………………………………………….  9

Agreement ……………………………………………………………………………………………  9

By contract, not status ………………………………………………………………………….  10

Joint Hindu family and partnership ………………………………………………………..  10

Partnership between family members in separate business …………………  13

Family business ………………………………………………………………………………….  14

Commencement of new business ……………………………………………………  15

When new business qualifies as family business ………………………………  17

Restatement of the effect of authorities …………………………………………….  17

Partition        19

Partnership between outsiders and joint family …………………………………  21

Taxation matters …………………………………………………………………………..  23

Partnership deed to be guiding factor ………………………………………………  26

Partnership between Karta and coparcener ……………………………………….  26

Partnership between Karta as representative and as member ……………….  27

Family: a changing entity ………………………………………………………………  27

Family to act through representative ………………………………………………..  28

Dual capacity of representative member …………………………………………..  28

Position of other communities ……………………………………………………………….  29

Christian trading family …………………………………………………………………  29

Muslim trading family …………………………………………………………………..  31

Formal or written agreement not necessary ………………………………………  32

Deed of partnership  ……………………………………………………………………..  33

Interpretation of agreement …………………………………………………………….  33

2…… Nature of Partnership (Contd.)

Capital contribution by partners not necessary ………………………………….  34

Devolution of business …………………………………………………………………  34

Joint venture ………………………………………………………………………………..  34

2. Business ………………………………………………………………………………………..  35

3. Sharing of profits ……………………………………………………………………………  36

4. Mutual agency ………………………………………………………………………………..  37

Real Relationship of Agency and Non-Partnership Interests …………………………..  38

Supremacy of parties’ intention ……………………………………………………………..  39

Persons sharing profits without being partners ………………………………………..  39

1. Joint owners sharing gross returns  …………………………………………………..  39

2. Lender of money receiving profits …………………………………………………….  40

3. Servant or agent receiving profits ………………………………………………………  41

4. Widow or child of deceased partner …………………………………………………..  42

5. Seller of goodwill ……………………………………………………………………………  42

Salaried Partner ……………………………………………………………………………………….  43

Working partner under Income Tax Act ………………………………………………….  46

Actively engaged in conduct of business …………………………………………  48

Ceiling on amount ………………………………………………………………………..  49

Authorised by partnership deed [S. 40(6)(ii), Income Tax Act] …………..  49

Maximum Number of Partners …………………………………………………………………..  50

Meaning and  Nature of Firm …………………………………………………………………….  50

Firm name ………………………………………………………………………………………….  52

Partnership and Co-Ownership ………………………………………………………………….  54

Partnership and Joint Family ……………………………………………………………………..  55

Partnership and Company …………………………………………………………………………  55

Duration of Firm ……………………………………………………………………………………..  57

Where no duration fixed ……………………………………………………………………….  57

Continuation after expiry of term …………………………………………………………..  59

Fixed duration necessary for certainty …………………………………………………….  59

Partnership in Single or Brief Business Venture …………………………………………..  59

Limited Partnership ……………………………………………………………………………..  62

Relations of Partners to One Another ………………………………………….  63

Mutual Relations ……………………………………………………………………………………..  63

Determination by contract …………………………………………………………………….  63

Duties of Partners …………………………………………………………………………………….  64

1. Duty of good faith [S. 9] ………………………………………………………………….  64

Duty to attain greatest common advantage ……………………………………….  65

Some aspects of fiduciary obligation ……………………………………………….  65

Duty commences from inception of negotiations for
partnership ……………………………………………………………………………..  65

Duty continues after cessation of partnership ……………………………………  66

Need for amendment …………………………………………………………………….  69

2. Duty not to compete [S. 16(b)] …………………………………………………………  69

Transactions in rivalry with firm …………………………………………………….  69

Restriction on carrying on any other business …………………………………..  70

3…… Relations of Partners to One Another (Contd.)

3. Due diligence [Ss. 12(b) and 13(f)] …………………………………………………..  71

4. Duty to indemnify for fraud [S. 10] …………………………………………………..  72

Injunction to restrain damaging conduct …………………………………………..  72

5. Duty to render true accounts [S. 9] ……………………………………………………  73

6. Proper use of property [S. 15] ………………………………………………………….  74

Duty to use property for firm purposes ……………………………………………  74

Nature of liability for misappropriation ……………………………………………  74

7. Duty to account for personal profits [S. 16] ………………………………………..  75

Duty not to use firm property for private business …………………………….  75

Information received as partner ……………………………………………………………..  76

Rights of Partners …………………………………………………………………………………….  76

1. Right to take part in business [S. 12(a)] ……………………………………………..  77

2. Majority rights [S. 12(c)] …………………………………………………………………  77

Resolving differences of opinion ……………………………………………………  77

3. Access to books [S. 12(d)] ………………………………………………………………  78

4. Right to indemnity [S. 13(e)] ……………………………………………………………  78

Two kinds of indemnity ………………………………………………………………..  79

5. Right to profits [S. 13(b)] ………………………………………………………………..  79

6. Right to interest [S. 13(c) and (d)] …………………………………………………….  80

7. Right to remuneration [S. 13(a)] ……………………………………………………….  80

Partnership Property [S. 14] ………………………………………………………………………  81

Concept and nature of partnership property …………………………………………….  82

What constitutes partnership property …………………………………………………….  83

1. Property originally brought in …………………………………………………………..  83

Illustrations provided by Trusts Act ………………………………………………..  85

Illustration in preceding Act …………………………………………………………..  86

Goodwill and trade marks ……………………………………………………………..  86

2. Property subsequently acquired ………………………………………………………..  86

Property acquired in breach of duty ………………………………………………..  87

3. Partner’s property in firm’s use ………………………………………………………..  87

Trade marks ………………………………………………………………………………..  89

Partner’s house property in firm’s use …………………………………………….  89

Partner’s personal licence ………………………………………………………………  90

Partner’s tenancy rights …………………………………………………………………  90

4. Conversion of joint into separate property ………………………………………….  91

Continuance Of The Partnership [S. 17] ……………………………………………………..  91

1. Change in constitution ……………………………………………………………………..  92

2. After expiry of term ………………………………………………………………………..  92

3. Where additional undertakings are carried out ……………………………………..  92

Continuation for tax purposes ……………………………………………………………….  92

Relations of Partners to Third Parties …………………………………………  95

Liability of Partners for Acts of Firm ………………………………………………………….  95

Joint and several liability ………………………………………………………………………  95

Income tax liability of partners ……………………………………………………….  97

Partner’s liability for partnership debts ……………………………………………  97

4…… Relations of Partners to Third Parties (Contd.)

Doctrine of Implied Authority ……………………………………………………………………  97

Partners agents for business purposes …………………………………………….  98

Scope of implied authority [S. 19] …………………………………………………………  98

Nature of business and usual manner of carrying it on ……………………………..  99

Trading and professional firms and borrowing power ………………………………  99

Joint venture ……………………………………………………………………………………..  101

Legal proceedings ……………………………………………………………………………..  101

Where scope of authority specified ………………………………………………………  102

Some examples of implied authority …………………………………………………….  102

Statutory illustrations …………………………………………………………………………  102

Admission of liability to tax ………………………………………………………………..  103

Criminal prosecution for dishonour of cheques ……………………………………..  104

Partner acting in self-interest ……………………………………………………………….  104

Instruction to firm’s banker …………………………………………………………………  105

Restrictions on implied authority [Ss. 19 and 20] …………………………………..  105

Authority in emergency [S. 21] ……………………………………………………………  107

Mode of exercising authority [S. 22] ……………………………………………………  108

Admissions by a partner [S. 23] ………………………………………………………….  109

Effect of notice to a partner [S. 24] ………………………………………………………  110

Service on firm and all partners ……………………………………………………………  111

Partner as agent of firm ………………………………………………………………………  111

Liability for Torts and Other Wrongs [S. 26] ……………………………………………..  112

Wrongful act in ordinary course of business ………………………………………….  112

Violation of Essential Commodities Act ……………………………………………….  114

Effect of statutory provisions and judicial decisions ……………………………….  114

Violation of foreign exchange regulations ……………………………………………..  114

Liability for Misappropriation [S. 27] ……………………………………………………….  115

Apparent authority and ordinary course of business ……………………………….  115

Liability for Holding Out [S. 28] ………………………………………………………………  117

1. Representation ………………………………………………………………………………  118

2. Knowledge of representation ………………………………………………………….  120

Application of the doctrine to retirement cases ……………………………………….  120

Deceased partner ………………………………………………………………………..  121

Insolvent partner ………………………………………………………………………..  121

Dormant partner …………………………………………………………………………  121

Transferee of Partner’s Interest [S. 29] ……………………………………………………..  122

Transferee does not become partner by itself …………………………………………  122

But gets two rights …………………………………………………………………………….  123

Use of partner’s premises for business …………………………………………………  123

Court sale of a partner’s interest …………………………………………………………..  124

Transferee’s right on dissolution [sub-s. (2)] …………………………………………  125

Statutory right ……………………………………………………………………………  125

To what extent dependent on articles ……………………………………………..  126

Partner’s right of pre-emption ……………………………………………………………..  127

Benefit of increment …………………………………………………………………………..  127

4…… Relations of Partners to Third Parties (Contd.)

“Assets of the firm” …………………………………………………………………………..  128

Sub-partnership …………………………………………………………………………………  129

Minor as Partner [S. 30] ………………………………………………………………………….  131

Incapacity for being full-fledged partner ……………………………………………….  132

Admission to benefits and rights ………………………………………………………….  133

No Personal liability during minority ……………………………………………………  133

Option on attaining majority and liability ………………………………………………  133

Admission to benefits of existing firm ………………………………………………….  134

Position of minor so admitted ……………………………………………………………..  135

Cannot be a full partner ……………………………………………………………….  135

Pre-requisites of admission ………………………………………………………….  137

Benefits of partnership ………………………………………………………………..  139

Summary view of position of minor in partnership …………………………………  140

Capital contribution not necessary …………………………………………………  140

Powers of guardian …………………………………………………………………….  140

Rights of minor …………………………………………………………………………………  141

Liabilities ………………………………………………………………………………………….  143

Liability during minority [Sub-s. (3)] …………………………………………….  143

Liability after attaining majority …………………………………………………….  145

Status of the firm ……………………………………………………………………………….  148

Incoming and Outgoing Partners ………………………………………………….  151

Incoming Partner [S. 31] …………………………………………………………………………  151

Mode of admission ……………………………………………………………………………  151

Liability of new partner [S. 31(2)] ……………………………………………………….  152

Payment received before novation ………………………………………………………..  153

Outgoing Partner [S. 32] …………………………………………………………………………  153

Modes of retirement …………………………………………………………………………..  154

1. By consent [S. 32(1)(a)] ………………………………………………………………..  154

2. By agreement [S. 32(1)(b)] …………………………………………………………….  154

3. By notice [S. 32(1)(c)] …………………………………………………………………..  154

4. By expulsion [S. 33] ……………………………………………………………………..  155

Power of expulsion to be provided ……………………………………………….  155

Limitation for instituting proceedings …………………………………………….  157

5. By Insolvency [S. 34] ……………………………………………………………………  157

6. By death [S. 35] ……………………………………………………………………………  158

Liability of retired partner ……………………………………………………………………  158

Liability for acts done before retirement, requirement of notice [S. 32(2)]   158

Position of retired partner …………………………………………………………….  160

Liability for acts done after retirement [S. 32(3)] …………………………….  161

Continuation of liability till public notice ………………………………………..  161

Cases in which public notice not necessary …………………………………….  162

Liability where act was not on behalf of firm ………………………………….  163

Rights of outgoing partner ………………………………………………………………….  164

5…… Incoming and Outgoing Partners (Contd.)

1. Right to compete [S. 36] …………………………………………………………  165

Protection of firm’s interest ………………………………………………………….  165

2. Right to share subsequent profit [S. 37] …………………………………….  167

Surviving partners to render accounts till date of dissolution …………….  169

Revocation of Continuing Guarantee [S. 38] ………………………………………………  169

Revocation operates prospectively ………………………………………………..  170

Dissolution …………………………………………………………………………………………….  171

Modes of Dissolution ……………………………………………………………………………..  171

1. By consent [S. 40] ………………………………………………………………………..  172

2. By agreement [S. 40] …………………………………………………………………….  172

Reconstitution after dissolution ……………………………………………………………  172

3. Compulsory dissolution [S. 41] ………………………………………………………  173

(a) Insolvency …………………………………………………………………………..  174

(b) Illegality of business ……………………………………………………………..  174

4. Contingent dissolution [S. 42] ………………………………………………………..  175

Contingencies contemplated by the section …………………………………….  175

(a) Expiry of term ………………………………………………………………………  175

Fixed term partnership, continuance after expiry ……………………………..  176

(b) Completion of business …………………………………………………………  176

(c) Death of partner ……………………………………………………………………  177

(d) Insolvency of partner …………………………………………………………….  178

5. By notice [S. 43] …………………………………………………………………………..  178

Dissolution of firm at will ……………………………………………………………  178

Dissolution by court [S. 44] ………………………………………………………………..  181

Grounds of dissolution by court ………………………………………………………….  182

(a) Insanity ……………………………………………………………………………….  182

(b) Permanent incapacity …………………………………………………………….  182

(c) Misconduct ………………………………………………………………………….  182

(d) Persistent breach of agreement ……………………………………………….  183

(e) Transfer of interest ………………………………………………………………..  184

(f) Perpetual losses …………………………………………………………………….  184

(g) Just and equitable …………………………………………………………………  184

Suit for dissolution and rendition of accounts …………………………………  185

Whether right to apply for dissolution can be excluded …………………….  185

Suit for accounts without seeking dissolution …………………………………  186

Suit for partition without dissolution ……………………………………………..  186

Property situate out of territorial jurisdiction of court ……………………….  187

Reference of matter of dissolution to arbitration ………………………………  187

Jurisdiction not to be fettered by rigid rules ……………………………………  188

Date of dissolution …………………………………………………………………………….  190

Discretion: Interference in appeal …………………………………………………………  190

Dissolution under compromise decree ………………………………………………….  191

Section not applicable to firms at will ……………………………………………………  191

Territorial jurisdiction …………………………………………………………………………  191

Dissolution under arbitrator’s award …………………………………………………….  192

6…… Dissolution (Contd.)

Execution of decree ……………………………………………………………………………  193

Period of limitation …………………………………………………………………………….  193

Consequences of Dissolution …………………………………………………………………..  194

Public notice and liability for acts done after dissolution [S. 45] ……………….  194

Public notice of dissolution ………………………………………………………….  194

Where public notice not necessary ………………………………………………..  194

Liability for prior acts ………………………………………………………………….  195

Prosecution for dishonour of a cheque ………………………………………………….  195

Right to demand winding up ……………………………………………………………….  196

Authority of partners in winding up [S. 47] …………………………………………..  196

Authority continues for two purposes ……………………………………………  197

Application for appointment of arbitrator ………………………………………………  198

Liability to share personal profits [S. 50] ………………………………………………  199

Winding up [S. 46] ……………………………………………………………………………  200

Application of property ……………………………………………………………….  200

Order in which property to be applied ……………………………………………  201

Mode of settlement of accounts [S. 48] …………………………………………………  202

Order of application of assets ……………………………………………………….  203

Subject to agreement …………………………………………………………………..  204

Advances and loans by partners ……………………………………………………  206

Arbitration award ……………………………………………………………………….  206

Award against public policy …………………………………………………………  207

Right to properties acquired with funds of firm ………………………………  207

Sections 46 and 48 compared ……………………………………………………….  207

Assignment of partner’s share ……………………………………………………..  208

Distribution of assets: registration not necessary …………………………….  208

Accounts      208

Interim relief under Section 48 ……………………………………………………..  209

Refund of premium [Ss. 51 and 52] ……………………………………………………..  209

Admission of partner on payment of premium ………………………………..  210

Incoming partner induced by fraud ……………………………………………….  210

Where no fraud or misrepresentation practised ……………………………….  211

Premature dissolution of firm for fixed term …………………………………..  211

Agreements in restraint of trade [Ss. 53 and 54] …………………………………….  211

Agreement on dissolution or on its anticipation ………………………………  212

No right to restrain before dissolution ……………………………………………  213

Sale of goodwill [S. 55] ……………………………………………………………………..  213

Concept of goodwill ……………………………………………………………………  214

Goodwill as asset of partnership …………………………………………………..  215

Rights and duties of parties on sale of goodwill ………………………………  216

Involuntary assignments ……………………………………………………………..  217

Modification by agreement …………………………………………………………..  217

Registration of Firms …………………………………………………………………………  219

Procedure of registration …………………………………………………………………………  219

Branch business in different name ……………………………………………………….  226

7…… Registration of Firms (Contd.)

Business in trade name ……………………………………………………………………….  226

Firm should be a going concern …………………………………………………………..  227

Names showing State patronage [sub-s. (3)] …………………………………………  227

Change of particulars [S. 60] ………………………………………………………………  228

Enquiry by Registrar to ascertain factum of alteration ………………………  230

Court order for amendment …………………………………………………………………  232

Inspection …………………………………………………………………………………………  233

Penalty for false particulars [S. 70] ………………………………………………………  233

Rules of evidence [S. 68] ……………………………………………………………………  234

Proof of registration …………………………………………………………………………..  234

Additional evidence for proof of registration ………………………………….  235

Proof of being partner ………………………………………………………………………..  235

Effects of Non-Registration [S. 69] …………………………………………………………..  235

Registration optional ………………………………………………………………………….  237

Effects of non-registration …………………………………………………………………..  237

1. Suits between partners and firm [sub-s (1)] ………………………………………  237

“Rights arising from contract and person suing as partner” ………………  239

Scope of the provisions, nature of defect of non-registration …………….  240

Plea can be raised at any stage of suit …………………………………………….  241

Principles applicable to construing S. 69 ………………………………………..  241

Matters outside purview of S. 69(1) ……………………………………………..  241

Matters simultaneous with dissolution and settlement of
accounts ……………………………………………………………………………….  242

Matters personal to partners during subsistence of firm ……………………  243

Registration of sub-partnership …………………………………………………….  244

2. Suits between firm and third parties [S. 69(2)] ………………………………….  244

Suit for realisation of money by unregistered partnership …………………  249

Suit filed on basis of registered partnership deed …………………………….  249

Set-off and other proceedings [S. 69(3)] ………………………………………..  250

Person suing must be partner on record …………………………………………  252

Suit against party to agreement ……………………………………………………..  252

Exceptions ………………………………………………………………………………………..  253

Suit for dissolution, accounts and injunction …………………………………..  256

Right of unregistered firm to seek appointment of arbitration ……………  261

Reference to arbitration ……………………………………………………………….  261

Arbitration for scrutiny of accounts ………………………………………………  261

Injunction under Section 9 of the Arbitration and Conciliation Act, 1996   262

Pleading   265

Rule making power ………………………………………………………………………………..  265

Supplemental …………………………………………………………………………………………  269

Public Notice …………………………………………………………………………………………  269

Savings    270

Action by and Against Partners ……………………………………………………  279

Suit for accounts ……………………………………………………………………………….  279

Relief without dissolution ……………………………………………………………  280

Relief in cases of settled account …………………………………………………..  281

Other cases of relief without dissolution ………………………………………..  281

Rescission of contract of partnership …………………………………………….  282