POSITION OF A MINOR ADMITTED TO THE BENEFITS OF PARTNERSHIP – SECTION 30
Partnership arises from contract and not from status (Section 5). And therefore all the persons should be competent to contract. A minor being incompetent to contract, his agreement is void and, therefore, he is incapable of becoming a partner in any partnership from Section 10
and 11 ICA.
It was held in Mohiri Bibi vs. Dharmodas Ghosh, that, a minor’s agreement is void ab initio, and he cannot enter into a contract.
In Additional Commissioner of Income Tax vs. Uttam Kumar and I.T. Commissioner vs.
M/S Dwarka Das Khetan, the ‘partnership deeds’, showed minor as a partner. In these cases,
the commissioners refused to register the firms, on the ground that a minor cannot be a partner and as such the partnership deeds are invalid, and also, the partnerships itself were void. These were uphold by the Court.
Why a minor cannot be a partner:
- The foremost reason and a general reason is that the minor is an immature and is incapable of knowing the effects of his interests.
- The minor, if permitted to be a partner, he may be exploited by the other partners being incapacitated by age.
- According to Section 2 (a), IPA, every partner has a right to take part in the conduct of business. So, if the minor is permitted to be a partner, he will try to exercise his right. This, in a way, may jeopardise other partners’ interest, and the business of the firm, as well as the public may be affected by his immature acts.
- If minor is made a partner, the root of the partnership i.e. the trust and confidence may be shaken. As a result, the running of the partnership becomes jeopardised. However, a minor is capable of accepting the benefits of the partnership.
Minor’s admission to benefits of partnership
Before the Indian Partnership Act, 1932, the rules regarding the position of minor were incorporated in Sections 247 and 248 of the Indian Contract Act. There were repealed. There
were two defects in those sections:
(1) They were loosely worded. The rights and liabilities of minor admitted to the benefit of partnership firm, were not clearly provided.
(2) When a minor is admitted to the benefits of the firm, after attaining majority he is having right to opt whether to remain as a partner or to leave the firm. Under the earlier Act, the time as to within what time or period he has to exercise his option was not certainly given.
So, the new Act has overcome these defects.
Section 30(1) provides that a minor may not be a partner in a firm but with the consent of
all the partners he may be admitted to the benefits of partnership.
Law does not require that the minor should be served with notice as to the fact that he is admitted to the benefits of the firm, it is sufficient if he has the knowledge of it.
The introduction of minor to the benefits of partnership means there exists a valid partnership between persons competent to contract.
– There can be no partnership of all minors, but a partnership between persons competent
to contract must exist before a minor can be admitted to the benefits. (Shri Ram v. Gauri
Shankar)
In Laxmi Narayan v. Beni Ram, two persons entered into partnership in 1900 under the Style Beni Ram Hotilal. Thereafter Hotilal died and Beni Ram continued the business under old name and style with partnership funds. Hotilal’s minor son alleged that after his father’s death he was admitted to the benefits of partnership.
It was held that plaintiff could not be admitted to the benefits of partnership as no partnership existed after the death of Hotilal. Moreover, the plaintiff being minor could not
enter into contract with Beni Ram to form partnership.
It is possible that the major members decide to constitute partnership and admit the minors to benefit of such partnership. A guardian is capable of accepting benefits on behalf of a minor. (C.I.T. Mysore v. Shah Mohan Das)
Why a minor is admitted only to benefits and not to liabilities:
The partnership rests on trust and confidence. Sometimes, more than that, the partners’
relationship will be more than a relationship of father and son. It is not only commercial but
sentimental. The partner might have contributed to the development of firm from many years.
and, if he is no more, his family will be affected. So, on a compassionate ground and to give
tribute the family, a favour is given to the minor on the basis of the long standing relationship.
Secondly, the minors admitted to the partnership are potential partners. Because they
have the right to become partners after attaining majority.
It also happens that the existing partners recognise the capacities of the minor with a
hope that, he will be helpful in future as a partner.
But one more thing is to be observed that, while admitting minor to the benefits, they
should be cautioned, because if they admit, he will have a right to become a partner. If he is
not a trustable person or incapable of carrying the business he may be a headache to the
firm.
Minor’s position during minority
– The minor thus admitted has a right to such share of property and profits of the firm as
may be agreed upon. [Section 30(2)]
– He, however, cannot go to the court of law to enforce his rights in respect of such share
so long as he continues admitted to the benefits of partnership. This disability is removed
when he is severing his connection with the firm. [Section 30(3)]
– He can have access to any of the accounts of the firm and can inspect and copy then.
[Section 30(2)]. In this matter his position is different from a partner of the firm. A partner
has a right to have access to and to inspect and to copy any of the books of the firm
where as minor’s right has been limited to accounts only.
– Every partner is jointly and severally liable for all acts of the firm. Moreover, his liability is
unlimited and can extend to his personal property. A minor on the other hand is not
personally liable for any such acts; it is only his share which is liable for acts of the firm.
[Section 30(3)]
Option on attaining majority – Section 30(5) and Section 30(6)
According to Section 30(5), at any time within six months of his attaining majority or of
obtaining knowledge that he had been admitted to the benefits of partnership, whichever
date is later, he can elect to become or not to become a partner such option is exercised by
giving a public notice under Section 72 of the act, if he remains silent and fails to give such a
notice. There is a presumption that he wants to be a partner and on expiry of said six months
he shall become a partner in the firm.
For the purpose of exercise of option under Section 30(5) it is necessary that the firm must be in existence when minor attains the age of majority, if the firm has already been dissolved before the minor attained majority. The question of exercise of option does not arise and such a minor admitted to the benefits of partnership cannot be presumed to have become a partner on expiry of period of six months from the date of his attaining majority.
Case:
i) Shiva Gouda v. Chandrakant
– A partnership firm consisted of A & B. Chandrakant (minor) was admitted to the benefits of partnership. The firm became indebted to the appellants and after that partnership was dissolved, Chandrakant attained majority but did not exercise an option under Section 30(5) declaring that he did not want to become the partner.
– The appellant having failed to recover the dues from A & B brought an action against Chandrakant contending that since he had failed to exercise an option within the period of six months of his attaining the majority as stipulated in Section 30(5) he had become a partner and therefore he should also be adjudicated insolvent for the debts of the firm.
It was held by Supreme Court that Section 30 of act does not apply to Chandrakant as he had attained majority only after firm had already being dissolved. He is not a partner of the firm and, therefore, he cannot be adjudicated insolvent for acts of insolvency committed by
partners of the firm.
Shah, J. observed: “When the partnership itself was dissolved before the first respondent become major it is legally impossible to hold that he had become partner of dissolved firm by reason of his inaction after he become major within the time prescribed under Section 30(5) of IPA. Section 30 presupposes the existence of partnership. One cannot become or remain partner of the firm that does not exist.
Sometimes without the knowledge of a minor, his guardian may have accepted his admission to the benefits of the partnership and the minor may have remained ignorant of his admission to the benefits of partnership even after he had attained majority (C.I.T. Mysore v. Mohan Das). According to Section 30(6), the burden of proving the fact that such person has no knowledge of such admission until a particular date after the expiry of six months of his attaining majority shall be upon person asserting that fact.
– The act, however, is silent as to who will have to prove that the minor obtained the knowledge of his admission after he attained majority but before the said period of six months from that date expires. Such cases would presumably be decided by general rule contained in Section 101, Indian Evidence Act.
Minor’s position after he elects to become a partner. [Section 30(7)]
– So far as his rights and liabilities vis-à-vis partners of firm are concerned they continue to
be same upto date on which he becomes the partner.
– His share in property and profits of firm shall be same to which he was entitled as a minor.
– Towards the creditors of the firm he becomes personally liable for all the acts of the firm
not from the date of attaining majority, nor from the date of his becoming a partner but
retrospectively from date of his admission to the benefits of partnership.
Minor’s position if elect not to become a partner – Section 30(8)
a) His rights and liabilities continue to be the same as that of a minor up to date of his giving
public notice.
b) The liability as regards his share continues only up to date of notice thereafter neither his
share in the firm is liable, nor there arises any question of personal liability.
c) He is also entitled to sue the partners for his share of the property and profits in accordance with sub-section (4).
– According to Section 30(9), if after attaining majority he represents or knowingly permits himself to be represented as a partner in the firm, the liability on the grounds of holding out can still be there.
