Shivagouda Ravji Patil v. Chandrakant Neelkanth Sadalge AIR 1965 SC 212

Introduction:

In accordance with Section 3 of the Indian Majority Act, a minor is someone who has not reached the age of majority, which is 18 years.

Partnership is the relationship that exists between persons who consented to share the profits of an enterprise carried on by all or any of them acting for all, says Section 4 of the Indian Partnership Act, 1932 Individuals who create a partnership with one another are known as “partners,” and the label under which their business is conducted is known as the “firm name.” A partnership, in layman’s terms, is an agreement between persons who share the profits of a business, and all those who enter into this agreement are known as partners.

Minors cannot be parties to an agreement, as stated in the Indian Contract Act of 1872. An agreement involving a minor is void from the very very beginning. The Indian Partnership Act, on the other hand, has its own set of legal provisions governing minors.

A partnership cannot be formed if one of its members is a minor. A contract establishes the partnership relationship. Shriram sardarmal didwani v. Gourishankar found that a minor is incompetent to contract and, as a result, a partnership contract cannot be entered into with a minor.   

The Supreme Court ruled in CIT v. Dwarkadas & Co that a minor cannot become a full-fledged partner in an established firm. Section 30’s single exception is that a minor may be incorporated to the advantages offered by an existing firm. The Hon’ble Judge then went on to say:

“Section 30 of the Indian Partnership Act clearly states that a minor cannot become a partner, but he may be admitted to the benefits of partnership with the consent of the major partners.” Any document that falls outside the purview of  this section will be ultra vires.

According to S.C. Mandal v. Krishnadhan, a firm is defined as an association of people who have entered into a contract of partnership among themselves under Section 4 of the Partnership Act, and when combined with Section 11 of the Contract Act, a minor cannot be a part of the contracted partnership. A minor is able to gain access to receive the advantages of a partnership, which must exist on its own. A contract between two minors is also prohibited. In brief, a partnership between two major partners is required before a minor can be admitted to its benefits.

Liability of Minor [after attaining majority]:

Within six months of gaining majority or learning that he had been accepted to the benefits of a partnership. Regardless of which date comes later, the minor must decide whether to stay a partner or leave the firm.

Where he has chosen not to become a partner, he may provide public notice of his decision, and such notice shall decide his standing in the firm. If he fails to give such notice, he will become a partner in the firm at the end of the six-month period.

1. When he becomes a business partner-
2. If a minor becomes a partner voluntarily or by failing to provide public notice within a certain time frame, his rights and duties are as follows:
3. He is personally accountable to third parties for all of the firm’s actions. Since he was allowed to the partnership’s perks.
4. His portion of the firm’s property and profits stays the same as it was as a minor
5. If he chooses not to become a partner.
6. His rights and duties remain those of a minor until the date of public notice.
7. His share is not liable for any actions taken by the firm after the date of the notice.
8. He has the right to sue the other partners for his share of the property and profits. Such juvenile must notify the registrar whether or not he has become a partner.

Facts:

Respondent No. 1[Chandrakant Nilakanth Sadalge]was admitted to the advantages of a partnership comprised of respondents 2 and 3[Mallappa Mahalingappa Sadalge and Appasaheb Mahalingappa Sadalge]when he was a juvenile. The partnership owes the appellants a sum of money.  The partnership disbanded and respondent No. 1 became a major, but he did not utilize his right under Section 30(5) of the Indian Partnership Act of 1932 not to become a partner. Respondents 2 and 3 undertook insolvency acts, and the appellants filed an application to declare the three respondents insolvent.  The first respondent unsuccessfully opposed the motion, but on the second appeal, the High Court decided that he was not a partner of the firm and hence could not be judged an insolvent for the firm’s obligations. Within six months of achieving majority or learning of his acceptance to the benefits of a relationship. Whatever date comes later, the minor must decide whether to remain a partner or leave the firm. As a result, he could not be declared insolvent for the firm’s debts.  The current appeal was brought on the basis of a certificate issued by the High Court.

The appellant asserted before this Court that the first respondent became a partner of the firm despite not electing to become a partner under Section 30(5) of the Partnership Act, and thus he was subject to be adjudicated insolvent.

ISSUES:

Whether or not a minor admitted to the advantages of a partnership can be adjudicated insolvent on the basis of the firm’s debts after the partnership disbanded, on the grounds that he reached majority subsequent to the dissolution but failed to exercise his option to join as a partner or cease to be a member of the said firm.

JUDGMENT:

The applicable sections of the Provincial Insolvency Act, 1920 (5 of 1920) and the Indian Partnership Act are at issue. A person can only be declared insolvent under the terms of the Provincial Insolvency Act if he is a debtor and has engaged in an act of insolvency according to the terms in the. Respondents 2 and 3 in the instant case in point were partners of the firm who were indebted to the appellants and carried out an act of insolvency by announcing that they were unable to pay the debts, and they were thus lawfully ruled insolvents. A person below the age of majority cannot vote, become a contract partner, therefore he cannot be one of those association of people called a firm. A business is a group of people.  As a result, if during the minority of the first respondent, the partners of the firm performed an act of insolvency, the minor was unable to participate as a result of the aforementioned act he was not adjudicated insolvent for the simple reason that he was not the firm’s partner. A minor cannot become a partner of a firm under Section 30(1) of the Partnership Act, although he may be entitled to the advantages associated with a partnership. Under subsections (2) and (3), he will be entitled solely to such share of the firm’s properties and profits as may be agreed upon, but he has no personal accountability for any acts of the firm, albeit his share is liable for the same. The Privy Council outlined clearly the legal status of a minor admitted to a partnership in Sanyasi Charan Mandal v. Krishnadhan Banerji after reviewing the material clauses of the Contract Act, which at the time contained relevant provisions thus:

“A person below the age of majority is not allowed to become a partner by contract and thus, according to the definition, he cannot be a member of that group of people known as a firm.” As a result, it appears that the share of which s. 247 refers is nothing more than an entitlement to participate in the firm’s property after its responsibilities have been satisfied.”

As a result, if any of the partners of the firm committed an act of insolvency during the period of the minor’s minority, the minor couldn’t have been pronounced insolvent on the basis of the aforementioned act of insolvency because he was not a partner of the firm. However, it is claimed that subsection (5) of Section 30 of the Partnership Act made all the difference in the case. Under that sub-section, the quondam minor may serve public notice that he has elected to become or has elected not to become a partner at any time within six months of attaining majority or obtaining knowledge that he has been admitted to the benefits of partnership, whichever date is later. If he fails to provide such notice, he will become a partner in the abovementioned firm at the end of the six-month period. Where such a person turns into a partner, his rights and obligations as a minor continue until the date he turns into a partner, but he also becomes personally accountable to third parties for all acts that the firm has done since he was admitted to the benefits of partnership, and his share in the firm’s property and profits shall be the share to which he had been entitled as a minor. Under the aforementioned two sub-sections, if a person admitted to the benefits of the partnership while a minor does not elect not to become a partner within six months of attaining majority, he will become a partner after the termination of the said period, and his rights and liabilities will be the same as that of the other partners as of the date he became entitled to the partnership. Section 45 specifically extends only to the firm’s partners. When the partnership disbanded before the first respondent attained majority, it is legally impossible to assert that he became a partner of the dissolved firm due to his failure to act after becoming a major within the time specified by Section 30(5) of the Partnership Act. Section 30 of the aforementioned Act presumes the presence of a partnership. Subsections (1), (2), and (3) define the rights and duties of minors who are admitted to the advantages of partnership in respect of acts done by the partners; subsection (4) prohibits the minor from suing the partners for an account or payment of his share of the property or income. This part also presupposes that there is of a firm with which the minor wishes to terminate his ties by bringing a lawsuit. The existence of the partnership is implied by subsection (5) of Section 30 of the Partnership Act. A minor who has reached the age of majority cannot choose to become a partner in a firm that has ceased to exist. His status with reference to the firm is also determined by the notice he issues. Subsection (7), which explains the rights and obligations of a person who exercises his option under subsection (5) to become a partner, also indicates that he is inducted as a partner of a current company with identical rights and liabilities as other partners as of that day. The entire scheme of Section 30 of the Partnership Act assumes the continued existence of a firm and rejects any idea of its application to a point when the firm no longer exists. One cannot join or stay a partner in a non-existent firm.

 It is not uncommon for the initial respondent to become significant player only after the firm had been dissolved. As a result, Section 30 of the Partnership Act isn’t applicable to him. He is not a partner of the firm, and hence cannot be adjudicated insolvent for the insolvency acts performed by respondents 2 and 3, the firm’s partners. The High Court’s decision is correct and hence the appeal was dismissed.

ANALYSIS

A person below the age of majority cannot vote, become a contract partner, therefore he cannot be one of those association of people called a firm.

A business is a group of people.  As a result, if during the minority of the first respondent, the partners of the firm performed an act of insolvency, the minor was unable to participate as a result of the aforementioned act he was not adjudicated insolvent for the simple reason that he was not the firm’s partner.

 According to Sanyasi Charan Mandal v. Krishnadhan Banerji:

(ii)It is implied by sub-section (5) of Section 30 of the The Partnership Act establishes the validity of the partnership.

After reaching majority, a minor cannot choose to become a citizen partner of a firm that ended its operations.  The full plan Section 30 of the Partnership Act presumes the existence of a solid and refutes any idea of its stage application When the companies went out of business.

The aforementioned case can be considered as a landmark case as it clarified whether or not a minor admitted to the advantages of a partnership can be adjudicated insolvent on the basis of the firm’s debts after the partnership disbanded.

**************

This article is written by S Abhipsha Dash , first year law student at SLS Pune as an intern under Legal Vidhiya.

References:

1. MANU/SC/0010/1964
2. Indian Partnership Act, 1932
3. AIR 1961 Bom 136
4. 1971 80 ITR 283 Bom
5. 1922 (24) BomLR 700
6. I.L.R. (1922) Cal. 560

Admin