Can a Minor be Admitted to a Partnership?

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This article has been written by Mustafa Chitalwala., a student of Symbiosis Law School, Pune.

Even before the Indian Partnership Act, 1932, there was a law in India governing that a minor could not comprise any contracts at all, and therefore could not be a partner.[1] The Indian Majority Act Section 3 states, a person who has not attained the age of majority, i.e., eighteen years, is known as a Minor.[2] Besides, The Indian Contract Act 1857, explicitly states that no person under the age of 18 (a minor) can be party to a contract, and a partnership is a contract between both the partners.[3] As a consequence, a minor cannot be a partner in a partnership company. It was backed by the judgment of the Andhra Pradesh High Court in Addepally Nageshwar Rao. [4]

However, a minor can be admitted to the benefits of a partnership. These Acts were recognized by the express enactment in section 30(1). A special committee that drafted the bill leading to the implementation of the Indian Partnership Act noted that this had been the general rule in India that minors could have the right to the benefits from a partnership. The Committee, therefore, agreed, given these findings, not to require minors to be part of the partnership, as the partnership is the outcome of a contract of which a minor is unable to be a party to. Nevertheless, with the approval of all current partners in the partnership, they permitted a minor to be admitted to the benefits of a partnership.[5]

Furthermore, section 30(1) of the Indian Partnership Act, 1932 stipulates that a person who is a minor under the law to which he is subject to may not be a partner in a company, but may for the time being be admitted to the benefits of the partnership with the approval of all partners. It is an accepted fact that a minor is unfit to enter a contract and so a partnership contract cannot be entered into with a minor. In the Shriram Sardarmal Didwani v. Gourishankar[6] and the Hardutt Ray Case,[7] the Court also alleged the same.

In CIT v. Dwarkadas Khetan & Co‘s [8], a landmark decision, the Supreme Court ruled that a minor in an established company should not become a qualified partner. The only concession offered by section 30 of The Indian Partnership Act is that a minor can be admitted to the privileges of an established company. This judgment also overruled the Bombay High Court’s judgment. It held that the Income Tax Department could not register a partnership in which a minor is a partner to the degree that he was to be held personally liable for losses along with being entitled right to vote and participate in the company.

♦ Rights of a Minor Partner  

If the minor has the benefits of a partnership, there are other privileges he enjoys.

  1. A minor partner would be entitled to its share of the firm’s profits, although the minor partner cannot be held liable for any damages in the company outside his interests. The personal properties of a minor partner cannot be liquidated to cover the obligations of the companies. It was held in Shivgouda Rajiv Patil v. Chandrakant Neelkanth Sedalge [9] the minor who has the right to the benefits of a partnership cannot be adjudged insolvent except in cases where the other partners are adjudicated as insolvent.
  2. This is only restricted to the accounts only. He will also audit the firm’s books of accounting like every other partner. He may also claim a copy of the accounts books. (sub-section 2)
  3. On severance, a minor can sue any or all of the other partners for his share of the profits or benefits. The Supreme court has observed section 30(4) that the capital may be contributed on behalf of a minor who severs his connection with the firm. It must be held that he is entitled to refuse to accept the benefit or agree to accept the benefit.[10]
  4. A minor partner on majority attainment has the option to become a business partner. He has six months to determine whether to implement this right from receiving majority partnership. Whether or not he wants to become a partner, he must inform the public or the partners about the same, and accordingly, his position as regards the firm shall be governed.[11]

♦ Liabilities of a Minor Partner.

  1. A minor cannot be held individually responsible for the company’s losses. Furthermore, if the company declares insolvency, the share of the minor is held with the Official Receiver.
  2. The minor partner will elect to become a company partner after turning 18 (a major). Nevertheless, he may opt-out of being a partner. In this case, a public notice on this decision must be issued by the minor partner. Moreover, the notice must be issued within six months of a majority. Unless such notification is not issued even after six months, then the minor partner will be responsible for all actions carried out by the other partners before the date of such notification. Should the minor partner choose to become a partner, he will be liable to all the third parties for the acts done by all partners since he was admitted to the benefits of the partnership.
  3. If a minor becomes a full-time partner after attaining the majority under section 30(5), he will be regarded as a regular partner and has all one’s liabilities. The share of the firm’s revenues and assets will remain the same as it was when he was a minor partner. According to the Supreme Court, section 30(5) presupposes the existence of a partnership.[12]
  • CONCLUSION

From the above question, we can conclude by meeting all the conditions of an arrangement, the minor as a partner will reap all the benefits of the partnership. The minor enjoys the different rights and fulfils the role of a partner. Under the Partnership Act, 1932, the business cannot be formed with a minor as the partnership firm’s sole partner. The relationship relation emerges from a contract. A minor is not qualified to contract, according to section 11 of the Indian Contract Act. In Dwarkadas khetan case,[13] Hon’ble Supreme Court observed that a minor in the current partnership could not become a full- partner. In CIT v. Shah Mohandas Sadhuram, [14] the Supreme Court held that a minor might be admitted to the benefits of an existing company. However, the English law, the position is not so strict as compared to Indian law. Under English Law,[15] there is nothing that can preclude a minor from becoming a partner.

References:

[1] Sanyasi Charan Mandal vs Krishnadhan Banerji, (1922) 24 BOMLR 700.

[2] Section 3 of The Indian Majority Act, 1875.

[3] Section 11 of The Indian Contract Act, 1872.

[4] 1971 79 ITR 306 AP.

[5] Section 30(1) of The Indian Partnership Act, 1932.

[6] AIR 1961 Bom 136, (1960) 62 BOMLR 336.

[7] 1950 18 ITR 106 All.

[8] 1971 80 ITR 283 Bom.

[9] 1965 AIR 212, 1964 SCR (8) 233.

[10] CIT, Bangalore v Shah Mohandas Sadhuram, 1966 AIR 15, 1965 SCR (3) 771.

[11] Shivagouda Rajiv Patil v Chandrakant Neelkanth Sadalge, 1965 AIR 212, 1964 SCR (8) 233.

[12] Re A & M, (1926) 1 Ch 274.

[13] 1971 80 ITR 283 Bom.

[14] 1966 AIR 15, 1965 SCR (3) 771.

[15] A.G. Guest (ed).

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