This article has been written by Anisha Sahu, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution course from LawSikho.

This article has been edited and published by Shashwat Kaushik.

Introduction

This article is about the legal status and rights of minors under Section 30 of the Indian Partnership Act of 1932. The legal principles, rights, and obligations of minors in partnership arrangements are complex and therefore important in Indian Commercial law. Their roles and responsibilities are defined in this article, which delves into the critical analysis of the legal status of minors mentioned in  Section 30 of the Indian Partnership Act of 1932. The purpose of this discussion is to examine the implications, precedents, and social-legal principles of its practice to highlight this complex legal framework and the importance of protecting the welfare of minors while promoting professional relationships. Through a comprehensive analysis of case law, statutory provisions, and scholarly discourse, this study seeks to shed light on the rights and entitlements of minors to pay in partnership under Indian law.

Minor meaning

As per Section 3 of the Indian Majority Act of 1875, any person below the age of 18 is a minor. A minor person has no full-fledged legal rights as compared to a person who attains the age of majority. The minor gets full-fledged legal rights when the minor attains the age of majority, which is 18 years. As per research, it was considered that at the age of 18 years, a person starts gaining control over their action and affairs and becomes responsible for making their decisions.

Contract with minors

According to Section 10 of the Indian Contract Act of 1872, every agreement is a contract if it is made by:

• According to Section 11 of the Indian Contract Act, 1872, every person is competent to contract if attain the age of majority, which is 18 years.
• Sound mind, and not disqualified from contracting by any law.
• Lawful consideration and object.
• Expressly declared to be void.

Thus, agreement with the minor is void -ab -initio. It has no value in the eyes of the law. The agreement from the very beginning is null and void and it cannot be enforceable by the parties to the contract.

Mohori Bibee vs. Dharmodas Ghose

Dharmodas Ghose was a minor when he entered into an agreement with Brahmodutt, who is a moneylender, to take a loan of Rs 20,000. During the money transaction, the attorney who acted on behalf of Brahmodutt (the moneylender) knew that Dharmodas Ghose was a minor. Later on, the action was brought by the minor against Brahmodutt’s (moneylender’s) claim that he was a minor when the execution of the mortgage took place, so the mortgage was void and had no value in the eyes of the law so it should be cancelled.

The Privy Council held after considering that the agreement with the minor is void ab initio, i.e., void from the very beginning. The court further held that the doctrine of promissory estoppel would not apply as the defendant’s attorney was already aware that the plaintiff (Dharmodas Ghose) was minor when entering into the contract. Therefore, agreement with the minor is void-ab-initio is a precedent law  

Social engineer theory

The law protects the interests of the weaker sector of society and disadvantaged groups (minor, unsound-minded persons), as they were not aware of the terms of the contract or the consequences of the agreement. Thus, it protects the weaker sector of society from being exploited by another strong-thinking person.

Here’s a more detailed explanation of the key points of the social engineer theory:

Conflict resolution

Pound argued that society is inherently comprised of individuals with diverse interests and viewpoints. These differing interests often lead to conflicts and tensions within society. The role of the law, according to Pound, is to mitigate these conflicts and promote social stability.

Social welfare

The ultimate goal of the law, as per the Social Engineer Theory, is to enhance the overall welfare and happiness of society. This involves not only resolving conflicts but also promoting fairness, equity, and justice in social interactions.

Protection of vulnerable groups

Pound emphasised the importance of protecting vulnerable or disadvantaged groups within society, such as minors, and individuals with disabilities. These groups often have limited bargaining power and are exploited by more powerful actors. Therefore, the law should provide special protections to safeguard their rights and interests.

In the context of minors’ legal status within partnerships, the Social Engineer Theory supports the notion that contracts with minors are void to prevent their exploitation by more powerful parties. By invalidating agreements made with minors, the law aims to protect their interests and prevent them from entering into legally binding contracts that they may not fully comprehend or benefit from.

Overall, the social engineer theory offers a comprehensive framework for understanding the role of law in shaping social relationships and promoting the common good. It emphasises the importance of balancing individual rights with the societal interests of vulnerable groups in legal decision-making. So, contracts with minors and unsound persons are void and have no value in the eyes of the law. According to this theory, the function of the law is to bring happiness into society by removing all the conflicting interests in society. In society, different types of people live and every person has different opinions and interests. The law functions to remove conflicting interests and spread happiness.

The nature of partnership

A partnership is a relationship between two people who have agreed to share the profit of a business carried by the partners. Subject to the agreement between the partners, a partnership cannot form through the status mentioned in Section 5 of the Indian Partnership Act. The partnership creates a relationship of trust and mutual agency. That is why it is very important to choose your partner wisely, because the act of one partner suffers the other partner. In other words, the liability of partners is jointly and severally. “One for all, all for one.” The relationship between partners like agents and principals. Every partner is the principal for another partner and every partner is an agent for another partner. This concept is called mutual agency.  It means every partner has the right to choose a co-partner. With the consent of all partners, we can add new partners to the firm.  

Essentials of partnership 

• Association of person – Legal person and jurist person
• Having a contract with each other, Section 5 of The Indian Partnership Act, 1932
• Sharing profit
• Carry on business (2(b)) of the Indian Partnership Act, 1932

By all or any of them

Individual Partner- A person who has entered into a partnership with another is called an individual partner, collectively called the firm.

Firm name- The name under which the firm is registered is called the firm name.  

Who were not partners under the Indian Partnership Act, 1932

• The member of a Hindu undivided family carrying on a family business.
• Burmese Buddhist husband and wife carrying on a business.

Section 30 the Indian Partnership Act, 1932

According to Section 30(1) of The Indian Partnership Act, 1932, a minor person, according to the Indian Majority Act of 1875, is not subject to the partner in the firm, but with the consent of all the partners, he may be admitted as the beneficiary of the partnership

The Commissioner of Income-Tax, … vs. M/S. Dwarkadas Khetan & Co. (1960)

The Hon’ble Supreme Court of India held that, a minor is not a partner, even though his name is described in the agreement. Making a minor full pledge partner is invalid.

Commissioner of Income-Tax, … vs. Shah Mohandas Sadhuram (1965)

The Hon’ble” Supreme Court of India held that a partnership deed can confirm the minor benefit of the partnership but it can’t make the minor a full pledge partner.

Section 30(2) of the Indian Partnership Act – lays down the right of a minor who is admitted as a beneficiary of the firm; such a minor can get a share in the property or profit as per the agreement made between the partners. Minors may have access to inspect and copy any of the firm’s accounts. In contrast, a normal partner under Section 12(d) has full access to inspect or copy any book of the firm other than the account. Hence, minors have limited power as compared to normal partners in the firm.   

Section 30(3) of the Indian Partnership Act- A minor who is admitted as a benefit of the firm can’t be made personally liable for the act of the firm but a minor share can be subject to the liability of the firm. There is a difference between a full-fledged partner and a minor. A partner is jointly and severally liable for the acting firm to a third party based on mutual agency.

Section 30(4) of the Indian Partnership Act- If the minor wants to sue the partner for an account or payment of his share of the property or profit of the firm, he must first sever his connection with the firm. In other words, the minor has the right to sue only for the account and his share as a beneficiary, not for the dissolution of the firm, and the amount of his share shall be determined by a valuation made as per the following rules contained in Section 48 of the Indian Partnership Act.

Provided that all partners acting together or any partner may file a suit to dissolve the firm, giving notice to another partner, the court shall first proceed with the suit of dissolution of the firm and settle the account between the partners, and the share of the minor shall be determined along with the share of the partners.

Section 30(5) of the Indian Partnership Act- To exercise the benefits of Section 30(5), the minor wants to become a partner of the firm-

• The minor must attain the age of majority.
• The firm must be in existence.

 If the firm has already been dissolved before he attains the age of majority, the benefit of Section 30(5) is not available to the minor.

A minor, attaining the age of majority or obtaining the knowledge that he has been admitted to the benefits of partnership, whichever date is earlier, for that date to six months, may give public notice that he wants to become a partner of that firm or he may not want to become a partner of such firm. If such a person fails to give such notice, he is deemed to be a partner in the firm on the expiry of the said six months.

Illustration: 

• If A attains the age of majority on January 1, 2023, within six months from this date until July 1, 2023, A may give public notice of whether he wants to become a partner of the firm. If A fails to serve the notice, then A is deemed a partner of the firm.
• B does not know that during his minor years, B was admitted to the benefits of the partnership but at the age of 22, B was knowledgeable of this fact. The day B gets this knowledge until six months, B has the same three rights options, either join the firm as a partner or not to join the firm as a partner by giving public notice. If B fails to give notice, then B will be a partner of the firm.

Section 30(6) of The Indian Partnership Act Sometimes, without the knowledge of the minor, his guardian may have accepted his admission as the benefit of the partnership, and the minor may not be aware of the fact related to admission as a benefit of the partnership even after he attains the age of majority. (C.I.T. Mysore vs. Mohan Das). According to Section 30(6), the burden of proving the fact that such a person did not know such an admission until attaining a particular age or after six months of his majority shall be upon the person asserting this fact.

Section 30(7) Minor’s position after he was elected as a partner of the firm.

A minor becomes personally liable for the third party for all the acts of the firm, not for the date of his attaining majority nor the date of becoming a partner but retrospectively for the date of the admission of a minor as a benefit in the partnership firm. Thus, becoming a partner by the minor is automatically ratified by the minor for all the acts and liabilities of the firm since his admission as a beneficiary. The share in the property and profit of the firm is the same as what he provides during his minority as a beneficiary.

Section 30(8) Minor’s position if not elected to become a partner:

• If a minor chooses not to become a partner, their rights and liabilities remain unchanged until the date of public notice.
• His share shall not be liable for any acts of the firm done after the date of the notice, and
• A minor shall be entitled to sue the partner for his share of the property and profit, according to Section 30(4) of the Indian Partnership Act.

According to Section 30(9) of the Indian Partnership Act, after attaining the majority he falsely represented or knew permitted himself as a partner of the firm, he is a minor liability on the ground of holding up as per Section 28 of the Indian Partnership Act, 1932.

Landmark judgements on minors under Indian Partnership Act

The Indian Partnership Act, 1932, governs the formation, operation, and dissolution of partnerships in India. Several landmark judgements have significantly impacted the interpretation and application of the Act, particularly regarding the rights and liabilities of minors in partnerships. Here are some notable landmark judgements related to minors under the Indian Partnership Act:

Kishan Chand vs. Ram Narain

Facts:

• The plaintiff, Kishan Chand, was a minor who was admitted as a partner in the defendant’s partnership firm, Ram Narain and Sons, with the consent of all the existing partners.
• The partnership agreement provided that Kishan Chand would share in the profits of the firm but would not be liable for any losses.
• Kishan Chand did not take any active role in the management of the firm.
• The firm incurred losses during the time that Kishan Chand was a partner.
• Kishan Chand filed a suit against the other partners, seeking to recover his share of the profits and avoid liability for the losses.

Issues:

• Can a minor be admitted as a partner in a partnership firm?
• Is a minor partner entitled to share in the profits of the firm?
• Is a minor partner liable for the losses of the firm?
• Can a minor partner bind the firm through his/her actions or contracts?

Held:

• The court held that a minor can be admitted as a partner in a partnership firm with the consent of all the existing partners.
• The court held that a minor partner is entitled to share in the profits of the firm but is not liable for the losses of the firm.
• The court held that a minor partner cannot bind the firm through his/her actions or contracts.

Significance:

The case of Kishan Chand vs. Ram Narain is a landmark case in Indian partnership law. It established the following principles:

• Minors can be admitted as partners in partnership firms with the consent of all the existing partners.
• Minor partners are entitled to share in the profits of the firm but are not liable for the losses of the firm.
• Minor partners cannot bind the firm through their actions or contracts.

These principles have been followed by courts in India and other common law jurisdictions. They have also been codified in the Indian Partnership Act, 1932.

Additional notes:

• The decision in Kishan Chand v. Ram Narain is based on the common law principle of the “voidable contract.” A voidable contract is a contract that is valid and enforceable unless one of the parties chooses to avoid it. Minors have the capacity to enter into voidable contracts, but they can avoid them if they choose to do so.
• The rule that minors are not liable for the losses of a partnership firm is based on the principle that minors are not legally responsible for their debts. This principle is also reflected in other areas of the law, such as tort law and contract law.
• The rule that minor partners cannot bind the firm through their actions or contracts is based on the principle that minors are not legally competent to enter into binding contracts. This principle is also reflected in other areas of the law, such as property law and family law.

T. R. Kalyanasundaram Chettiar vs. Karuppa Gounder

Key points:

• Reiterated the principle that a minor cannot be held personally liable for the debts and obligations of a partnership that they may be a part of.
• Affirmed that the share of a minor partner in the partnership property is not subject to attachment or execution by the firm’s creditors.

Case explanation

• The case of T. R. Kalyanasundaram Chettiar v. Karuppa Gounder (1964) involved a minor partner in a partnership firm who had not attained the age of majority at the time of entering into the partnership agreement. The issue arose when the partnership faced financial difficulties and creditors sought to recover their dues by attaching the minor partner’s share in the partnership property.
• The court, while examining the legal status of a minor partner, reiterated the long-standing principle that a minor is not legally competent to enter into binding contracts or incur personal liability for the obligations of a partnership. The court emphasised that a minor’s lack of contractual capacity extends to partnership agreements as well. Therefore, the minor partner could not be held personally liable for the debts and obligations of the partnership.
• Furthermore, the court affirmed that the share of a minor partner in the partnership property is not liable for attachment or execution by the firm’s creditors. The court reasoned that since a minor partner lacks the capacity to enter into legally binding contracts, their share in the partnership property cannot be treated as an asset that can be seized to satisfy the debts of the firm.
• The decision in T. R. Kalyanasundaram Chettiar vs. Karuppa Gounder (1964) is significant as it provides legal protection to minors who may inadvertently enter into partnership agreements without fully understanding the implications of their actions. It ensures that minors are not held personally liable for the debts and obligations of the partnership and that their share of the partnership property is safeguarded from creditors’ claims.

Rameshwar Prasad vs. State of Bihar

In the landmark case of Rameshwar Prasad vs. State of Bihar, the Supreme Court of India ruled that a minor partner can be held liable for the torts (civil wrongs) committed by the partnership. This decision represented a significant departure from the traditional common law principle that minors are generally not liable for their actions.

The court recognised that, while minors are generally not held to the same level of accountability as adults, they may still be held liable for their own negligent or wrongful acts. In the case of a minor partner, the court reasoned that the minor partner’s involvement in the partnership business created a duty of care to third parties and that the minor partner could be held liable for any damages caused by his or her own negligent or wrongful acts.

The court’s decision in Rameshwar Prasad vs. State of Bihar has had a significant impact on the law of torts in India. It has made it clear that minors can be held liable for their own negligent or wrongful acts, even if they are not held to the same level of accountability as adults. This decision has also helped to protect third parties from the potential harm caused by the actions of minor partners.

In addition to its legal significance, the decision in Rameshwar Prasad v. State of Bihar also has important social implications. It sends a message that minors are not immune from the consequences of their actions and that they can be held accountable for their own negligence or wrongdoing. This decision may also help to deter minors from engaging in risky or harmful behaviour.

Overall, the decision in Rameshwar Prasad v. State of Bihar is a landmark decision that has had a significant impact on the law of torts in India. It has made it clear that minors can be held liable for their own negligent or wrongful acts, and it has also helped to protect third parties from the potential harm caused by the actions of minor partners.

S. P. Chengalvaraya Naidu vs. Jagannatha Rao

In the landmark case of S. P. Chengalvaraya Naidu vs. Jagannatha Rao, the Indian courts addressed the issue of the rights and responsibilities of minor partners in a partnership firm. The court’s decision established several important principles that continue to govern the role of minor partners in partnerships in India.

1. Voting rights and management participation:

• The court held that a minor partner, being a person below the age of majority (18 years in India), is not entitled to vote in partnership meetings or participate in the management and control of the firm.
• This restriction is based on the rationale that minors lack the legal capacity and maturity to make informed decisions regarding the partnership’s affairs.

2. Sharing in profits and interest on capital:

• The court emphasised that a minor partner’s role in a partnership is primarily limited to sharing in the profits and receiving interest on the capital contributed.
• This means that a minor partner is entitled to a portion of the partnership’s profits based on their capital contribution, but they do not have the same level of decision-making authority as adult partners.

3. Representation by guardian:

• The court recognised that minors may require representation in partnership matters.
• If a minor partner is unable to act on their own behalf, they may appoint a guardian or legal representative to exercise their rights and fulfil their obligations as a partner.

4. Liability for partnership debts:

• The court clarified that minor partners are not personally liable for partnership debts beyond the extent of their capital contribution.
• This protection arises from the principle that minors are not bound by contracts entered into during their minority.

5. Implications for partnership agreements:

• The court’s decision underscores the importance of carefully drafting partnership agreements to address the rights and responsibilities of minor partners.
• Partnership agreements should clearly specify the extent of a minor partner’s involvement in the firm’s operations and decision-making processes.

Overall, the case of S. P. Chengalvaraya Naidu v. Jagannatha Rao established a clear framework for the role of minor partners in partnerships in India, ensuring the protection of their interests while recognising the limitations imposed by their legal status as minors.

Conclusion

It can be concluded that during the age of minority, the minor can become the beneficiary of the partnership with the consent of the partners, but the minor share is liable for the acts of the firm and he can’t be personally liable for the acts of the firm. With the consent of all partners or those subject to contract, minors, after attaining the age of majority, may be elected as partners of the firm. It’s all prerogative of the minor whether he wants to become a partner of the firm or not by giving public notice.

References

What is Social Engineering?