This article is written by Sparsh Agrawal, a 2nd-year student, Symbiosis Law School, Hyderabad. In this article, the rights of the minor when he is admitted to the benefits of partnership have been discussed.

Introduction

A partnership is an agreement between two persons who agree to share profits and losses in their partnership. As per the law of land, an agreement by a minor is void-ab-initio. However, the Indian Partnership Act, 1932 has a set of rules and procedures which allow a minor to be admitted for benefits of a partnership. This article will discuss in length the rights of minors when he is admitted to the benefits of a partnership. 

A minor is a person who is yet to attain the age of majority. According to Section 3 of the Indian Majority Act, a person is deemed to have attained the age of majority when he attains 18 years of age. However, a minor can also be appointed to claim the benefits of the Partnership.  

Section 4 of the Indian Partnership Act states that “Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Persons who have entered into a partnership with one another are called individually “partners” and collectively a “firm”, and the name under which their business is carried on is called the “firm name”. According to this section, a partnership is an agreement between two persons who agree to be partners in the firm.

It is pertinent to note that, Indian Contract Act, 1872 prohibits a minor from entering into an agreement, as the agreement entered by a minor is void ab initio. However, the Indian Partnership Act, 1932 allows a minor to enjoy benefits of partnership when a set of rules and procedures are compiled in accordance with the law.

Section 30(i) of the Indian Partnership Act,1932 defines the rights and liabilities of minors in a partnership. The section makes it clear that a minor cannot become a full-fledged partner before attaining the age of majority, however a minor can be appointed to the benefits of a partnership with the consent of all the partners. Moreover, the section also defines the limit to which the minor can be held liable for “acts of the firm”.

Appointment of Minors in a Partnership 

According to Section 30 of the Indian Partnership Act, 1932 a minor cannot be a partner in a firm. However, if he opts for the consent of all the other partners, for the time being, he is eligible to claim the benefits of the partnership.

In order to enjoy such benefits, there must be an agreement executed between his guardians and the partners. The rules for the appointment of a minor in a partnership are as follows:-

1. A minor can be appointed to the benefits of the Partnership when there is the consent of all the existing partners.
2. It is pertinent to note that, there must be an existence of a partnership before a minor is appointed. Thus, it is implicit that a minor cannot form a new partnership but can be admitted to an existing partnership.
3. Moreover, there cannot be a partnership consisting of all minors.

It is worth mentioning that in the case of Sanyasi Charan Mandal v. Krishnadhan the court observed that according to the Indian Partnership Act, 1932 a “ firm” means a group of persons who have entered into a contract of Partnership. However, Section 11 of the Indian Contract Act, 1872 states that a minor is incapable of entering into a contract.

Accordingly, the court held that a minor cannot be a part of group persons under Section 4 and he can only be appointed to the benefits of partnership that are already existing.

In the case of Commissioner of Income Tax  v. Dwarkadas & Co. the Hon’ble Judge observed that “Section 30 of the Indian Partnership Act, clearly lays down that a minor cannot become a partner, though, with the consent of the adult partners, he may be admitted to the benefits of a partnership. Any document which goes beyond this section cannot be regarded as valid for the purpose of registration.”

In this landmark Judgment, it was stated that the Partnership deed must clearly depict that the minor partners are not personally responsible for the losses suffered by a partnership firm.

In Banka Mal Lajja Ram & Co v. Commissioner of Income Tax Delhi it was held that even if the other partners of a partnership firm are consenting, a minor cannot legitimately become a full-fledged partner through his guardian. 

It is pertinent to note that in Commissioner of Income tax, Mysore v. Shah Mohandas Sadhuram, it was observed that the benefits which are bestowed upon the minor by a contract of Partnership cannot be held invalid merely on the ground that the guardian has purported to contract on the minor’s behalf. For invalidity, there must be contravention to provisions mentioned under Section 30 of the Indian Partnership Act, 1932.  

In Hardutt Ray’s case, the partnership deed was held to be invalid because the natural guardian lost the right to be a guardian. Consequently, she lost her right to enter into the contract on behalf of the minor. 

Rights of Minors in a Partnership

Section 30 (i) of the Partnership Act,1932 deals with the rights of minors who are entitled to the benefits of a partnership. The rights of a minor in a partnership can be classified as follows:-

1. Right of inspection
2. Right to sue
3. Right to receive his share of profit
4. Right after attaining the age of majority

Right of Inspection:-[Section 30 (2)] A minor in a partnership firm can inspect the books of accounts of the firm. Further, he can also demand copies of the books. However, this right of minor is only limited to inspection and he cannot have access to those books which may contain trade secrets. 

In Oswal Fertilizers v. Commissioner of Income Tax, the court held that it is permissible in law to authorise guardians of the minor for inspection of accounts of the firm and exercising certain rights to protect minor’s interest.  

Right to sue:- [Section 30(4)] A minor can sue the requisite partners for account or payment of his property or profit. The minor can claim his share only upon leaving the firm. As long as he stays in the firm he cannot exercise such a right. 

In Commissioner of Income Tax, West v. Khetan and Co., it was held that sub-section 4 of Partnership Act, 1932 gives a limited right to sue by minor to partner for an account or payment of his share of profit of the firm. A minor partner can sue for such an account or payment when he serves his connection with the firm and not before that.

Right to receive his share or profit:- According to sub-section 2 of Section 30, a minor is entitled to receive his agreed share of the property and the profits of the partnership firm. At the time of the appointment of a minor in a partnership, it is decided that a minor is entitled to the benefits of a partnership that is bestowed upon him with the right to share both profits as well as property.

A minor cannot be a full partner who is liable for the losses. In the Judgment of Commissioner of Income tax v. Dwarkadas khetan it was stated that a minor can only be admitted to benefits of a partnership. In other words, he is only entitled to profits and not losses. 

The aforementioned Judgement has been reiterated in the case of Income tax commissioner v. Shah Mohandas discussing the right to receive a share of profit of the minor.  It was stated that the intention of the legislature under sub-section 2 of Section 30 of Partnership act, 1972 is clear that a minor cannot be made liable for the losses.

Further, in order to receive his share of profits, sub-section 4 of Section 30 allows the minor to sever his connection with the firm. When this is done the amount of the minor’s share is calculated in accordance with rules mentioned under Section 48, which visualizes the capital contributed by the other partners.

Right after attaining the age of majority:- The position of the minor upon attaining the age of majority is that when he knows that he has been eligible to the benefits of partnership, then such a person needs to give public notice on his position that whether he has elected to become the partner of the partnership firm or not elected to become a partner of a partnership firm. Such notice will determine his position with regard to the firm. If at all the minor fails to give such notice then he shall become a partner in the firm on the expiration of the said 6 months.

When minor elects to become a partner:-

• He will become personally liable to the third parties of all acts of the firm. His liability will be applicable retrospectively i.e. from the date of his appointment to the benefits of a partnership.
• His share in the profits and property of the firm shall be the share to which he was entitled as a minor.

When minor elects not to become a partner:

• The liabilities and rights shall continue to be those of minor up to the date on which he serves a public notice.
• After the date of serving the notice, his share shall not be liable for any acts of the firm.
• However, he still reserves a right to sue the other partners for his share of the property and profits.

In the case of Bhogilal v. Commissioner of Income-tax, it was held after the attainment of the age of majority when a minor decides to join the firm as a full-fledged partner his share shall remain the same as what was set out in the deed as a minor. It was stated that there is no need to break the continuity when a minor decides to join the firm, therefore a new partnership is not needed. Therefore, when the minor attains the age of majority he only becomes a full-fledged partner and not a new partner as his share will remain the same when he was a minor.

The question before the apex court in Shivgouda Rajiv Patil v. Chandrakant Neelkanth Sedlage was that the minor who attained the age of majority subsequent to the commission of insolvency by other partners could be personally held liable. The court gave the decision in favour of the minor and stated that a minor who is entitled to the benefits of the partnership cannot be held liable for such insolvency. 

Conclusion

Section 30(i) of the Indian Partnership Act, 1932 discusses the rights and liabilities of a minor when he is admitted to the benefits of a partnership. In light of the aforementioned discussion, it can be concluded that a minor cannot be a full-fledged partner in the firm. 

Moreover, two minors cannot consent to form a partnership. A minor is only allowed to be admitted to the benefits of the partnership with the consent of other partners. This is because the whole object of a partnership is based on “agreement” and agreement entered by a minor is void-ab-initio. A guardian must be there who can enter into an agreement on behalf of the minor. Furthermore, a minor person reserves rights such as the right to receive a share of profit, right to sue, right to inspect and rights after the attainment of the age of majority ensures that interest of a minor is protected.

In the Catena of judgments, it has been made clear that a minor cannot be held personally liable for losses incurred by the firm, and he can only be admitted to the benefits of Partnership. After attaining the age of majority it is upon the discretion of the minor whether to stay with the partnership or not.

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skill.