contract is the back bone of good business practice

8/7/2019 contract is the back bone of good business practice

http://slidepdf.com/reader/full/contract-is-the-back-bone-of-good-business-practice 1/16

1

CERTIFICATE

I, Nadirshaw .K. Dhondy, Advocate Supreme court, have examined the thesis of

Mr. Manish Ashok Waghachourewho is enrolled in M.I.M.R.(Mumbai institute of

management and research) for the academic years 2010- 2012 in the Masters of

Management Studies programme. His unique roll no. is 1117.

Dated this _______ day of February 2011

Signature Signature



2

Name: .Manish Ashok Waghachoure MR.NADIRSHAW K. DHONDY

ACKNOWLEDGEMENT

I sincerely thank Prof. Nadirshaw .k. Dhondy for giving me anopportunity to compile this project and also for providing

necessary information which helped me in completing this

project in a better manner.I will be looking for such types of

projects in near future and do my best.

We are eagerly waiting for fruitful comments and constructive

suggestions.

I would also thank my Institution and my faculty members

without whom this project would have been a distant reality. I

also extend my heartfelt thanks toAnmol sharma family and

well wishers.



3

Prologue

A contract is a legally enforceable agreement between two or more

parties with mutual obligations.

The remedy at law for breach of contract is "damages" or monetary

compensation. In equity, the remedy can be specif ic performance of

the contract or an injunction.

Both remedies award the damaged party the "benef it of the bargain"

or expectation damages, which are greater than mere reliance

damages, as in promissory estoppel.



4

Contract is the backbone of good business

Practice

DEFINATION OF CONTRACT:

Section 2(h)of the Indian Contract Act 1872 def ines contract as an

agreement enforceable by law is a contract and according to section

2(b) A proporsal, when accepted, becomes a promise

TYPES OF CONTRACT :

Express Contract

Contingent Contract

Quasi Contract

Executed Contract

Executory Contract

Contracts For Executed Consideration

Valid Contract

Voidable Contract

Void Contract



5

Unenforceable Contract

Illegal Agreement

STEPS INVOLVED IN CONTRACT :

Proposal and its communication

Acceptance of proposal and its communication

Agreement by mutual promises

Contract

Performance of contract.



6

The Indian Partnership Act, 1932

Section 9 in The Indian Partnership Act, 1932

9. General duties of partners. Partners are bound to carry on the business of the firm tothe greatest common advantage, to be just and faithful to each other, and to render true

accounts and full information of all things affecting the firm to any partner or his legal

representative.

Duty to indemnify for loss caused by fraud.


(1) Minors admitted to the benefits of partnership. A person who is a minor according to the law

to which he is subject may not be a partner in a firm, but, with the consent of all the partners for

the time being, he may be admitted to the benefits of partnership.

(2) Such minor has a right to such share of the property and of the profits of the firm as may be

agreed upon, and he may have access to and inspect and copy any of the accounts of the firm.

(3) Such minor' s share is liable for the acts of the firm, but the minor is not personally liable for

any such act.

(4) Such minor may not sue the partners for an account or payment of his share of the property

or profits of the firm, save when severing his connection with the firm, and in such case the

amount of his share shall be determined by a valuation made as far as possible in accordance

with the rules contained in section 48: Provided that all the partners acting together or any

partner entitled to dissolve the firm upon notice to other partners may elect in such suit to

dissolve the firm, and thereupon the Court shall pro- ceed with the suit as one for dissolution

and for settling accounts between the partners, and the amount of the share of the minor shall

be determined along with the shares of the partners.

(5) At any time within six months of his attaining majority, or of his obtaining knowledge that he

had been admitted to the benefits of partnership, whichever date is later, such person may give

public notice that he has elected to become or that he has elected not to become a partner in the

firm, and such notice shall determine his position as regards the firm: Provided that, if he fails

to give such notice, he shall become a partner in the firm on the expiry of the said six months.



7

(6) Where any person has been admitted as a minor to the benefits of partnership in a firm, the

burden of proving the fact that such person had no knowledge of such admission until a

particular

date after the expiry of six months of his attaining majority shall lie on the persons asserting that

fact.

(7) Where such person becomes a partner,-

(a) his rights and liabilities as a minor continue up to the date on which he becomes a partner,

but he also becomes personally liable to third parties for all acts of firm done since he was

admitted to the benefits of partnurship; and

(b) his share in the property and profits of the firm shall be the share to which he was entitled as

a minor.

(8) Where such person elects not to become a partner,-

(a) his rights and liabilities shall continue to be those of a minor under this section up to the

date on which he gives public notice,

(b) his share shall not be liable for any acts of the firm done after the date of the notice, and

(c) he shall be entitled to sue the partners for his share of the property and profits in accordance

with sub- section (4).

(9) Nothing in sub- sections (7) and (8) shall affect the provisions of section 28. CHAP

INCOMING AND OUTGOING PARTNERS CHAPTER V INCOMING AND OUTGOING

PARTNERS


Liability for acts of partners done after dissolution.

(1) Notwithstanding the dissolution of a firm, the partners continue to be liable as such to thirdparties for any act done by any of them which would have been an act of the firm if done beforethe dissolution, until public notice is given of the dissolution: Provided that the estate of apartner who dies, or who is adjudicated an insolvent, or of a partner who, not having beenknown to the person dealing with the firm to be a partner, retires from the firm, is not liableunder this section for acts done after the date on which he ceases to be a partner.

(2) Notices under sub- section (1) may be given by any partner.



8

Case index

CASE STUDY EXAMPLES

Equivalent citations: 1965 AIR 212, 1964 SCR (8) 233

Bench: Subbarao, K.

PETITIONER:

SHIVAGOUDA RAVJI PATIL AND OTHERS

Vs.

RESPONDENT:

CHANDRAKANT NEELKANTH SEDALGE AND OTHERS

DATE OF JUDGMENT:

08/05/1964

BENCH:

SUBBARAO, K.

BENCH:

SUBBARAO, K.

AYYANGAR, N. RAJAGOPALA

MUDHOLKAR, J.R.

CITATION:

1965 AIR 212 1964 SCR (8) 233

ACT:

Indian Partnership Act-A minor admitted to the benefits of a partnership-

Partnership dissolved-Thereafter theminor attains majority He did not exercise his

option not to become a partner-He cannot he adjudicatedinsolvent for the acts of

insolvency of other partners Indian Partnership Act, 1932 (IX of 1932), s.

30(5).234



9

HEADNOTE:

The respondent No. 1 while he was a minor was admitted to the benefits of a

partnership constituted of

respondents 2 and 3. The partnership owed a certain amount to the appellants. The

partnership was dissolvedand subsequently respondent No. 1 became a major but

he did not exercise the option not to become a partnerunder s. 30(5) of the Indian

Partnership Act, 1932. Respondents 2 and 3 committed acts of insolvency and

theappellants filed an application for adjudicating the three respondents as

insolvents. The first respondentresisted the application without success but on

second appeal the High Court held that he was not a partner ofthe firm and hence

he could not be adjudicated an insolvent for the debts of the firm. The present

appeal wasfiled on a certificate granted by the High Court. The appellant

contended before this Court that the 1st

respondent had become a partner of the

firm by reason of the fact that he had not elected to become a partner under a.

30(5) of the Partnership Act and therefore he was liable to be adjudicated an

insolvent.

Held

:(i) A person under the age of majority cannot become a partner by contract and he

cannot be one of that group of persons called a firm. It therefore follows that if

during minority of the 1st respondent the partners of the firm committed an act of

insolvency, the minor could not have been adjudicated insolvent on the basis of the

said act of insolvency for the simple reason that he was not a partner of the firm.SanyasiCharanMandal v. KrishnadhanBanerji, (1922) I.L.R. 49 Cal. 560, relied on.

(ii)It is implicit in the terms of sub-s. (5) of s. 30 of the Partnership Act that the

partnership is in existence,. A minor, after attaining majority, cannot elect to



10

become a partner of a firm which ceased to exist. The entire scheme of s. 30 of the

Partnership Act posits the existence of a firm and negatives any theory of its

application to a stage when the firms ceased to exist.

(iii)Since the 1st respondent became a major after the partnersship was dissolved s.

30 of the Partnership Act does not apply to him. He is not a partner of the firm and

therefore he cannot be adjudicated insolvent for the acts of insolvency committed

by respondents 2 and 3, the partners of the firm.

JUDGMENT:

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 244 of 1964. Appeal

from the judgment and order dated September 21, 1962 of the Mysore High Court

in Civil Revision Petition No. 929 of 1958.

G. S. Pathak and R. Gopalakrishnan, for the appellants. S. G. Patwardhan, V.

Kumar and NaunitLal, for the

respondent No. 1.235

May, 8, 1964. The Judgment of the Court was delivered by SUBBA RAO, J.This

appeal by certificate raies the question whether a minor who was admitted to the

benefits of a partnership can be adjudicated insolvent on the basis of debt or debts

of the firm after the partnership was dissolved, on the ground that he attained

majority subsequent to the said dissolution, but did not exercise his option to

become a partner or cease to be one of the said firm.

The facts are not in dispute and may be briefly stated.

MallappaMahalingappaSadalge and AppasahebMahalingappaSadalge, respondents

2 and 3 in the appeal, were carrying on the business of commission agents and



11

manufacturing and selling partnership under the names of two firms "M. B.

Sadalge" and "C. N. Sadalge". The partnership deed between them was executed

on October 25, 1946. At that time ChandrakantNilakanthSadalge, respondent 1

herein, was a minor and he was admitted to the benefits of the partnership. The

partnership had dealings with the appellants and it had become indebted to them to

the extent of Rs. 1,72,484. The partnership was dissolved on April 18, 1951. The

first respondent became a major subsequently and he did not exercise the option

not to become a partner of the firm under s. 30(5) of the Indian Partnership Act.

When the appellants demanded their dues, the respondents 2 and 3 informed them

that they were unable to pay their dues and that they had suspended payment of the

debts.

On August 2, 1954, the appellants filed an application in the Court of the Civil

Judge, Senior Division, Belgam, for adjudicating the three respondents as

insolvents on the basis of the said debts. The 1st respondent opposed the

application. The learned Civil Judge found that respondents 2 and 3 committed acts

of insolvency and that the 1st respondent had also become partner as he did not

exercise his option under s. 30(5) of the Partnership Act and, therefore, he was also

liable to be adjudicated along with them. The first respondent preferred an appeal

to the District Judge, but the appeal was dismissed. On second appeal, the High

Court held that the 1st respondent was not apartner of the 236 firm and, therefore,

he could not be adjudicated insolvent for the debts of the firm. The creditors have

preferred the present appeal against the said decision of the High Court. Learned

counsel for the appellants, Mr.Pathak, contends that the 1st respondent had become

a partner of the firm by reason of the fact that he had not elected not to become a

partner of the firm under s. 30(5) of the Patnership Act and, therefore, he was

liable to be adjudicated insolvent along with his other partners.



12

The question turns upon the relevant provisions of the, Provincial Insolvency Act,

1920 (5 of 1920) and the Indian Partnership Act. Under the provisions of the

Provincial Insolvency Act, a person can only be

adjudicated insolvent if he is a debtor and has committed an act of insolvency as

defined in the Act: see ss. 6 and 9. In the instant case respondents 2 and 3 were

partners of the firm and they became indebted to the appellants and they

committed an act of insolvency by declaring their inability to pay the debts .and

they were, therefore, rightly adjudicated insolvents But the question is whether the

first respondent could also be adjudicated insolvent on the basis of thE said acts of

insolvency committed by respondents 2 and 3. He could be, if he had become a

partner of the firm. It is contended that he had become a partner of the firm,

because lie did not exercise his option not to become a partner thereof under s.

30(5) of the Partnership Act.

Under s. 30(1) of the Partnership Act a minor cannot become a partner of a firm

but he may be admitted to the benefits of a partnership.

Under sub-ss. (2) and (3) thereof he will be entitled only to have a right to such

share of the properties and of the profits of the firm as may be agreed upon, but he

has no personal liability for any acts of the firm, though his share is liable for the

same. The legal position of a minor who is admitted to a partnership has been

succinctly stated by the Privy Council in SanyasiCharanMandal v.

K rishnadhanBanerji

(1) after considering the material provisions of the

Contract Act,

(1)[1922] I.L.R. 49 Cal. 560, 570.237

which at that time contained the provisions relevant to the law of partnership, thus :



13

"A person under the age of majority cannot become a partner

bycontract...................... and so

according to the definition he cannot be one of that group of persons called a firm.

It would seem, therefore,that the share of which s. 247 speaks is no more than a

right to participate in the property of the firm after itsobligations have been

satisfied."

It follows that if during minority of the 1st respondent the partners of the firm

committed an act of insolvency,the minor could not have been adjudicated

insolvent on the basis of the said act of insolvency for the simplereason that he was

not a partner of the firm. But it is said that sub-s. (5) of s. 30 of the Partnership Act

madeall the difference in the case. Under that sub-section the quondam minor at

any time within six months of hisattaining majority, or of his obtaining knowledge

that he had been admitted to the benefits of partnership,whichever date is later,

may give public notice that he has elected to become or that he has elected not

tobecome a partner in the firm and such notice shall determine his position as

regards the firm. If he failed togive such a notice, he would become a partner in the

said firm after the expiry of the said period of sixmonths.

Under sub-s. (7) thereof where such person becomes a partner, his rights and

liabilities as a minorcontinue up to the date on which he becomes a partner, but he

also becomes personally liable to third partiesfor all acts of the firm done since he

was admitted to the benefits of partnership and his share in the propertyand profits

of the firm shall be the share to which he was entitled as a minor. Under the said

two sub-sections,if during the continuance of the partnership a person, who was

admitted at the time when he was a minor tothe benefits of the partnership, did not

within six months of his attaining majority elect not to become apartner, he would



14

become a partner after the expiry of the said period and thereafter his rights and

liabilitieswould be the same as those of the other partners as from the date he was

admitted to the partnership.238

It would follow from this that the said minor would thereafter be liable to the

debts of the firm and could beadjudicated insolvent for the acts of insolvency

committed by the partners. But in the present case thepartnership was dissolved

before the first respondent became a major; from the date of the dissolution of

thepartnership, the firm ceased to exist, though under s. 45 of the Act, the partners

continued to be liable as suchto third parties for the acts done by any of them

which would have been the acts of the firm if done before thedissolution until

public notice was given of the dissolution. Section 45 propriovigore applies only to

partnersof the firm. When the partnership itself was dissolved before the first

respondent became a major, it is legallyimpossible to hold that he had become a

partner of the dissolved firm by reason of his inaction after hebecame a major

within the time prescribed under s. 30(5) of the Partnership Act. Section 30 of the

said Actpresupposes the existence of a partnership. Sub- ss. (1), (2) and (3) thereof

describe the rights and liabilities ofa minor admitted to the benefits of partnership

in respect of acts committed by the partners; sub-s. (4) thereofimposes a disability

on the minor to sue the partners for an account or payment of his share of the

property orprofits of the firm, save when severing his connection with the firm.

This sub-section also assumes theexistence of a firm from which the minor seeks to

sever his connection by filing a suit. It is implicit in theterms of sub-s. (5) of s. 30

of the Partnership Act that the partnership is in existence. A minor after

attainingmajority cannot elect to become a partner of a firm which ceased to exist.

The notice issued by him alsodetermines his position as regards the firm. Sub-s. (7)

which describes the rights and liabilities of a personwho exercises his option under



15

sub-s. (5) to become a partner also indicates that he is inducted from that dateas a

partner of an existing firm with co-equal rights and liabilities along with other

partners. The entirescheme of s. 30 of the Partnership Act posits the existence of a

firm and negatives any theory of its applicationto a stage when the firm ceased to

exist. One cannot become or remain a partner of a firm that does not exist.It is

common case that the first respondent became a major only after the firm was

dissolved. Section 30 of the239Partnership Act, therefore, does not apply to him.

He is not a partner of the firm and, therefore, he cannot be

adjudicated insolvent for the acts of insolvency committed by respondents 2 and 3,

the partners of the firm.

The order of the High Court is correct.

In the result, the appeal fails and is dismissed with costs. Appeal dismissed.

Prime time matter

Minor can not get into any contract

BIBLIOGRAPHY

Book business law by nabhikumarjain

http://www. http://indiankanoon.org/doc/91068



16

Epilogue

A person under the age of majority cannot become a partner by contract

and he cannot be one of that group of persons called a firm.

It therefore follows that if during minority of the 1st respondent the partners of the

firm committed an act of insolvency, the minor could not have been adjudicated

insolvent on the basis of the said act of insolvency for the simple reason that he

was not a partner of the firm.

contract is the back bone of good business practice

Documents