Indian Partnership Act
Landmark Cases on the Partnership Act
A dozen decisions carry most of the weight of partnership law. Between them they settle the true test of partnership, the legal nature of a firm, a partner's duty to account, the firm's liability for a partner's wrongs, a partner's authority to bind the firm, and the settlement of accounts on dissolution. This note gathers them in one place, grouped by theme, with the citation, the facts in a line, and the principle each stands for. It is the case-law companion to the section-by-section notes.
Twelve landmark cases on the Partnership Act, with the principle each settles
1. The True Test of Partnership
📖 Cox v Hickman, (1860) 8 HL Cas 268 Creditors who took over a business and were paid out of its profits were held not partners. Sharing profits is only evidence; the true test is whether the business is carried on by persons acting on behalf of one another, that is, mutual agency. The principle is now in Section 6. |
📖 Mollwo, March and Co. v Court of Wards, (1872) LR 4 PC 419 A financier who advanced money and took a share of profits, with wide powers of control, was held not a partner, because the business was not carried on on his behalf. Real relation, not the extent of control, decides. |
📖 K. D. Kamath and Co. v Commissioner of Income Tax, (1971) 2 SCC 873 The Supreme Court held that the two essential conditions are an agreement to share profits and the business being carried on by all or any acting for all; management may be entrusted to one partner without destroying the partnership. |
2. The Legal Nature of a Firm
📖 Dulichand Laxminarayan v Commissioner of Income Tax, AIR 1956 SC 354 A firm is not a legal entity but a compendious name for the partners; accordingly, a firm cannot itself be a partner in another firm. |
📖 Commissioner of Income Tax v R. M. Chidambaram Pillai, (1977) 1 SCC 431 A firm is not distinct from its partners; a man cannot be his own employer, so salary to a partner is a share of profits. |
📖 Malabar Fisheries Co. v Commissioner of Income Tax, (1979) 4 SCC 766 A firm has no separate legal existence; on dissolution there is no transfer of assets from the firm to the partners, because each partner already had an interest in every asset. |
📖 Addanki Narayanappa v Bhaskara Krishnappa, AIR 1966 SC 1300 During the firm, no partner can point to any asset as his; his interest is movable property, even where the firm owns land, so a release of a share needs no registration on that account. |
3. The Duty to Account
📖 Bentley v Craven, (1853) 18 Beav 75 A partner who was the firm's buyer bought goods on his own account and resold them to the firm at a profit, without disclosure. He had to account to the firm for the secret profit. The principle is now in Sections 9 and 16. |
📖 Aas v Benham, [1891] 2 Ch 244 A partner used information gained in the firm's business to advise a company in a different field, and was paid. He did not have to account: the duty attaches to profits from the firm's own business, property or connection, not to every use of knowledge gained as a partner. |
4. Liability and Authority
📖 Hamlyn v Houston and Co., [1903] 1 KB 81 A partner bribed a rival's clerk to obtain information for the firm. The firm was liable under the principle now in Section 26, because obtaining information was within the ordinary scope of the business, even though the means were wrongful. |
📖 Higgins v Beauchamp, [1914] 3 KB 1192 A firm of cinema proprietors was a non-trading firm, so a partner had no implied authority to borrow, and the firm was not bound. The character of the business fixes the scope of implied authority under Section 19(1). |
5. Settlement of Accounts
📖 Garner v Murray, [1904] 1 Ch 57 On dissolution, an insolvent partner's capital deficiency is borne by the solvent partners in the ratio of their capitals, not their profit-sharing ratio, because it is a loss of capital. Applied in India, subject to a contrary agreement. |
6. The Cases at a Glance
Case | Principle |
|---|---|
Cox v Hickman (1860) | Mutual agency is the true test; profit sharing is only evidence |
Mollwo, March and Co. (1872) | Control to protect a loan does not make a partner |
K. D. Kamath and Co. (1971) | Sharing profits plus business carried on by all acting for all |
Dulichand Laxminarayan (1956) | A firm is not a legal entity; it cannot be a partner in another firm |
Chidambaram Pillai (1977) | Salary to a partner is a share of profits |
Malabar Fisheries (1979) | No separate existence; no transfer on dissolution |
Addanki Narayanappa (1966) | A partner's interest is movable property |
Bentley v Craven (1853) | A partner must account for secret profits |
Aas v Benham (1891) | The duty to account is limited to the firm's own business |
Hamlyn v Houston (1903) | The firm answers for a partner's wrong in the ordinary course |
Higgins v Beauchamp (1914) | No implied authority to borrow in a non-trading firm |
Garner v Murray (1904) | Capital deficiency borne in the capital ratio |
7. Frequently Asked Questions
Which case settled the true test of partnership?
Cox v Hickman (1860), which held that mutual agency, not the sharing of profits, is the true test; the principle is now in Section 6.
Which case held that a firm is not a legal entity?
Dulichand Laxminarayan v CIT (1956), which held that a firm is a compendious name for the partners and cannot itself be a partner in another firm.
What did Addanki Narayanappa decide?
That a partner's interest in the firm is movable property, even where the firm owns immovable property, so a release of a share does not require registration on that account.
What is the principle in Hamlyn v Houston?
That a firm is liable for a partner's wrongful act done in the ordinary course of the business, even if the means used were wrongful, under the principle in Section 26.