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The Partnership is Nothing but Notional Extension of Agency: Judicial Interpretation


Authored by - Vasundra V

Keywords- Partnership, Agency, Judicial interpretation, Notional extension.


Abstract


The partnership can be found everywhere in the form of various relationships. However, it is specifically considered more in the business sector as it is related to equal shares in profit and loss. Thus, this article aims at explaining the concept of partnership as the notional extension of the agency with the help of judicial interpretation.


Introduction


Business is a commercial activity that involves one or more persons in a particular occupation. The association of two or more persons in a business is known as partnership. Hence, the partnership is one of the forms in which the businesses can be carried out with the club of two or more members who can contribute capital skill to the business. The concept of notional extension of the agency falls under the Indian Courts, mostly under the ambit of partnership in business. This is to ensure the applicability of beneficial legislation of such partnerships. In India, there are various laws related to business, but for this particular topic ‘partnership’, there is a different statue altogether. The Partnership Act of 1932 was enacted by the Parliament to restrain the partnership in firms.


The Indian Partnership Act 1932


At present, the Indian Partnership Act is administered by the Ministry of Corporate Affairs which had been arisen from the English Partnership Act, 1890. This Act received the assent on 8th April 1932 and came into the force on 1st October 1932. Before this Act, the Indian Contract Act was dealing with the subject of Partnership in its Chapter IX under Section 239 to 266. The term partnership is defined in the Indian Partnership Act under Section 4, as the relation between persons who have agreed to share the profit of business carried on by all or any one of them acting for all.


Agency


“A person employed to do any act for another, or to represent another in dealing with third persons. The person for whom such act is done, or who is so represented, is called the ‘principal’. The relationship between the agent and the principal is called agency.” This is the definition of an agency under the Indian Contract Act of 1872. Section 182 to 238 in Chapter X of this Act deals with this topic in a more elaborate manner. Also, the concept of agency has been explained by Justice. Ramaswamyin the case of Krishna vs. Ganapathi[1]at Madras High Court.


Partnership as Notional Extension of Agency


The elements of the partnership such as business, agreement, and profit shares are established by the Supreme Court in the case of HelperGirdharbhai vs. Saiyed M Kadri and others[2]which are more significant. There are many instances where the partnership will not be considered under the law, even though there exist an agreement and its essentials. However, in such cases, the parties will be liable to the third party. This is referred to as the agency as an extension. The provision for the extension of such a partnership is explained under Section 6 of the Indian Partnership Act.


Agency is considered as the tool for determining the existence of a partnership. It is the response of the agency to discern a partnership from co-ownership. In the cases where the loss and profits are shared, the partnership becomes stronger, though not conclusive. Agency is one of the essential elements of partnership in a share, but this is not a conclusive test. The question of a person as a partner or not, therefore, depends on nearly all the cases upon whether or not he has the authority to act for other partners and whether or not other partners have the authority to act for him.


Case Laws


1. Cox vs. Hickman 1860[3]

Benjamin Smith and Josiah Smith are business carriers as corn merchants and the ironworkers. In their lease of 21 years, they got credit without the concern of the other trustees. Hence, the House of Lords held that the creditor is not liable as he is not a principal here. Smith, trustees and also the trust which acts as an agency is liable.

2. Hirabai vs. Bhagirath[4]

The managing owner of an agency gave that agency to the defendant for the 15 years for its maintenance on a temporary basis and kept on receiving the profits. Hence, the Bombay high court held that there is no agency and mere sharing of profit does not make one, a partner.


3. Ross vs. Parkyns[5]

Plaintiff approached the defendant to carry the accounts of the firm in his name. Plaintiff demanded 1/5 of the profit as a salary to keep the accounts data. Defendant agreed on it, unfortunately, in a year, the defendant faced a tremendous loss and the salary was not paid. Court of Appeals of Minnesota held that there was no mutual agency and hence, no partnership existed.


Conclusion


From the above discussions, it can be inferred that partnership is a part of an agency specified under Section 18 of the Partnership Act. The provision provides that the partner is the agent of the firm for the purpose of the businesses of that firm. Hence, the intention of the parties has to be gathered from the language used in the deed and read as a whole. This only happens if there is a difference of opinion between the partners to whom the matter is connected with. As the business is to be decided by a majority of partners, the control and management should be exercised by a single partner and need not to be by the majority.


[1]AIR 1955 Mad 648 [2]1987 AIR 1782, 1987 SCR (3) 289 [3](1860) 8 H.L. 268 [4]AIR 1946 Bom 174 [5]1990 68 CompCas 145

References


1. The Indian Partnership Act 1930.

2. The Indian Contract Act 1872.

3. A.k. Kapoor, Contract – II, 2012 (12th Ed.), Central Law Agency, India.

4. S.D. Singh and J.P.Gupta, Law of Partnership in India( 3rd Ed.), Orient Law House, India.

5. Partnership and agency, Google Scholar, retrieved from https://scholar.google.com/scholar?hl=en&as_sdt=0%2C5&q=partnership+as+extension+of+law+agency+&btnG=#d=gs_qabs&u=%23p%3DxdQupkZr_vcJ