Minor as a Partner: Comprehensive Study

INTRODUCTION

Partnership is described as “a relationship between parties who have decided to share the proceeds of a company carried on by both or all of them working for all in Section 4 of the Indian Partnership Act, 1932.” A partnership is a relationship between two or more than two people who choose to do business together in order to make money and share profit or loss proportionately. The meaning of relationship is reciprocal trust, absolute good faith, and mind identification among the partners.”

According to the “Indian Majority Act of 1875”, a minor is anyone who has not yet reached legalage of majority. “The Indian Majority Act of 1875, Section 3 tells that a individual who is domiciled in India will reach majority at the age of eighteen.”

“Section 30 of Indian Partnership Act” regulates admission of minor within the partnership. This clause covers rights & responsibilities of minor who joins relationship. A extensive analysis of provision, specially “section 30(1) makes it very clear that a minor cannot be admitted in the partnership as a full-fledged partner, but with the authorization of the other partners, a minor can be admitted in the partnership to the benefits of the partnership.”

MINORS – ADMITTED ONLY TO BENEFITS

The basic principle is set out in “Section 11 of the Indian Contract Act, 1872, which discusses who is qualified to contract and states that a minor does not have the right to contract.”

A special committee has drafted the “Indian Partnership Act. Since partnership provisions were administered by “Indian Contract Act” prior to  passage of “Indian Partnership Act”, The special committee found that there was no reason to depart from “Section 11 of the Indian Contract Act’s definition of a minor’s failure to enter into a relationship contract.”

Following this, it was decided by special committee that minors could not become partners in a relationship, but they could be entitled to the partnership’s benefits with the permission of both of the standing partners.

In judicial decisions such as the S. C. Mandal case, the same theory is proclaimed. It was noted that a firm is described as a collective of people who have formed a partnership contract with one another. under “Section 4 of the Indian Partnership Act, and when read in conjunction with Section 11 of the Indian Contract Act, it can be inferred that a minor cannot be a party to a partnership contract.
A minor should only be in a relationship for the good of the partnership, according to the ruling. It also claimed that before a minor may be entitled to its privileges, there must be a relationship between two major partners.”

The Allahabad High Court also ruled a partnership deed void in which a partnership firm’s rights and liability were split between the minor and main partners. The court ruled that in the current case, not only the partnership’s gains but also its obligations are being imposed on the minor, which is in violation of the Indian Partnership Act.

While there were different judgments along the same line, there was also a lot of doubt about whether a minor should become a full-fledged partner in a partnership company and there were some contradictory judgments as well.

In the historic decision Commissioner of Income Tax vs D. Khaitan and Co., the Supreme Court took the legal position that if a minor is made a full-fledged partner in a company, the relationship cannot be registered with the Income Tax Department.

If the relationship is to be registered with the IRS, a new contract must be written in which the minor is only allowed to participate in the firm’s benefits, and the old contract may be nullified until the new contract is in effect. It was further specified that the revised contract would expressly specify that the minor was accepted to the relationship only for the sake of receiving compensation and that the minor is not responsible for any damages.

Except in the case of Banka Mal Lajja Ram & Co. vs. Commissioner of Income Tax, Delhi , it was determined that even though any of the other members of the relationship agree to make the minor a full-fledged partner, the decision can be implemented.

Commissioner of Income Tax vs. Kedarmall Keshardeo , a Guwahati High Court decision, holds that a contract deed is applicable when a guardian enters into a relationship on behalf of a minor, but that no responsibility should be levied on the minor, and that the minor’s income from the company should not be considered for income tax purposes.

The courts even come to the conclusion that when a guardian contracts with a minor, the damages must be measured based on the guardian’s damages, not the minor’s. The courts have also provided that if a minor contracts with a guardian, the benefits bestowed on the guardian must be approved by the guardian, but the minor may reject the arrangement if it is not entered for his benefit.

RIGHTS AND LIABILITY OF A MINOR

According to “Section 30(2) of the Indian Partnership Act, a minor is entitled to a share of the income and property of the company, as determined at the time the minor was admitted to the partnership’s benefits. A minor has the freedom to audit the partnership’s accounts under this clause, but he or she does not have the right to inspect the partnership’s other records. This restraint on the minor’s privilege, however, is fair and egalitarian, since the minor is not responsible to the same degree as the full-fledged spouses, i.e., individually. The minor will even appeal for the benefits of the relationship to which he has been admitted.”

If a minor chooses not to become a partner, he has the following rights:

  1. Up to the day of public notification, his rights and liabilities would be those of a minor;
  2. His share is exempt from liability for all actions taken by the company since the date of the notice;
  3. He has the right to sue the other partners for his share of the income and land.


Also under “Section 30(3) of the Indian Partnership Act, a minor may only be held responsible for his share of the partnership’s losses and cannot be held individually liable for the firm’s losses.” In a Calcutta High Court decision, it was reported that creditors can only recover money from a minor to the degree of his share in the company, but they cannot sue the minor personally; this advantage is not available to the main member of the firm.

POSITION/STANCE OF MINOR ATTAINING MAJORITY

“After reaching majority, a minor has two options: sever the relation with the firm or become a full-fledged partner in the firm, according to section 30(5) of the Indian Partnership Act.” Within six months of reaching majority, the minor must make a decision.

If the minor decides to become a full partner, he must give a public notice as required by “Section 72 of the Indian Partnership Act.” “The minor retains his rights as a minor before he takes a definitive determination on whether or not to enter the relationship as a full-fledged partner or to cut ties with it.”

“The presumption of arguing that the minor had no idea that he was entitled to the privileges of relationship lies with the party asserting it under Section 30(6).”

“Section 30(7)(a) of The Indian Partnership Act also specifies that if a minor partner is admitted as a full-fledged partner, he is responsible not only for the firm’s potential liabilities, but also for the firm’s past liabilities dating back to the date of his entry.

“That when a minor agrees to become a full-fledged member of the relationship, there is no split in the partnership and it continues as is, it is just that the liabilities of becoming a full-fledged partner are now upon him, Section 30(7)(b) notes that his position after he attains majority will be the same as it was when he was a minor.”

“Section 30(8) of The Indian Partnership Act specifies that if a minor refuses to remain as a full-fledged member of the partnership, he will be responsible for all of the partnership’s obligations before he gives the public notice required by Section 72 of The Indian Partnership Act.” After serving the partnership’s ties, the minor may file a lawsuit to regain the benefits to which he was entitled.

Conclusion

We may conclude from the preceding debate that a partnership company cannot be established with a minor as the only other participant. A contract establishes the partnership agreement. A minor is not competent to enter into a deal, according to “Section 11 of the Indian Contract Act.” Even in the Dwarkadas Khetan case, the country’s Supreme Court rules that a minor cannot be a full partner in the company. In the Shah Mohandas Case, the Supreme Court ruled that a minor could be admitted to the company solely for its benefits. The Indian Contract Act, Section 30. Although a minor is not a full-fledged partner in any event, he or she will only benefit from such a relationship with the consent of both partners and is not individually responsible for the firm’s losses. A guardian may enter into a relationship on behalf of a minor as long as it is not detrimental to the minor’s interests. Furthermore, a minor’s income from a relationship cannot be classified as “earning income” and therefore cannot be counted for income tax purposes. After reaching majority, the minor has the option of remaining in the partnership and becoming liable for losses, or ending the relationship entirely.