Case Summary
| Citation | Shivagouda Ravji Patil v. Chandrakant Neelkanth SadalgeAIR 1965 SC 212 |
| Keywords | partnership, minor, deed, debts, insolvent, Court, appeal, liable, section 30 of the Indian Partnership Act. |
| Facts | The two firms were carrying the names “M. B. Sadalge” and “C. N. Sadalge” by three Respondents, Mallappa and Appasaheb respondents 2 and 3. Nilakanth Sadalge, respondent 1, was a minor and admitted to getting benefits out of the partnership. The partnership had indebted of Rs. 1,72,484 in the dealing with the appellant, and they both, respondent 2 & 3 were unable to pay the dues. The Partnership firm dissolved and Minor became major during that time and didn’t exercise to become a partner in the firm. The appellant filed an application before the court against all three respondents. |
| Issues | Whether the 1st Respondent could also be adjudicated insolvent on the basis of the said acts of insolvency committed by respondent 2 & 3? |
| Contentions | Respondent 1 opposed the application on the fact that he was minor during the dissolution and cannot be held liable under section 30(5) of the partnership act. |
| Law Points | It is said that section 30(5) of the partnership act clears that after attaining a majority, a minor has the opportunity to be a partner or not in the firm within 6 months after giving a public notice. If he fails to give a notice within the said period, then he will become a partner after the expiry of such period. Under sub-section (7), a minor will be personally liable for all acts of the firm after becoming a major when he becomes a partner. In the present case, the partnership was dissolved before the minor became major; from the date of the dissolution of the partnership, the firm ceases to exist. The partners were liable for the debt they took before the dissolution of the firm. Minor will not be liable for the debt of the firm as he ceases to be a partner in the firm because the firm was dissolved before attaining the age of majority. |
| Judgement | Court held that Respondent 1 became a major only after the firm was dissolved, so section 30 does not apply to him. |
| Ratio Decidendi & Case Authority | Section 30 in The Indian Partnership Act, 1932 Minors admitted to the benefits of partnership.— (1))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 proceed 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. (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 the firm done since he was admitted to the benefits of partnership, 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. |
Full Case Details
K. SUBBA RAO, J. – 2. The facts are not in dispute and may be briefly stated. Mallappa
Mahalingappa Sadalge and Appasaheb Mahalingappa Sadalge, Respondents 2 and 3 in the
appeal, were carrying on the business of commission agents and 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 Chandrakant
Nilakanth Sadalge, 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 Section 30(5) of the Indian Partnership Act. When the
appellants demanded their dues, 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, Belgaum, 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 Section 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 a partner of the 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 Section 30(5) of the Patnership Act and, therefore, he was liable to
be adjudicated insolvent along with his other partners. - 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 Sections 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 he did not exercise his option not to become a partner thereof under Section 30(5) of
the Partnership Act. Under Section 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-sections
(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 Sanyasi Charan
Mandal v. Krishnadhan Banerji [ILR 49 Cal, 560, 570] after considering the material
provisions of the Contract Act, which at that time contained the provisions relevant to the law
of partnership, thus:
A person under the age of majority cannot become a partner by contract … 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 Section 247 speaks is no more than a
right to participate in the property of the firm after its obligations 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 simple reason that he was not a partner of the firm. But it is said
that sub-section (5) of Section 30 of the Partnership Act made all the difference in the case.
Under that sub-section the quondam minor 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, 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. If he failed to give such a notice, he would become a partner in
the said firm after the expiry of the said period of six months. Under sub-section (7) thereof
where such person becomes a partner, 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 the firm done since he was admitted to the benefits of partnership and his share in
the property and 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 to the benefits of the partnership, did not
within six months of his attaining majority elect not to become a partner, he would become a
partner after the expiry of the said period and thereafter his rights and liabilities would be the
same as those of the other partners as from the date he was admitted to the partnership. It
would follow from this that the said minor would thereafter be liable to the debts of the firm
and could be adjudicated insolvent for the acts of insolvency committed by the partners. But
in the present case the partnership was dissolved before the first respondent became a major;
from the date of the dissolution of the partnership, the firm ceased to exist, though under
Section 45 of the Act, the partners continued to be liable as such to third parties for the acts
done by any of them which would have been the acts of the firm if done before the dissolution
until public notice was given of the dissolution. Section 45 proprio vigore applies only to
partners of the firm. When the partnership itself was dissolved before the first respondent
became a major, it is legally impossible to hold that he had become a partner of the dissolved
firm by reason of his inaction after he became a major within the time prescribed under
Section 30(5) of the Partnership Act. Section 30 of the said Act presupposes the existence of a
partnership. Sub-sections (1), (2) and (3) thereof describe the rights and liabilities of a minor
admitted to the benefits of partnership in respect of acts committed by the partners; subsection (4) thereof imposes a disability on the minor to 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. This sub-section also assumes the existence of a firm from which the minor
seeks to sever his connection by filing a suit. It is implicit in the terms of sub-section (5) of
Section 30 of the Partnership Act that the partnership is in existence. A minor after attaining
majority cannot elect to become a partner of a firm which ceased to exist. The notice issued
by him also determines his position as regards the firm. Sub-section (7) which describes the
rights and liabilities of a person who exercises his option under sub-section (5) to become a
partner also indicates that he is inducted from that date as a partner of an existing firm with
co-equal rights and liabilities along with other partners. The entire scheme of Section 30 of
the Partnership Act posits the existence of a firm and negatives any theory of its application to
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 the Partnership 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.
