Partnership at Will: Comprehensive Study

Submitted by:

Karan Mishra
B.A.LLB., Division E, 18010223084

Batch-2018-2023

OF

Symbiosis Law School, NOIDA

(Symbiosis International (Deemed University))

In
August, 2019
Under The Guidance Of

Ms. Dharmita Prasad & Ms. Apurva Verma

(Symbiosis Law School, NOIDA)

47/48, Opposite Nokia Siemens Building, A Block, Phase 2, Industrial

Area, Sector 62, Noida, Uttar Pradesh 201309

 CERTIFICATE

The project entitled “Partnership at Will: Comprehensive Study” submitted to the

Symbiosis Law School, NOIDA Special Contracts as part of Internal assessment is based on
my original work carried out under the guidance of Ms. Dharmita Prasad & Ms. Apurva
Verma from April to August. The research work has not been submitted elsewhere for award
of any degree.

The material borrowed from other sources and incorporated in the thesis has been duly
acknowledged. I understand that I myself could be held responsible and accountable for
plagiarism, if any, detected later on.

Signature of the candidate

Date:
INTRODUCTION
An agreement of Partnership cannot exist in isolation, the bare minimum requirement of a
partnership agreement to concur it to have at least two parties. Suppose one wants to open a
Restaurant in his locality and it is a little difficult to gather the money required to run a business
alone, so one approaches his friends and all of them agree to run the Restaurant by contributing
a certain amount of money and other things required. So, everybody agrees with a consensus
to become the owners and share the profits and losses. It is a kind of business organization
called Partnership 1.

The Partnership Act, 1932 governs such form of business organization, that lays down the
requirements to form a Partnership and other things required like mode of determining
existence of partnership, Partnership at Will, Particular Partnership etc. In this project, we will
be dealing with the Partnership at Will aspect.

A partnership between two people is when they run a business together with the intention of
sharing the profits amongst themselves. However, there can be various types of partnerships
according to their duration or the intent of their creation.

The distinction between partnerships can be done on the basis of two criteria.

They are as follows:

1) With Regard to the Duration of the partnership – either Partnership at Will or

Partnership for Fixed Duration
2) With regards to the extent of the business carried by the partnership – either General
Partnership or Particular Partnership

Kinds of Partnership in a little elaborative form as follows:

• Partnership at Will

When forming a partnership if there is no clause about the expiration of such a

partnership, we call it a partnership at will. According to Section 7 of the Indian
Partnership Act 1932, there are two conditions to be fulfilled for a partnership to be a
partnership at will. These are

❖ There is no agreement about a fixed period for the existence of a partnership.

❖ No provision with regards to the determination of a partnership

So, if there is an agreement between the partners about the duration or the determination
of the firm, this will not be a partnership at will. But if a partnership was entered into a
fixed term and continues to operate beyond this term it will become a partnership at
will from the expiration of this term

1
https://definitions.uslegal.com/p/partnership-at-will/ (Last visited: 29 July, 2019)
 • Partnership for a Fixed Term

Now during the creation of a partnership, the partners may agree on the duration of this
arrangement. This would mean the partnership was created for a fixed duration of time.

Hence such a partnership will not be a partnership at will, it will be a partnership for a
fixed term. After the expiration of such a duration, the partnership shall also end.

However, there may be cases when the partners continue their business even after the
expiration of the duration. They continue to share profits and there is an element of
mutual agency. Then in such a case, the partnership will now be a partnership at will.

• Particular Partnership

A partnership can be formed for carrying on continuous business, or it can be formed

for one particular venture or undertaking. If the partnership is formed only to carry out
one business venture or to complete one undertaking such a partnership is known as a
particular partnership.

After the completion of the said venture or activity, the partnership will be dissolved.
However, the partners can come to an agreement to continue the said partnership. But
in the absence of this, the partnership ends when the task is complete.

• General Partnership

When the purpose for the formation of the partnership is to carry out the business, in
general, it is said to be a general partnership.

Unlike a particular partnership in a general partnership the scope of the business to be

carried out is not defined. So, all the partners will be liable for all the actions of the
partnership.

LITERATURE REVIEW
For this project on Partnership at Will, there was no article in particular that talked about it, so
studying it through a case seemed a better alternative to comprehend the topic thoroughly.

1) Citation: Abdul Hameed vs. State of Rajasthan and Anr.

(25.07.2002 - RAJHC) (MANU/RH/0395/2002)

Both the accused and the complainant constituted a partnership firm and was registered with
the Registrar of Firms and the complainant invested a sum of Rs. 50,000/- in this partnership
business. It was not disputed that the accused issued a cheque of Rs. 40,000/- in favor of the
complainant and the cheque was dishonored on account of insufficient funds in the bank
account which was in the name of this partnership firm. It was also not disputed that the
complainant served a notice upon the accused petitioner, at that time, accounts were settled and
a sum of Rs. 64,904/- was found due to be paid by the accused to the complainant but he did
not make any payment to the complainant.
The counsel for the Accused petitioner mainly raised this contention that this firm was never
dissolved. According to the learned counsel for the accused, this firm never stood dissolved. It
was then contended by the learned counsel that for dissolution of the firm, it was necessary by
the complainant to give a notice in writing and for that he referred Sections 32 and 43 of the
Indian Partnership Act, 1932. Reliance was placed upon Banarsi Das vs. KanshiRam , wherein
it was held that in the case of a partnership at will, if one of the partners seeks its dissolution,
a notice in writing has to be given mentioning the date form which the firm would stand
dissolved.

In the instance case, as stated hereinabove both the partners mutually consented to dissolve this
partnership firm and the accounts were settled and a sum of Rs. 64,904/- was found due payable
to the complainant. There was no ground to interfere with the concurrent findings of both the
courts below on this point.

2) Suresh Kumar Sanghi v Amrit Kumbar Sanghi AIR 1982 Del 131

In this case, agreement of partnership provided that partnership was not to be dissolved on
death or retirement of a partner but was to be continued with the other partners and legal heirs
of deceased or retiring partner whose legal heirs can simple claim admission to firm with the
same rights of deceased or retiring partner, further, there was a term that no revaluation of
assets of partnership was to be made on death or retirement of a partner. On this type of
partnership, the Delhi High Court held that parties never intended that partnership be dissolved
at sweet will of any of the partners rather their intention was that business of partnership to
continue as long as possible notwithstanding the death or retirement of any partner. The term
against revaluation of assets pointed out that the outgoing partner was simple entitled to the
capital standing to his account on the date of his retirement or death. this provision could not
exist if there had been partnership at will, according to the Delhi High Court.

3) Kelly Schofield (2015) Journal

In this Journal, what we understand that the author is trying to convey is that a Partnership at
Will is a form of business partnership where there is no fixed term agreed for the duration of
the partnership. In other words, it is completely open ended. This differs from a usual business
partnership by way of agreement as this type comes to an end at any time when a partner serves
a notice to dissolve the partnership on the other partner or partners providing the partnership
agreement provides for this.

A partnership will be considered to be a Partnership at Will unless contrary evidence can be

shown. To show contrary intention there must be an express (in writing) or an implied (by
conduct) agreement which shows that the partnership is not a Partnership at Will. It can be
difficult to reflect by conduct alone that the business is not a Partnership at Will and therefore
it is advisable that any business partnership agreement is contained in a written document
which can be referred to.

The author feels that a Partnership at Will is governed and subjected to the terms of the
Partnership Act 1890. This Act, given the date, is often considered to be ‘out of date’ for
modern businesses and does not take into consideration the intricacies or the technicalities of
today’s business world. For example, under the Act when a partner dies, the partnership
automatically comes to an end and similarly there is no provision for a partner to retire without
bringing the partnership to an end. In this day and age your business can be as flexible as you
want it to be, providing that you have drafted an agreement which contain the terms for
reference. However, we can expect amendments as and when law deems fit or who knows,
Supreme Court takes a suo moto to review this matter when it comes to the lime light.

In addition, the Act dictates that the profits and losses are to be equally shared amongst the
partners. Therefore, as a result of the Act, all partners are liable for any debts incurred by the
business in addition to an equal sharing of the profits which in some partnerships might not be
intended.

For example, partnerships can now be more diverse where each partner may have different
responsibilities and workloads which may be reflected in the remuneration that they receive.
The Act unfortunately does not allow such flexibility.

By having a formal agreement in place such as a partnership deed or agreement we are

preventing any unexpected adverse consequences of partnership being solely governed by the
Act which can be considered to be rigid. It allows you, together with the other partners, to
decide how the partnership will come to an end, how profits and liabilities are dealt with and
how retirement is dealt with amongst other key matters. A partnership agreement can therefore
act as a type of insurance policy which guides the partners through every eventuality in
business2.

OBJECTIVES OF THE STUDY

A study often comes with a few objectives to achieve, what good is a study if we aren’t set out
to find a few unexplored areas of knowledge. Objectives of the study are as follow:

1) To determine the consequence on the Partnership firm on the death of a partner.

2) To determine whether mutual consent(oral) is enough for firm to dissolve or it requires
a notice in writing.

CRITICAL ANALYSIS
By far we know the meaning and the essence of Partnership at Will and how the roles of it
plays out in practice. Where there is no determination of the partnership to end and it is merely
left at the will of the both the partners, so long they carry the business together they can and
can dissolve the Partnership by giving a notice in writing so as to seeking dissolution. Without
any written agreement the partnership is subject to the terms of the Partnership Act 1890 by
default in the eyes of the law.

In Modern day context, the Act requires changes, as the dissolution occurs when a partner dies
but it is very detrimental to the other partner who has been left with a successful running

2
https://www.wrighthassall.co.uk/knowledge/legal-articles/2017/08/29/partnership-agreement-v-
partnership-will/ (Last visited July 29, 2019)
business but has to forcefully end the firm due to the death of the other partner. This seems like
a rather absurd provision in today’s context, where every business is trying to have its stand in
the market and it takes long to have that standing in the market, takes years of hard work.
Parties should have a partnership deed or agreement that will prevent them from unwanted
legal proceedings when a partner retires/dies during the course of business.

A partnership agreement can draft a provisional protection in the instance where the worst
should happen and a partner is bankrupted or dies, leaving problems behind for the remaining
partner/s. If this happens without contingency in place, the other partners are liable for all costs
owed because in a Partnership, all partners are agent of each other, acting for one another.

We can say that after the death of the partner a firm stands dissolved. It is the discretion of the
remaining partner/s to reconstruct and restructure the partnership or even turn it into sole
proprietorship.

In the abovementioned two cases, we see that the courts emphasis on a notice from one partner
to the other for the dissolution of a partnership at will, because it is laid down in the act to
follow such a procedure, mutual consent and the acts subsequent may also be treated as a notice
since it is reliable on the will of each other. That is the true essence of Partnership at Will, that
the will plays out what to happen next, whether to continue or to dissolve. The Courts when
confused often refer to what was the intention, whether it was to dissolve or to carry on the
business. So, we can say that both ways are accepted, since mutual consent impliedly gives a
notice to dissolve.

RESEARCH METHODOLOGY
The methodology used to research is mainly secondary, involving the research articles,
Manupatra published papers and the general college textbooks. Case laws have also been
referred which have been mentioned in the footnotes.

CONCLUSION
We can conclude by saying partnership at will means a partnership in which the partners have
not agreed to remain partners until the expiration of a definite term or the completion of a
particular undertaking. it is a partnership that can be dissolved by any partner at any time
without any liability and dissolution of the firm can be done by giving a notice to the other
partner by the retiring partner. In case of death, we have seen that the firm is dissolved so no
notice required there. The Partnership Act, however demands certain changes in order to fit
into the dynamism of the market. Archaic laws applied to the contemporary times won’t do
and will call inconsistency. These laws should be changed soon and maybe challenged in the
courts as well. Where there is a will, there is a partnership.