What constitutes a partnership
A firm is strictly not a person; It is an
association of persons and the agreement by which a firm purports to enter into
a partnership with an individual or another firm merely makes the partners of
that firm individual partners of the larger partnership. A firm as such cannot
enter into an agreement as a partner with another firm or individuals.
Therefore, when one partnership enters into a
partnership agreement with another partnership firm, the partnership is in fact
between all the partners of both the firms.
The Supreme Court has observed that a
partnership agreement creates and defines the relation of partnership and,
therefore, identifies the firm. if that conclusion is correct, it is only a
further step to hold that each partnership agreement may constitute a distinct
and separate partnership and, therefore, a distinct and separate firm.
That is not to say that a firm is a corporate
entity or enjoys a juristic personality in that sense. The firm name is only a
collective name for the individual partners and each partnership is a distinct
relationship. The partners may be different and yet the nature of the business
may be the same, the business may be different and yet the partnership may be
the same. And agreement between partners to carry on a business and to share
its profits may be followed by a separate agreement between the same partners
to carry on another business and share the profits therein. The intention may be
to constitute two separate partnerships and two distinct firms or to extend
merely the partnership originally constituted to carry on one business or to
carrying on another business. It will depend on the intention of the partners.
The intention of the partners will have to be decided with reference to the
terms of the agreement and all the surrounding circum- stances including
evidence as to interlacing or interlocking of management, finance or other
incidentals of the respective businesses.
In other words, the same partners can form
two different partnerships. The Supreme Court has held that the word 'person'
in section 4 of the Partnership Act contemplates only natural or artificial or
legal person and a firm is not a person and as such not entitled to enter into
a partnership with another firm or H. U. F. or individual. In this view of the
matter there can arise no question of registration of a partnership purporting
to be between three parties viz. a firm, a H.U.F. and an individual as a firm.
A partner in his individual capacity can
legally be a partner in a firm and the fact that he has secured his capital
from another firm or that he has entered into partnership with other members of
that firm in respect of his share in the first mentioned firm does not show
that the other firm is a partner of the first mentioned firm or that the latter
firm is not validly constituted. A divided member or some of the divided
members of an erstwhile joint Hindu family can enter into partnership with a
third person, but under some arrangement inter-se between other members of the
divided family but the partnership will have no concern with the obligations of
such divided members to other members of their family in the partnership and
their shares in the partnership have nothing to do with their shares In the
Joint family's divided properties.
Not only that but it has been held that the
Karta of a H.U.F can enter into partnership with an individual member of that
very family provided the member has contributed his own self acquired capital
by way of money or other property to the capital of the firm. And the members
personal skill and labour is held to be his property which can be a
contribution to the capital of such a firm.' Similarly if a benamidar, who has
the character of a trustee of the real owner, enters into partnership with
another in his own name the share allotted to him in the partnership must be
held to specify his individual share therein.' Shortly, therefore, the position
is that partnership can be only between individuals and/or any other legal
entity, and those who are actually parties to a partnership agreement will be
considered as partners irrespective of their personal relationship with others
inter-se and with which the partnerships will not be concerned, such as the
beneficiaries if their trustee is a partner or the real owner If his benamidar
is a partner or members of a HUF if their Karta is a partner or the partners of
a firm if one of them is a partner of the other firm and so on.