Shivagouda Ravji Patil & Ors Vs.
Chandrakant Neelkanth Sedalge & Ors [1964] INSC 162 (8 May 1964)
08/05/1964 SUBBARAO, K.
SUBBARAO, K.
AYYANGAR, N. RAJAGOPALA MUDHOLKAR, J.R.
CITATION: 1965 AIR 212 1964 SCR (8) 233
ACT:
Indian Partnership Act-A minor admitted to
the benefits of a partnership-Partnership dissolved-Thereafter the minor
attains majority He did not exercise his option not to become a partner-He
cannot he adjudicated insolvent for the acts of insolvency of other partners
Indian Partnership Act, 1932 (IX of 1932), s. 30(5).
234
HEADNOTE:
The respondent No. 1 while he was a minor was
admitted to the benefits of a partnership constituted of respondents 2 and 3.
The partnership owed a certain amount to the appellants. The partnership was
dissolved and subsequently respondent No. 1 became a major but he did not
exercise the option not to become a partner under s. 30(5) of the Indian Partnership
Act, 1932. Respondents 2 and 3 committed acts of insolvency and the appellants
filed an application for adjudicating the three respondents as insolvents. The
first respondent resisted the application without success but on second appeal
the High Court held that he was not a partner of the firm and hence he could
not be adjudicated an insolvent for the debts of the firm. The present appeal
was filed on a certificate granted by the High Court.
The appellant contended before this Court
that the 1st respondent had become a partner of the firm by reason of the fact
that he had not elected to become a partner under a.
30(5) of the Partnership Act and therefore he
was liable to be adjudicated an insolvent.
Held:(i) A person under the age of majority
cannot become a partner by contract and he cannot be one of that group of
persons called a firm. It therefore 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.
Sanyasi Charan Mandal v. Krishnadhan Banerji,
(1922) I.L.R.
49 Cal. 560, relied on.
(ii)It is implicit in the terms of sub-s. (5)
of s. 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 entire scheme of
s. 30 of the Partnership Act posits the existence of a firm and negatives any
theory of its application to a stage when the firms ceased to exist.
(iii)Since the 1st respondent became a major
after the partnersship was dissolved s. 30 of the Partnership Act 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.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 244 of 1964.
Appeal from the judgment and order dated
September 21, 1962 of the Mysore High Court in Civil Revision Petition No. 929
of 1958.
G. S. Pathak and R. Gopalakrishnan, for the
appellants.
S. G. Patwardhan, V. Kumar and Naunit Lal,
for the respondent No. 1.
235 May, 8, 1964. The Judgment of the Court
was delivered by SUBBA RAO, J.This appeal by certificate raies the question
whether a minor who was admitted to the benefits of a partnership can be
adjudicated insolvent on the basis of debt or debts of the firm after the
partnership was dissolved, on the ground that he attained majority subsequent
to the said dissolution, but did not exercise his option to become a partner or
cease to be one of the said firm.
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 s. 30(5) of the Indian Partnership Act. When the
appellants demanded their dues, the 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, Belgam, 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 s.
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 236 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 s. 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 ss. 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 lie did not exercise his
option not to become a partner thereof under s. 30(5) of the Partnership Act.
Under s. 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-ss. (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(1) after
considering the material provisions of the Contract Act, (1)[1922] I.L.R. 49
Cal. 560, 570.
237 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 s. 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-s.
(5) of s. 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-s. (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.
238 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 s. 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 s.
30(5) of the Partnership Act. Section 30 of the said Act presupposes the
existence of a partnership. Subss. (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;
sub-s. (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-s. (5) of s. 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-s. (7) which describes the rights and liabilities
of a person who exercises his option under sub-s. (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 s. 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 239 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.
Appeal dismissed.
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