DR.

RAM MANOHAR LOHIYA NATIONAL

LAW UNIVERSITY, LUCKNOW (U.P.)
Session- 2017- 2018

CONTRACT

PROJECT

ON

DIFFERENCE BETWEEN JOINT HINDU FAMILY AND

PARTNERSHIP (CASE LAWS)

UNDER THE SUPERVISION OF: SUBMITTED BY:

Dr. V. Visalakshi Anand Prakash Yadav

Assistant Professor (Family Law) B.A. LL.B

DR. RMLNLU, LUCKNOW Semester- 3rd

Roll No. 30
INTRODUCTION

Partnership and Joint Hindu Family are both a kind of business but both are completely
different concept and it can’t be said that Partnership and Joint Hindu Family are the same or
even almost same. They differ from each other in many aspects such as governing laws, the
way they function, formation, dissolution and lot of other things.

Partnership is a concept which is dealt under the provisions of the Partnership Act, 1932. It
says that- "Partnership" is the relation between persons who have agreed to share the profits
of a business carried on by all or any of them acting for all. 1 It further defines that- Persons
who have entered into partnership with one another are called individually, "partners" and
collectively "a firm", and the name under which their business is carried on is called the
"firm-name".2 In this concept when a firm enters into an agreement with another party then
each and every partner is equally liable joint and severally. It is a kind of mutual-agency but
not a complete agency because each partner is principal and agent.

On the other hand a Joint Hindu Family business is a family concern which operates under the
provision of the Hindu Law and Hindu Succession, Act 1956. In Joint Hindu Family business
authority of controlling the business lies in the hand of the Karta. In this business if a Karta
enters into an agreement with any other third party then with this he can’t bind other members
of the in that contract.

In Rajendra Trading Company vs. Commissioner of Income Tax3 court while considering
the concept of Joint Hindu Family and Partnership held that

“Partnership is the relation between persons who have agreed to share the profits of a
business carried on by all or any of them acting for all. Thus there are three Essential
elements in order to constitute a partnership within the meaning of the Partnership Act
namely; (1). There must be an agreement entered into by all the persons concerned; (2).
The agreement must be to share the profit of business and (3). The business must be
carried on by all or any of the persons concerned acting for all. All these three elements
must be present before a group of persons can be held to be partners. And none of these id
required for the business of a Joint Hindu Family.”

1 Section 4 of the Partnership Act, 1932

2 Section 4 of the Partnership Act, 1932
3 (1976) 104 ITR 39
In Mahabir Ram v. Ram Krishan Ram4, but in this case he was making a distinction between
a joint family firm and a partnership firm. It observed

“The members of the joint Hindu family must be looked upon as a body of individuals who
come under the definition of 'person' as defined in the General Clauses Act. He, however,
used this argument to show that a joint Hindu family cannot have a partnership by itself as
long as it remains a joint Hindu family.”

In Agrawal & co vs. CIT 5 court held that the concept of Hindu undivided family joining a
partnership presents considerable difficulty. Hindu undivided family is a fleeting body. Its
composition changes by birth death marriage and divorce. Such a partnership is likely to have
precarious existence. The assumption in section 43 of the Companies Act that Hindu joint
family can be a partner in a partnership appears to be based on an erroneous view of the law.

4 AIR 1936 All 855

5 AIR 1970 SC 1343
DIFFERENCE BETWEEN PARTNERSHIP AND JOINT HINDU FAMILY

While dealing with these two concepts it can be said that there is too much difference between
these two concepts.

GOVERNING LAW

A partnership is governed by the provisions of the Indian Partnership Act, 1932 whereas a
joint Hindu family business is governed by Hindu law and Hindu Succession, Act 1956.

The Apex court in Nanak Chand Ganga Ram vs Mallappa Mihir Lingappa6 has held that

“The Legislature in its own wisdom excluded joint Hindu trading families from operation
of the Partnership Act, 1932. Thus the provision of the Partnership Act cannot be applied
over Hindu joint family business.”

FORMATION

A partnership an agreement between its entire partner means the concept of agency is based
on contract between the persons who are individually partner of that partnership firm. But
there is nothing such in a Hindu Joint Family. Instead this concept is based on status not based
on any contract between family members. A family member becomes its member by virtue of
his being born in the particular family. It was

Section 5 of the Partnership Act, 1932 says that “the relation of partnership arises from
contract and not from status; and, in particular, the members of a Hindu undivided family
carrying on a family business as such, or a Burmese Buddhist husband and wife carrying on
business as such are not partners in such business.”

In M.Y. A.A. Nachiappa Chettiar v. M. Y. A. A. Muthukaruppan Chettiar7 court has held that

“An ancestral trade carried on by a joint family is not a partnership which has acquired
statutory recognition under Section 5 of the Partnership Act 1932 it would be totally wrong
to import the incidence of a partnership to work out the rights and liabilities of the
members of a trading family engage in business.”

6 AIR 1976 SC 835

7 ILR 1946 Mad 858
Previously it was held in a case8 that

“A joint Hindu family trading business stand on different footing from other assets and
joint Hindu family carrying on business is necessary something in the nature of a peculiar
kind of partnership notwithstanding the provision of Section 5 of the Partnership Act but a
joint family trading partnership appears to differ from an ordinary partnership firm in two
aspects it is not dissolved by the death of any member and a member of the family become a
co partner by operation of law.”

It was held in the same case that family trade carried on by member of a Hindu joint family
does not possess all the incidents of partnership.

And the same judgment was delivered in the case of Chirangilal Badoria & others vs Sudhir
Jalans & others.

In S. P. Doraiswami Chettiar and Sons. Vs. Commissioner of Income tax Madras 9 it was
observed that

“The point whether the member of Hindu undivided family can carry on a business as
partner has some bearing in the present case. Section 5 of the Partnership Act states that
partnership results from contract and not from status and that member of a Hindu
undivided family carrying on your family business as such are not partner in such
business. A business of a Hindu undivided family is property and is therefore a divisible
assets.”

In the case of Nanchand Gangaram Sethji vs. Mallappa Mahlingappa Sadalge10 the Hon’ble
Supreme Court held that

“In view of Section 4 and 5 of the Partnership Act joint Hindu trading families are
excluded from the operation of the Partnership Act. The act governs only that relation of
partnership that arises out of contract in not from status such as one obtaining among the
member of a joint Hindu family trading partnership.”

8 lala Baij Nath Prasad vs. Ram gopal Laxmi Narayan ILR 1938 Cal 369
9 1963 2 Mad LJ 97 (Para 6)
10 AIR 1976 SC 835
MUTUAL AGENCY

Section18 of the Partnership Act, 1932 mentions that “subject to the provisions of this Act, a
partner is the agent of the firm for the purposes of the business of the firm.”

There is mutual agency between the partners of a particular firm, and the act done by any of
the partners binds the firm. In a partnership firm each and every partner is principal and agent.
That’s why partnership is a mutual agency but it is not a complete agency because in this
concept each partner is equal. The partnership firm is bound by the act of an individual agent.

Whereas, there is no such mutual agency between the members of a joint Hindu family. The
Karta of the joint Hindu family has all the powers to act on the behalf of the family and
he is the only person who can represent the family. And even there is no relation of
Principal and agent (in mutual agency) between the members. The family is not liable for the
act done by the Karta in the business. And members are not equal in the family because Karta
prevails when it comes to the making of decision.

In full bench of the Patna High Court in Seth Hiralal vs Sheikh Jamal Uddin rightly
emphasized upon the position that

“An important element in the definition of partnership is that it must be carried on by all or
any of the partners acting for all. Section 18 of the Partnership Act statutorily declares
every partner to be an agent of the firm for the purpose of the business of the firm and
section 19 states that an act of a partner which is done to carry on, in the usual way
business of the kind, carried on by the firm binds the firm.”

In Regional Director ESI Corporation vs. Ramanuja Match Industries11 the Hon’ble
Supreme Court Held that

“Section 4 of the Partnership Act 1932 defines partnership and one of the essential
requisites of a partnership is that there must be mutual agency between the partners.”

And cited the judgment given in Seth Hiralal vs Sheikh Jamal Uddin and said that the Patna
High Court has observed in a right way.

11 (1985) 1 SCC 218

The court in Champaran Cane Concern vs State of Bihar pointed out that in a partnership is
partner acts as an agent of the other. The position of a partner qua the firm is thus not that of a
master and servant or employer and employee which concept involves an element of
subordination but that of equality. The partnership business belongs to the partners and each
one of them is an owner thereof.

It was made clear in the case of R.B.S. Khandeparkar vs. Commissioner of Income Tax12 that
a partnership is a simplified version of the doctrine of agency. In partnership the most
important ingredient is of mutual agency. Fundamental principle is that partners when
carrying on business of a firm or agent as well as principals.

In Sardaar Amolak Singh vs Sevagram Ram Lalwani and others13Bomaby High Court held

“Partnership is the relation between persons who have agreed to share the profit of a
business carried on by all or any of them acting for all. Persons who have entered into a
partnership with one another are called individually partners and collectively a firm and
the name under which the business is carried on is called the firm name. It is settled law
that a firm is not a separate legal entity and firm name is a compendious way in which the
business of the partners is carried on. Each partner carries on business for himself as
principal and also as an agent for other partners. Mutual agency is an essential condition
of partnership.”

In Khairati Ram And Ors. vs Firm Balak Ram Mehr Chand And Anr 14 court held that the
manager of the family acts on behalf of the joint Hindu family, but he does not Act as an agent
in the legal sense. As regards the other coparceners, however, they are liable only to the extent
of their interest in the family property unless, of course, any individual member, being an
adult, has become a party to the contract.

Mayne observes in his writing15 that the position of a karta or manager is sui generis; the
relation between him and the other members of the family is not that of principal and agent, or
of partners.

MINOR
12 (1985) 151 ITR 15
13 (1982) 2 Bom CAR 455
14 AIR 1960 P & H 192
15 Treatise on Hindu Law, eleventh edition, paragraph 299
A minor, who is below 18 year of age, cannot become a partner in a firm, he can be admitted
only for the benefits with the consent of all the partners.

According to section 11 of the contract act, 1972 the minor is not competent for a contract but
in certain circumstances he can be if there is any benefit to him and the partnership is a
contract between all its entire partner and it is mentioned in the section 5 of the Partnership
Act, 1932. Section30, sub- clause (a) says that

“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.”

But in Joint Hindu Family business a minor is part of it (coparcener right) by his birth and
there is nothing such in Joint Hindu Family business as in Partnership Firm.

In CIT vs. Dwarakadas khetan and co. 16 held section 30 of the Partnership Act clearly Lays
down that a minor can’t become a partner though with the consent of the adult partners he
may be admitted to the benefits of partnership.

In the case of Nanchand Gangaram Sethji vs. Mallappa Mahlingappa Sadalge17 the apex
court held

“In a joint Hindu family business no member of family can say that he is the owner of one
half, one third or one-forth. The essence of joint Hindu family property is unity of
ownership and community of interest and the shares of the member or not defined.
Similarly the pattern of the accounts of a joint Hindu family business maintained by the
karta is different from those of a partnership. In the case of the former the shares of the
individual members in the profit and losses are not worked out while they have to be
worked out in the case of partnership accounts.”

LIABILITY

16 AIR 1961 SC 680

17 AIR 1976 SC 835
The liability of a partner is not only joint liability or limited to his share in the partnership
business, the liability is several liability also. Such liability is unlimited and even a
partner’s personal property can be attached for the partnership debts. On the other hand, the
liability of the coparceners (In Joint Hindi Family Business), on the other hand, is limited only
to the extent of their shares in the family business. They do not incur any personal liability.

In partnership, the liability of the partners is joint and several as well as unlimited. In other
words, each partner is personally and jointly liable to an unlimited extent and if partnership
liabilities cannot be fully discharged out of the partnership property each partner’s separate
personal property is liable for the debts of the firm.

In a joint Hindu family business only the ‘Karta’ is personally liable to an unlimited extent,
i.e., his self-acquired or other separate property besides his share in the joint family property
is liable, for debts contracted on behalf of the family business.

But in case of Lai Chand vs. Ghanayalal it was held

“An adult coparcener can be made personally liable if he is also, expressly or impliedly, a
party to the contract or if he has subsequently ratified and accepted the transaction out of
which the obligation of the creditor arose.”

In Mewa Ram v. Ram Gopal18 and again, in Kanhaya Lal v. Firm Devi Dayal-Brij Lal 19 it
was held that where a managing member of a joint Hindu family enters into a partnership with
a stranger, the other members of the family do not ipso facto become partners in the business
unless they themselves enter into a contractual relation with the stranger. But if a partner
enters into a contract on the firm’s name then liability of all its entire partner is joint, several
and unlimited.

Similar view was expressed in Mahadeodas v. Gherulal Parakh20. In this case two persons
acting as kartas of two joint families entered into a partnership. It was held that the other
members of the respective families did not automatically become partners.

ADDITION OF A NEW PARTNER OR MEMBER

18 AIR 1926 All 337

19 AIR 1936 Lah 514
20 AIR 1958 Cal 703
When a new partner has to be introduced into a partnership firm, consent of all the partners is
needed as each and every partner is equal in partnership firm so opinion of each and every
person is required and, of course, matter related to the induction of new partner. So in this
case to avoid conflict consent of each partner is required.

But no such consent is needed for the addition of a member into the joint Hindu family. A
person becomes the member of the family on being born in that family. And for that no
consent is required.

Section31(a) makes it clear that subject to contract between the partners and to the provisions
of section 30, no person shall be introduced as a partner into a firm without the consent of all
the existing partners.

MANAGEMENT

All partners have equal managerial right and in partnership each partner has an implied
authority to bind his co-partners by act done in the ordinary course of the business, there
being mutual agency between various partners. Because in Partnership each and every person
is principal and agent. And if any individual partner enters on behalf of firm then each and
every would bind by that.

In a joint family business all the powers are vested in the ‘Karta’ means Karta is main key
manager and he is the only representative of the family who can contract debts or bind his
coparceners by acts done in the ordinary course of business, there being no mutual agency
between various coparceners.

In Lai Chand vs. Ghanayalal court held that in Joint Hindu Family only karta is responsible
for the business entered by him on behalf of the family firm and he can’t impose his liability
over another member of the family. As a manager he will solely be responsible for the act.
Any another member can be responsible if that member expressly or impliedly made it clear
that he is a party to the contract entered by Karta on the behalf of the Family Firm.

In a case21 it was held that where a managing member of a joint family enters into a
partnership with stranger The Other member of the family do not ipso facto become partners
in the business so as to clothe them with all the rights and obligations of a partner as defined

21 Indian Oil Corporation Limited and others vs. Shriji Enterprises and others
by the Contract Act. In such a case the family as a unit does not become a partner but only
such of its member as in fact enter into contractual relation with stranger.

DISSOLUTION

Section42 sub-clause (c) clarifies that Subject to contract between the partners a firm is
dissolved by the death of a partner.

And the same was held in the case of Baij Nath vs. Ram Gopal;

“A partnership, subject to contract between the partners, is dissolved on the death of a

partner, but a joint Hindu family firm is not dissolved on the death of a coparcener instead
it carries on.”

A partnership comes to an end with the death, retirement, insolvency and incapacity of a
partner. But a Joint Hindu Family Firm will be continued in spite of the death or insolvency of
a member. In the absence of any agreement to the contrary, partnership is dissolved on the
death of any partner whereas joint Hindu family continues to operate even after the death of a
coparcener.

In CIT vs. Seth Govindram Sugar Mills22 the apex court held

“Section 42(c) of the Partnership Act can appropriately be applied to a partnership where
there are more than two partners if one of them dies the firm is dissolved but if there is a
contract to the contrary the surviving partner will continue the firm. If there is a contract
in the partnership that the partnership will continue after the death of the member, in case
of more than two members, then the partnership will continue otherwise not but there is
nothing as such in Joint Hindu Family business. Business will continue after the death of
the member.”

RIGHT OF MEMBERS TO SHARE IN PROFITS:

In a partnership each partner is entitled to claim his separate share of profits but a member of
a joint Hindu family business has no such right. His only remedy lies in a suit for partition.

22 AIR 1966 SC 24
ACCOUNTS

In a partnership firm, a partner can demand the accounts of the partnership, whereas a
member of Joint Hindu Family Firm has no right to call for the accounts

LIMIT ON NUMBER OF PERSONS

There is a limit on the number of partners in a firm, i.e., 10 in banking business and 20 in any
other business whereas there is no limit on the number of coparceners in joint Hindu family.