Explanation to the Partnership Act, 1932 (Preamble to Section 5)

 

Author Fazial Nawaz

Preamble

The partnership Act was the ninth legislation of 1932. It is an Act that defines partnership and helps to amend the law related to the partnership. The partnership Act arose out of the contract Act because it doesn’t collect the whole statutory law bearing on the subject in one place and bring it up-to-date so that it may apply to all circumstances existing at the time.

Under the English Law sharing of the profits against the sharing of gross returns is prima facie evidence that the person sharing is the partner. However, an act of sharing profit doesn’t make a person partner under the Partnership Act. So, in several ways the Partnership distinct in Pakistani law in comparison to English law.   

Section 1

The Partnership Act applies to the whole of Pakistan and was enforced from the 1^st day of October 1932. Except for section 69 that was enforced on 1^st October 1933.

 Section 69 deals with the registration of the firms and liabilities arise in case it is not registered. The reason to enforce the section one year later was to give time for the firms present at that time to register themselves.

Section 2

Unless the meaning of the given terms are defined otherwise in the Act, the terms will be understood accordingly;

·         Act of the firm: Section 22 has demonstrated the Act of the firm as any act or omission done or committed by the partner of the firm can be said the act of the firm only when it is done or committed in the name of or on behalf of the firm. Thus, an act done in a partner’s capacity will not be an act of the firm and as such, this act will not give rise to the right enforceable by or against of the firm. 

·         Business: This Act has however given a strict definition to business, with the inclusion of only trade, profession, or occupation. Yet, it makes clear that a solitary transaction in which two persons have jointly lent money to another will not be counted as a business.

·         Prescribe rules under this firm

·         Third-person means any person who is not a partner to the firm

·         Assigning to this Act the expressions defined under contract Act shall have the same meaning to this Act 

Section 3

 Special laws always prevail over general laws thereby rule made by Partnership Act will prevail over the rules made by the Contract Act. However, if a provision in the contract Act is not inconsistent with the partnership Act then that provision shall apply to the partnership.

Section 4

This section has defined partnership, partner, firm, and firm name.  A partnership is defined as a relationship between persons who have agreed to share the profit of a business carried on by all or any of them acting for all. Partners are the members who have entered into the partnership, yet collectively they will be known as firms.

According to the given definition partnership is not an agreement nor a contract but is a mere relation between persons who have agreed.

·         The persons concerned must be carrying on some business where no business is carried on or contemplated to be carried on there can be no partner.

·         They must have entered into an agreement

·         The agreement must be to share the profits of the business. Mere buying or selling doesn’t make person partners but co-owners

·         Business must be carried by all  or any of them

 The acting partners take part in the activities of the partnership, yet the sleeping partner only contributes to the firm in the form of capital. Unless something repugnant is specified in the partnership deed every partner shall get equal benefit from the firm. If extra services have been rendered by any partner then salary can be fixed for him other than the profit. 

To find the validity of any firm the variability of the profit is examined. . In Shariah, a business creating a constant amount of profit is prohibited. It follows the principle “when you are not going to suffer the burden of loss you are not eligible to enjoy the profit.

Section 5

The partnership is the result of a voluntary agreement or contracts not from status. A firm doesn’t have perpetual succession. Thus, to constitute a partnership there must be a contract between members of the firm. The mere fact is that a person entitled to a share in the family business on the ground of his being born or adopted in the family doesn’t make him a partner in the business. He will be merely a joint owner of the business. The reason is that such a person does not enter into any agreement with the members of the firm.