Overview of The Indian Partnership Act,1932 and Negotiable Instruments Act,1881

3. WHAT IS PARTNERSHIP?
Partnership is a relation between persons who have agreed to share profits of the business
carried on by all or any one of them acting for all.

4. TYPES OF PARTNERSHIPS
Partnership at will:
Where no provision is made by contract between the partners for the duration of their
partnership, or for the determination of their partnership, the partnership is "partnership at
will". Such a partnership can be dissolved by any partner giving notice in writing to all the
other partners of his intention to dissolve the partnership.
Particular partnership:
A person may become a partner with another person in particular business enterprise/for a
particular venture or undertakings, such as, construction of road , laying a railway line, etc.
are particular partnership. It will come to an end on completion of task for which it was
made.

5. TYPES OF PARTNERS
Active or Actual or ostensible partner:
It is a person who actively participates in the conduct of the partnership. He acts as an agent
of other partners for all acts done in the ordinary course of business
Sleeping or Dormant partner:
It is a person who does not actively take part in the conduct of the partnership business.
They are called as 'sleeping‘ or 'dormant partners. They share profits and losses and are
liable to the third parties for all acts of the firm.
Nominal partner:
A person who lends his name to the firm, without having any real interest in He is not
entitled to share the profits of the firm. Neither he invest in the firm nor takes part in it, is
called a nominal partner.
Partner in profits only:
A partner who is entitled to share the profits only without being liable for the losses is
known as the partner for profits only and also liable to the third parties for all acts of the
profits only.

6. Sub-partner:
When a partner agrees to share his share of profits in a partnership firm with an outsider,
such an outsider is called a sub-partner. Such a sub-partner does not hold any rights against
the firm nor liable for the debts of the firm.
Incoming partners:
A person who is admitted as a partners into an already existing firm with the consent of all
the existing partners is called as "incoming partner".
Outgoing partner:
A partner who leaves a firm in which the rest of the partners continue to carry on business is
called a retiring or outgoing partner.
Partner by holding out (Section 28):
Partnership by holding out is also known as partnership by estoppel. Where a man holds
himself out as a partner, or allows others to do it, he is then stopped from denying the
character he has assumed and upon the faith of which creditors may be presumed to have
acted.

7. MINOR’S POSITION IN PARTNERSHIP
Section 30 of the Indian Partnership Act 1932 contains legal provisions about a minor in a
partnership. Now we know the Indian Contract Act 1857 clearly states that no person less than
the age of 18, i.e. a minor can be a party to a contract. And a partnership is a contract between
the partners. Hence a minor cannot be a partner in a partnership firm.
However, according to the Partnership Act, a minor may be admitted to the benefits of a
partnership. So while the minor will not be a partner he will enjoy all the benefits of a
partnership. To admit all the minor to the benefits of the partnership all of the partners of the
firm must be in agreement.
RIGHTS OF MINOR
(i)A minor partner has a right to his agreed share of the profits and of the firm.
(ii) He can have access to inspect and copy the accounts of the firm.
(iii) He can sue the partners for accounts or for payment of his share his connection with the
firm, and not otherwise.
(iv) On attaining majority he may within 6 months elect to become a partner or not to become a
partner. If he elects to become a partner, then he is entitled to the share to which he was entitled
as a minor. If he does not, then his share is not liable for any acts of the firm after the date of the
public notice served to that effect.

8. RIGHTS AND DUTIES OF PARTNERS
Rights:
Right to take part in conduct of
business
Right of outgoing partner to carry on competing
business
Right to dissolve the
firm
Right of outgoing partner to share subsequent
Profits
Right to be consulted
Right to Share
Profit
Right to
Remuneration
Interest on
Capital
Interest on Advances
Right to
retire Right not to be
Expelled
Right of access to
Books Right to be
indemnified
Right to stop the Admission of a new
partner

9. Duties:
Carry Business on
greatest common
advantage
Just and faithful to each
other
To render things truly and
in full information to
partner or his legal
representative
Indemnify firm for any
damage caused due to his
fraud in conduct of
business of firm
Indemnify firm for losses
caused due to neglect in
conduct of business
To attend duties diligently
without remuneration
To share losses To account for profit
To account and pay for
profits of his competing
business

10. DISSOLUTION OF THE FIRM
According to Section 39 of the Indian Partnership Act, 1932, the dissolution of partnership
between all partners of a firm is called dissolution of the firm. Thus the Dissolution of firm
means the discontinuation of the jural relation existing between all the partners of the firm.
But when only one or the partners retires or becomes incapacitated from acting as a partner
due to death, insolvency or insanity, the partnership, i.e. the relationship between such a
partner and other is dissolved, but the rest may decide to continue. In such cases, there is in
practice, no dissolution of the firm. The particular partner goes out, but the remaining partners
carry on the business of the firm, it is called dissolution of partnership. In the case of
dissolution of the firm, on the other hand, the whole firm is dissolved. The partnership
terminates as between each and every partner of the firm.

12. CONSEQUENSES OF DISSOLUTION:
Rights Of Partners On Dissolution
1.Right to have business wound up
2.Right to restrain from use of firm name or firm property
3.Rights where partnership contract is rescinded for fraud or misrepresentation
4.Continuing authority of the partners
5.Right to return premium
Liabilities Of Partners On Dissolution
1.Liability for acts done
2.Liability for acts of partners done after dissolution
3.Liability as to settlement of accounts
1.Application of assets
2.Loss arising from insolvency of a partner
3.Sharing of losses or deficiencies
4.Payment of firm debts and of separate debts
5.Sale of goodwill of the firm on dissolution

13. MODE OF GIVING PUBLIC NOTICE
In every case where the public notice of any matter in respect of partnership firm is required to
be given under this Act, it must be given by publication in the Official Gazette and in at least
one vernacular newspaper circulating in the district where the firm to which it relates, has its
place or principal place of business. In the case of registered firms, apart from the aforesaid
notification, a notice is also required to be served on the Registrar of Firms under Section 63
where the matters relate to
(a) the retirement or expulsion of a partner, or
(b) dissolution of the firm, or
(c) the election, on attaining majority, to be or not to be a partner, by a person who as a minor,
was admitted to the benefit of partnership.

15. WHAT IS A NEGOTIABLE INSTRUMENT?
Negotiable instruments are transferable in nature, allowing the holder to take the funds as cash
or use them in a manner appropriate for the transaction or according to their preference.
The fund amount listed on the document includes a notation as to the specific amount
promised and must be paid in full either on-demand or at a specified time.
A negotiable instrument can be transferred from one person to another. Once the instrument is
transferred, the holder obtains a full legal title to the instrument.
These documents provide no other promise on the part of the entity issuing the negotiable
instrument.
Additionally, no other instructions or conditions can be set upon the bearer to receive the
monetary amount listed on the negotiable instrument.
For an instrument to be negotiable, it must be signed, with a mark or signature, by the maker
of the instrument—the one issuing the draft. This entity or person is known as the drawer of
funds.

16. CHARACTERISTICS OF A NEGOTIABLE INSTRUMENT:
Freely transferable: The property in a negotiable instrument passes from one person to another
by a simple process, i.e., by mere delivery if it is payable to bearer, and by endorsement and
delivery if it is payable to order.
Holder’s title free from all defects: The holder in due course (one who acquires the instrument
in good faith and for consideration) gets it free from all defects.
Recovery: One can sue upon the instrument in his own name.
Payable to order or bearer: - It must be payable either to order or bearer
Presumption as to Holder:- Every holder of negotiable instrument is presumed to be holder in
due course
Presumption as to considerations:- Every negotiable instrument is presumed to have been
made, drawn, accepted, endorsed , negotiated or transferred for consideration

17. Types of Negotiable
Instruments
Bills of
Exchange
Cheques
Promissory
Notes

18. PROMISSORY NOTES
Promissory Notes are unconditional undertakings. The maker of these notes agrees to pay a
certain sum either to a particular person or their bearers. This maker undertakes his responsibility
to pay by affixing his signature on the notes.
Parties to Promissory Note
1) The maker: This is basically the person who makes or executes a promissory note and pays
the amount therein.
2) The payee: The person to whom a note is payable is the payee.
3) The holder: A holder is basically the person who holds the notes. He may be either the payee
or some other person.
Features
a) Written notes
b) Express undertaking
c) Unconditional promise
d) Specific amount
e) Legal tender

19. BILLS OF EXCHANGE
A bill of exchange is an instrument in writing containing an unconditional order, signed by the maker,
directing a certain person to pay a certain sum of money only to, or to the order of, a certain person, or
to the bearer of the instrument.
Parties to Bill of Exchange
1) Drawer: The drawer is the person who makes and draws the bill. The drawer is entitled to receive
money from the debtor.
2) Drawee:The person upon whom the bill of exchange is drawn is known as drawee. Bill of
exchange is drawn on the drawee who is the purchaser of goods.
3) Payee: The person to whom the payment is made is known as payee. Drawer and Payee is usually
the same person.

20. Features of Bills of Exchange
1.It should be in writing.
2. It is an order to make payment.
3. The order of payment is unconditional.
4. It should contain a certain amount to be paid.
5. The date of payment should be certain.
6. The amount must be payable either to a certain person or to his order or to
the bearer of the bills of exchange.
7. It should be paid either on the expiry of a fixed period of time or on demand.
8. Bill of exchange must be signed by its maker.
9. In certain cases, it must be stamped also.

21. CHEQUES
a cheque is basically a bill of exchange drawn on a specific banker. Furthermore, it is not payable
otherwise than on demand.
Parties Involved in a Cheque
1)The Drawer: The Drawer is the person who draws the cheque
2)The Drawee: The Drawee is the banker on whom it is drawn.
3) Payee: The beneficiary, i.e. to whom the amount is to be paid.
Features
1. Cheque is an instrument in writing
2. Cheque contains an unconditional order
3. Cheque is drawn by a customer on his bank
4. Cheque must be signed by customer
5. Cheque must be payable on demand
6. Cheque must mention exact amount to be paid
7. Payee must be certain to whom payment is made
8. Cheque must be duly dated by customer of bank

22. TYPES OF CHEQUES
1. Bearer Cheque
A bearer cheque is the one in which the payment is made to the person bearing or carrying the
cheque. These cheques are transferable by delivery, that is, if you are carrying the cheque to the
bank, you can be issued the payment to.
2. Order Cheque
Order Cheques can only be issued to the person whose name is mentioned on the cheque, and
the bank will do its background check to authenticate the cheque bearer’s identity before
releasing the payment.
3. Crossed Cheque
Crossed Cheque are cheques with two sloping parallel lines with the words ‘a/c payee’ written
on the top left. The lines ensure that irrespective of who presents the cheque, the payment will
only be made to the individual whose name is written on the cheque.
4. Open cheque
An open cheque is basically an uncrossed cheque. This cheque can be encashed at any bank, and
the payment can be made to the person bearing the cheque. This cheque is transferable from the
original payee (the original recipient of the payment) to another payee too.

23. 5. Post-Dated Cheque
These types of cheques bear a later date of being encashed. Even if the bearer presents this
cheque to the bank immediately after getting it, the bank will only process the payment on the
date mentioned in the cheque
6. Stale Cheque
A cheque past its validity, three months after the date of being issued, is called a stale cheque.
7. Traveler's Cheque
These cheques are issued by one bank and can be encashed in the form of currency at a bank
located in another location or country. Traveler's cheques do not expire and can be used for future
trips.
8. Self Cheque
You can identify self cheques by the word ‘self’ written in the drawee column. Self cheques can
only be drawn at the issuer’s bank.
9. Banker’s Cheque
A bank is the issuer of these types of cheques. The bank issues these cheques on behalf of an
account holder to make a remittance to another person in the same city. Here the specified amount
is debited from the account of the customer, and then, the cheque is issued by the bank.

24. DISHONOUR OF CHEQUE
Provided that nothing contained in this section shall apply unless-
(a) the cheque has been presented to the bank within a period of three months from the date on which it is
drawn or within the period of its validity, whichever is earlier;
(b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the
payment of the said amount of money by giving a notice in writing, to the drawer of the cheque within
thirty days of the receipt of information by him from the bank regarding the return of the cheque as unpaid;
and
(c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or as the
case may be, to the holder in due course of the cheque within 15 days of the receipt of the said notice.
Effects Of Dishonor Of Cheque
1.Taking of legal action. The payee/holder can take action against the drawer of such a bill may take action
on the exact time of dishonoring of the bill. Thus the holder need not wait for the bill to mature and then to
take action for dishonoring the same.
2. When a cheque is said to be dishonored it loses its basic characteristic of negotiability with immediate
effect.
3. On dishonoring of a cheque, nothing prevents the holder thereof to present it again particularly on being
asked by the drawer of the cheque.
4. Mere dishonoring of cheques does not give rise to a cause of action in favour of the complainant but it
accrues only after the issue of demand notice and failure of the drawer to make the payment.

25. LIABILITY ON DISHONOUR OF CHEQUE
Civil liability:
Civil Liability is also arises when the cheque is presented for the payment to the bank gets
dishonored.
Section 138 also provides for civil liability which provides for fine twice the amount of
dishonored cheque.
Criminal Liability:
A criminal liability is provided under section 138 of the Act, which provides imprisonment for
two years or with fine which may extend to twice the amount of the cheque, or with both.
In case of dishonor of cheque the drawer of it may be prosecuted under sections 417 and 420 of
the Indian Penal Code, 1960 (IPC). However, it all depends on the circumstances of each case.
Every dishonor of a cheque is not cheating.

26. Particulars Holder Holder in Due Course
Meaning A holder is a person who
legally obtains the negotiable
instrument, with his name
entitled on it, to receive the
payment from the parties
liable.
A holder in due course
(HDC) is a person who
acquires the negotiable
instrument bonafide for some
consideration, whose
payment is still due.
Consideration Not necessary Necessary
Right to sue A holder cannot sue all prior
parties.
A holder in due course can
sue all prior parties.
Good faith The instrument may or may
not be obtained in good faith.
The instrument must be
obtained in good faith.
Privileges Comparatively less More
Maturity A person can become holder,
before or after the maturity of
the negotiable instrument.
A person can become holder
in due course, only before the
maturity of negotiable
instrument.