Q. ‘A’ who had undertaken to load and unload Railway Wagons for a Limited Company, appoints ‘B’ to do that job. ‘B’ is to be paid 75% of the profits and was also liable for the losses, if any. Is ‘A’ and ‘B’ constitute partnership in this case? Give reasons and also refer case law, if any, on the point.
Ans: No, ‘A’ and ‘B’ do not constitute partnership—Section 6 (Mode of determining existence of partnership) and Munshi Abdul Latif v. Gopeshwar, AIR 1933 Cal 204.
Reasons: Sharing of profits from a business is a strong evidence of existence of partnership but it is not conclusive. In the famous case of Cox v. Hickman it was held that the main test of partnership is ‘Mutual Agency’ i.e., a partner should be principal as well as agent of other partners.
Section 6 of Indian Partnership is based on the principle laid down in Cox v. Hickman.
Facts of this problems have been taken from the famous case of Munshi Abdul Latif v. Gopeshwar referred above. In this case it was held that relationship between persons concerned is of principal and agent and not that of partners because there is absence of mutual agency between them.
On the basis of above discussion it can be said that in the given problem although ‘B’ is sharing major parts of profit (75%) and is also liable for losses yet he is not a partner in absence of mutual agency between them. In the given problem ‘A’ is principal and ‘B’ is his agent. Thus, they do not constitute partnership.
Source: Kishor Prasad