Saturday, October 28, 2023

New amendments in the Indian Partnership Act

 The Indian Partnership (Punjab Amendment) Act, of 2021 is the most recent amendment to the Indian Partnership Act, of 1932. It came into force on January 1, 2023. The amendment substitutes a new Schedule I to the Central Act, which specifies the maximum fees that can be charged for various services related to partnership registration.


 The new Schedule I is as follows:

       ·       Maximum Fees |

·       Statement under Section 58 | ₹100

·       Statement under Section 60 | ₹200

·       Intimation under Section 61 | ₹100

·       Intimation under Section 62 | ₹200

·       Notice under Section 63 | ₹100

·       Application under Section 64 | ₹200

·       Inspection of the Register of Section 66 | ₹100

·       Inspection of documents under Section 66 | ₹10 per page

·       Grant of copies under Section 67 | ₹10 per page

 The amendment also increases the penalty for contravention of Sections 60, 61, 62, or 63 from ₹200 to ₹2,000.

 In addition to the above, the Law Commission of India has recommended several other amendments to the Indian Partnership Act, 1932, including:

 Making registration of partnership firms compulsory. Currently, registration of partnership firms is optional in India. However, the Law Commission has recommended that registration be made compulsory to protect the interests of partners and third parties.

Introducing electronic registration of partnership firms. This would make it easier and faster for firms to register.

Simplifying the procedure for dissolution of partnership firms. Currently, the dissolution process is complex and time-consuming. The Law Commission has recommended that it be simplified to make it easier for firms to dissolve.

Introducing provisions for mediation and arbitration of partnership disputes. This would provide partners with a more efficient and cost-effective way to resolve their disputes.

The government is currently considering the Law Commission's recommendations. If implemented, these amendments would bring the Indian Partnership Act, 1932 in line with international best practices and make it more user-friendly for businesses.

 The Supreme Court of India has held that the words "arising out of a contract" in Section 69(2) of the Indian Partnership Act, 1932 should be construed as referring to a contract made in the course of business. This means that an unregistered partnership firm can file a suit against a third party to enforce a right arising out of a contract that is not related to its business.

 The Law Commission of India has proposed to add an Explanation to Section 69 to clarify this position. The Explanation would state that the words "a right arising from a contract" mean a right arising from a contract made in the course of business.

 If this amendment is implemented, it would provide greater certainty to unregistered partnership firms and their third-party creditors. It would also make the Indian Partnership Act more consistent with the English Business Names Act, 1985.

 Here are some examples of contracts that would be considered to be made in the course of business:

  •  A contract to sell or purchase goods or services
  • A contract to lease or rent property
  • A contract to borrow or lend money
  • A contract to hire or employ someone
  • A contract to provide or receive a professional service

Here are some examples of contracts that would not be considered to be made in the course of business:

  •  A contract to sell or purchase personal property, such as a car or a house
  • A contract to lend money to a friend or family member
  • A contract to provide or receive a personal service, such as a gift or a donation

If an unregistered partnership firm wants to file a suit against a third party to enforce a right arising out of a contract, it should first check to see whether the contract was made in the course of business. If it was, then the firm will need to register before it can file the suit.

 One of the key amendments is the introduction of the concept of Limited Liability Partnership (LLP). LLPs combine the benefits of both partnerships and limited liability companies, offering partners limited liability protection while retaining the flexibility of a partnership. This amendment has been instrumental in encouraging professionals such as lawyers, accountants, and consultants to form partnerships, as it provides them with a legal structure that aligns with their specific needs.

 Additionally, the amendments have introduced provisions for the dissolution of partnerships. Earlier, the dissolution process was often complex and time-consuming, leading to prolonged disputes. The new amendments provide a clear framework for the dissolution of partnerships, ensuring a smoother and more efficient process. This not only protects the interests of partners but also facilitates the transition to new business ventures.

 Furthermore, the amendments have addressed the issue of unlimited liability. Previously, partners were personally liable for the debts and obligations of the partnership. The new amendments limit the liability of partners, providing them with greater protection and reducing the risk associated with partnerships. This change has been particularly beneficial for small and medium-sized enterprises, as it encourages more entrepreneurs to enter into partnerships without the fear of excessive personal liability.

 In conclusion, the recent amendments in the Indian Partnership Act have brought about significant positive changes in the partnership landscape. The introduction of LLPs, mandatory registration, streamlined dissolution process, and limited liability provisions have all contributed to creating a more conducive environment for partnerships. These amendments not only promote ease of doing business but also encourage entrepreneurship and economic growth. It is expected that these changes will attract more professionals and entrepreneurs to form partnerships, leading to increased innovation and job creation in the country.

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