Q. State with reasons whether partnership is created in the following case:
‘Y’ lends money to ‘X’s business and gets a share of profit from ‘X’.
West Bengal Judicial Service Exam. 2000
SAIL (Steel Authority of India Limited) Law Officer Exam. 2006 (Based on memory).
Ans: No, partnership is not created in this case—Cox v. Hickman, (1860) 8 HLC 268.
Reasons: In the leading case of Cox v. Hickman referred above it was held that ‘Sharing of profit’ is one of the essentials of partnership but the true test of partnership is mutual agency between partners. In other words it can be said that in a partnership all the partners are principals as well as agents of each other and they have authority to bind the firm by their acts.
Section 6 (Mode of determining existence of partnership) of Indian Partnership Act incorporates the law laid down in Cox v. Hickman.
Explanation 2 of Section 6 also makes it clear that a person does not become a partner ipso facto only because he lends the money to the firm and makes a profit.
On the basis of above discussions it can be said that in the given problem a partnership is not created between ‘X’ and ‘Y’ because there is absence of ‘Mutual Agency’ between ‘X’ and ‘Y’. Only sharing profit in the business is not the conclusive evidence of partnership.
Kishor Prasad
