In India, the partnership firms are dealt with under the Partnership Act, 1932. Unlike the Companies Act, 2013 (or, its earlier versions) which has a specific provision declaring a company to be a separate legal person independent of its shareholders / members, there is no such provision in the Partnership Act to declare a partnership firm to be a separate legal entity or a juristic person.
Section 4 of the Partnership Act defines that “Partnership” is the relation between persons who have agreed to share the profit of a business carried on by all or any of them acting for all. It is also declared that persons who have entered into partnership with one another are called individually “partners” and collectively “a firm” and the name under which their business is carried on is called the “firm name”. However, there is no legal provision to declare the partnership firm to be a separate legal entity apart from its partners.
In fact, in this regard, there are also certain judgments of the Supreme Court.
For example, in the case of Tanna & Modi v. CIT, (2007) 7 SCC 434, the Supreme Court held that a firm is conglomeration of its partners. It is not a juristic person. Under the Partnership Act, a partner represents a firm. Any action taken by a partner of a firm vis-à-vis the firm, unless otherwise specified, binds the firm itself.
Likewise, in the case of N. Khadervali Saheb v. N. Gudu Sahib, (2003) 3 SCC 229, the Supreme Court said that Partnership firm is not an independent legal entity. Firm name is only a compendious name given to the partnership and the partners are the real owners of its assets.
In Comptroller & Auditor-General v. Kamlesh Vadilal Mehta, (2003) 2 SCC 349, it was held by the Supreme Court that partnership concern is not a legal entity like a company; it is a group of individual partners.
In the case of V. Subramaniam v. Rajesh Raghuvandra Rao, (2009) 5 SCC 608, it was likewise held that a partnership firm, unlike a company registered under the Companies Act, is not a distinct legal entity and is only a compendium of its partners. Even registration of a firm does not convert it into a distinct legal entity like a company. Partners of a firm are co-owners of the property of the firm, unlike shareholders in a company who are not co-owners of the property of the company.
In view of these and other similar judgments of the Supreme Court and also the provisions of the Partnership Act, 1932, it should thus be clear that a partnership firm is not a separate or independent legal entity or a separate juristic person or a separate legal person.
