Home  /  Indian Contract Act  /  Section 241

Section 241: Sections 239 to 266 [Repealed by the Indian Partnership Act, 1932]

Indian Contract Act • Official Statutory Text & Practice Guide

Statutory Regulation
Legal Standard
Competent Court / Tribunal
Act 1872
Section 75 All 266 Sections of Indian Contract Act Section 77

Legal Commentary & Landmark Judgments: Section 241

Section 241 historically provided that remuneration of a servant or agent by a share of profits in the business does not of itself make him a partner, reenacted as Section 6, Explanation 2(b) of the Indian Partnership Act, 1932.

  • Incentive Profit-Sharing vs. Partnership: Historically protected commercial enterprises that incentivize employees or agents with profit bonuses or commission shares from inadvertently creating partner status.
  • Absence of Proprietary Interest and Mutual Agency: A servant or agent receiving profit shares remains subordinate to the principal, lacking any proprietary claim in firm assets or authority to bind owners as a co-principal.
  • Modern Incarnation in Section 6 IPA 1932: Repealed by Act 9 of 1932 and reenacted verbatim as Section 6 Explanation 2(b), underpinning contemporary performance-linked compensation and sweat equity structures.
Key Landmark Precedents:
  • Walker v. Hirsch (1884) 27 Ch D 460: The Court of Appeal held that an employee who was paid a salary plus a share of profits and losses was nevertheless a servant and not a partner, as no mutual agency existed.
  • Abdul Latif v. Gopeswar Chattoraj AIR 1933 Cal 204: The Calcutta High Court held that an agent appointed to manage an estate for a percentage of net profits is an employee and cannot be sued as a partner by creditors under Section 241 principles.
  • Cox v. Hickman (1860) 8 HLC 268: Affirmed that sharing profits as remuneration for labour does not satisfy the mutual agency threshold required to establish partnership.
Courtroom Practice & Strategic Litigation Guidance:

When drafting executive contracts, consultancy retainers, or sales agent agreements featuring profit-sharing bonuses, explicitly negate partnership under Section 6 Explanation 2(b) of IPA 1932, stipulating that the payee has no right of management, inspection of books beyond the bonus calculation, or mutual agency.

Section 75 All 266 Sections of Indian Contract Act Section 77