Mr. Arun and Mr. Varun are brothers employed in a private company in Delhi. Out of their joint savings, they purchased a plot of land in Noida and constructed five commercial shops on it. These shops were later rented out to different tenants. It was mutually agreed that both would equally share the monthly rent received. They also decided to contribute jointly towards property tax and repair expenses. In March 2025, one tenant defaulted in paying rent of `50,000. Varun claimed the entire arrears from Arun, stating that both were “partners” in the property business and, hence, Arun, being one of the partners, was liable for the whole amount. Arun, however, refused and argued that they were not partners but only co-owners; therefore, he was not liable to pay Varun’s share of the defaulted rent. Decide, with reasons, whether Arun and Varun can be regarded as partners under the Indian Partnership Act, 1932.

According to Section 4, Section 5 and Section 6 of the Indian Partnership Act, 1932 – Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. The following essentials must exist to constitute a partnership: • There must be an agreement between the parties; • The agreement must be to carry on a business; • The agreement must be to share profits of such business; and • The business must be carried on by all or any of them acting for all (mutual agency). • Partnership arises from contract and not from status. • The real relation between the parties, as shown by all relevant facts, determines whether a partnership exists. • In contrast, co-ownership arises by inheritance or purchase and does not necessarily involve business or mutual agency. In the present case, Arun and Varun, while working in jobs, purchased a piece of land with their joint savings. They built shops on it and rented them out, dividing the rental income equally. When a tenant defaulted on paying `50,000, Varun demanded the entire amount from Arun, treating them as “partners.” Arun denied this, claiming they were only co-owners of the property and not partners in any business. On applying the above provisions, it is clear that Arun and Varun are only co-owners and not partners. They never entered into an agreement to carry on a business with a profit motive; they simply invested in property and shared rental income. There is no element of business activity or mutual agency between them. Therefore, under the Indian Partnership Act, 1932, they cannot be regarded as partners. Arun is liable only for his individual share of the defaulted rent and not for the whole amount.