UNIT 2

RELATIONS OF PARTNERS

RELATION OF PARTNERS TO C
ONE ANOTHER

The Partnership Act contains various provisions regulating the relationship between partners.

1. GENERAL DUTIES OF PARTNERS (SECTION 9):A

T partners should carry business of the firm to the greatest common advantages and later, they should
his, legal representatives full information of all things
render to any partne)
must observe the utmost dh ihis dealings with the other partners.
good affecting the firm. A partner
All the partners are bound to render accounts to each other but where some of the accounts are kept by one
of them, prima facie he would be the proper person to explain and give full information about them.

le 1: In a transaction between partners for the sale and purchase of a share in the business, if one
of them is better acquainted with the accounts than the order it is his duty to disclose all material facts.
krowledge Other
PDUTY TO INDEMNIFY FOR LOSS CAUSED BY FRAUD(SECTION 10): D2 , Abueh i&i lompensate
The partner, committing fraud in the conduct of the business of the firm, must make good the loss Süstained
. the frm by his misconduct and the amount so brought in the partnership should be divided between the
partners. Done fo
n act of a partner imputable to the firm or the principles of agency, which is a fraud on his co-partners,
antitles the co-partners as between themselves, to throw the whole of the consequences upon him.
R DETERMINATION OF RIGHTS AND DUTIES OF PARTNERS BY CONTRACT BETWEEN THE PARTNERS (SECTION
11):
)Subiect to the provisions of this Act, the mutual rights and duties of the partners of a firm may be
determined by contract between the partners,
be
Cuch contract may be varied by consent of all the partners, and such consent may be express or may
implied by a course of dealing.
contained in section 27 of the Indian Contract
(2) Agreements in restraint of trade- Notwithstanding anything
not carry on any business other than that of the
Act. 1872, such contracts may provide that a partner shall
firm while he is a partner. (Rxcephon to Recion 21 ICA 18 22)
(SECTION 12):
4. THE CONDUCT OF THE BUSINESS
Subject to contract between the partners
part in the conduct of the business:
(a) every partner has a right to take
bound to attend diligently to his duties in the conduct of the business: cS
(b) every partner is decided by majority of
difference arising as to ordinary matters connected with the business may be
(C) any is decided,
every partner shall have the right to express his opinion before the matter andL
the partners, and business without the consent of all
partners:
be made in the nature of the
but no change may inspect and copy any of the books of the
firm. 2
right to have access to and to
(d) every partner has a
partner, his heirs or legal representatives or their duly authorised agents
(e) in the event of the death of a firm. Ya
a right of access to and to inspect the copy of any of the books of the
shall have
 RI
() Right to take part in the conduct of the Business [5ection 12(a)]: This is because
partnership
a business of the partners and their management powers are generally
busines i
co-extensive/VeMappinA
Example 2; Now suppose managemnent power of the particular partner is interfered
been wrongfully brectúdedfFom participating therein. Can with and
ooofrcumstane
he has
he answer is in the affirmative. The Court can, and will hy
TH
other
so. It may be noted in this connection that a partner who has been partners from dofng
wrongfully deprived of the rioks
participation in the management has also other remedies, e.g., a suit for dissolution, a suit for accoue
without seeking dissolution, etc.
The above mentioned provisions of law will be applicable only if
there is no contract to the contrar
between the partners. It is quite common to find a term in
partnership agreements, which gives onl
imited power of management to a partner or a term that the
with one or more of the partners to they-21eepin4 Patmermanagement of the partnership will remaie
exclusion of others. In such a case, the Court will normally he
unwilling to interpo_e with the management with such partner or partners,
that something was done illegally or in breach of the unless it is clearly made ou
trust reposed in such partners.
(1) Right to be consulted section 12(c)1: Where
anydifference arises between the partners with
the business of the firm, it shall be regard to
determined by the views of the majority of them, and every partner
shatl have the right to express his opinion before the
matter is decided. But no change in the nature of
the business of the firm can be made without the
consent of all the partners. This means that in routine
matters, the opinion of the majorityof the partners will prevail. Of
faith and every partner must be course, the majority must act in good
consulted far as
as practicable.
(n) Right of access to books [Section 12(d)l: Every
partner whether
access toany of the books of the firm and to inspect and take out of active sleeping is entitled to have
or
be exercised bona fide. copy thereof. The right must, however,
(in ged
(iv) Right of legal heirs/ representatives/ their duly
authorised agents [Section 12(e)]: In the event of the
Ra death of a partner, his heirs or legal
representatives or their duly authorised agents shall have a right of
access to and to inspect and copy any of the books of the firm.

5. MUTUAL RIGHTS AND LIABILITIES (SECTION 13):

Subject to contract between the partners
(a) a partner is not entitled to receive remuneration for taking part in
the conduct of the business;
(b) the partners are entitled to share equally in the profits earned, and
shall contribute equally to the losses
sustained by the firm;
(c) where a partner is entitled to interest on the capital
subscribed by him such interest shall be payable only
out of profits;
(d) a partner making, for the purposes of the business, any payment or
advance beyond the amount of capital
he has agreed to subscribe, is entitled to interest thereon at the rate of six
percent per annum:
(e) the firm shall indemnify a partner in respect of payments made and liabilities incurred by him
(i) in the ordinary and proper conduct of the business, and
(ii) in doing such act, in an emergency, for the purposes of protecting the firm from loss, as would be done
by a person of ordinary prudence, in his own case, under similar circumstances:
(f) a partner shall indemnify the firm for any loss caused to it by his wilful neglect in the conduct of busines
of the firm.
 B Risht to remuneration [Section 13(a)): No partner is entitled to receive any remuneration in addition to
his share in, the profits of the firm forbytakng
a
part the business of the firm. But this rule can always be
P fdealings, in which event the partner will be entitled
yaried by an express agreement; or COurse
o remuneration. Thus, a partner can claim remuneration even in the absence of a contract, when such
remuneration is payable under the continued usage of the firm

(i) Right to share Profits [Section 13(b)1: Partners are entitled to share equally in the profits earned and so
contribute equally to the losses sustained by thefirm. The amount of a partner's share must be ascertained
hw enguiring whether there is any agreement in that behalf between the partners. If there is no agreement
then voushould make a presumnption of equality and the burden of proving that the shares are unequal,
willlie on the party alleging the same.

)interest on Capital [Section 13(©)]: The following elements must be there before a partner can be entitled
06 to interest on moneys brought by him in the partnership business:
pi) anexpress agreement to that effect, or practice of the particular partnership or
(ii) any trade custom to that effect: or
iii)astatutory provision which entitles him to such interest..
to the firm in addition to the
(iv) Interest on advances [Section 13(d)]: Suppose a partner makes an advance interest thereon
amount of capital to be contributed by him, in such a case, the partner is entitled to claim
on dissolution, the interest on advances
6% per annum. While interest on capital account ceases to run
payment.\
keep running even after dissolution and up to the date of

partner has the right to be indemnified by the firm in

(v) Right to be indemnified (Section 13(e)]: Every
him in the ordinary and proper conduct of the
respect of payments made and liabilities incurred by
emergency for protecting the firm from
business of the firm as well as in the performance of an act in an his
as a prudent man would make, incur or perform in
any loss, if the payments, liability and act are such
own case, under similar
circumstances. Rationol
caused to it by
Apartner must indemnify the firm for any loss
(vi) Right to indemnify the firm [Section 13()]: of firm.
wilfulneglect in the conduct of the business the
Dy wPth dete negtiyence.
PARTNERSHIP PROPERTY (SECTION 14)
(SECTION 14):
1. THE PROPERTY OF THE FIRM to as partnership property';
'partnership assets', joint
'property of the firm', also referred
The expression
denotes all property, rights and interests to which the firm, that is, all
stock', 'common stock' or joint estate', which is deemed as belonging to the firm, in the
absence
entitled. The property
partners collectively, may be contrary intention, is comprised of the
following items:
the partners showing their
of any agreement between partners may have brought into the common stock as
interests which
(1) all property, rights and
contribution to the common business; purposes and in the
interest acquired or purchased by or for the firm, or for the
(11) all the property, rights and
and
course of the business of the firm;
(iii) Goodwill of the business.
the firm ultimately
whether a particular property is or is not 'property' of partner
question fact that the property of a
Ihe determination of the partners. Thus, the mere be
agreement of the unless it is intended
depends on the real intention or not by itself make it partnership property,
purposes of the firm shall
1S being used for the PARTNERSHIP ACT, 1932
3.19 THE INDIAN
uunde Tendet.
to be treated as such. Partners may, by an agreement at any time, convert the property of any partner
sst or
partners (and such conversion, if made ingood faith, would be effectual between the partners and
creditors of the firm) or the separate property of any partner intoa partnership property

Gondwill: Section 14 specifically lays down that the goodwill of a business is subject to a contract betw
the partners, to be regarded as 'property' of the 'firm'. But this Section does not define the term Goodwilt
GoodwiU' is a concept which is very easy to understand but difficult to define. Goodwil nay be defined
as the
value of the reputation of a business house in respect of profits expécted in future over and above the
level of profits earned by undertaking belonging to the same class of business. normal
prota
When a partnership firm is dissolved every partner has a right, in the absence of any agreement to the contran
to have the goodwill of business sold for the benefit of all the partners.
Goodwill is a part of the property of the firm. It can be sold separately or along with the other propertie
of the firm. Any partner may upon the sale of the goodwill of a firm, make an agreement with the
buyer that such partner will not carry on any business similar to that of the firm within a specifer
period or within specified local limits and notwithstanding anything contained in Section 27 of the
Indian Contract Act, 1872. Such agreement shall be valíd if the restrictions imposed are reasonable

Propety of a partner: Where the property is exclusively belonging to a person, it does not become a property
of the partnership merely because it is used for the business of the partnership, such propety will become
property of the partnership if there is an agreement.
2. APPLICATION OF THE PROPERTY OF THE FIRM (SECTION 15):
Section 15 provides that the property of the firm shall be held and used exclusively for the purpose of the fim,
In partnership, there is acommunityof interest which all the partners take in the property of the firm.
firm But that
does not mean than during the subsistence of the partnership, a particular partner has any proprietaryinterest
in theassets of the firm. Every parther of the firm has a right to get his share of profits till the firm subsists
and he has also aright to see that all the assets of the partnership, are applied to and used for the purpose of
partnership business. T otmesrp SUbi Paner has ony
opnehu Ttergi
PERSONAL PROFIT EARNED BY PARTNERS (SECTION16)
According to section 16, subject to contract between the partners,
(a) If a partner derives any profit for himself from any transaction of the firm, or from the use of the property
or business connection of the firm or the firm name, he shall account for that profit and pay it to the firm;
(b) If a partner carries on any business of the same nature as and competing with that of the firm, he shall
account for and pay to the firm all profits made by him in that business.
 ENample 3: A, B,
grocer, was C&Destablished
entrusted with the workpartnership
of
business for refining sugar, A, who was
aware of the variations in the sugar selection and purchase of sugar. As a himself a wholesale
asear He had already in stock market and had the suitable sernse of wholesale grocer, A was well
noedof some, without sugar purchased at a low price
which he
propriety as regards purchases
sotd to the firm when it was in
baundto account toinforming the partners that the sugar
the firm for the profit so sold had belonged to him, It was held thatA
between partners. made by him. This rule,
however, is subject to a contract
Fvamnle 4: A, B, Cand Dstarted a business in
at Chittagong. A struck partnership for importing salt from foreign ports and selling
certain transactions in salt on his own
same nature as the business carried on by account, which were found to be of the
the partnership. It was
Bn forprofits of the held that A was liable to acCOunt to
business so made by him. Thisrule is also subject to a the
contract between the partners.
pICHTS AND DUTIES OF PARTNERS AFTER ACHANGE IN
Before going into rights and duties, we should first
THE FIRM (SECTION 17)
the firm. It may oCCur in one of the four ways, namely,
know how a change may take place in the constitution of

Where a new partner or partners come in (Adrnsf

Where Some partner or partnerS go out, i.e., by death or
retirement

Where the partnership concerned carries on business other thanvulay to gerneral.

the business for which it was originally formed

Where the partnership business is carried out on after the expiry tired to portnerip
of the term fixed for the purpose. JPotroship

According to section 17, subject to contract between the partners

(a) after a change in the firm: Wherea change occurs in the constitution of a firm, the mutual rights and duties
of the partners in the reconstituted firm remain the same as they were immediately before the change,
as far as may be;
(b) after the expiry of the term of the firm: Where a firm constituted for a fixed term continues to carry on t
business after the expiry of that term, the mutual rights and duties of the partners remain the same asto P.
at will; and at ull
they were before the expiry, so far as they may be consistent with the incidents of partnership
(c) where additional undertakings are carried out: where a firm constituted to carry out one or more adventures
o
those in respect of the Crenl
or undertakings carries out other adventures or undertakings are the same as
original adventures or undertakings.

RELATION OF PARTNERS TO THIRD PARTIES

18):
1. PARTNER TO BE AN AGENT OF THE FIRM (SECTION the profits
relationship between the partners who have agreed to share
You may recall that a partnership is the that any of
business carried on by all or any of them acting for all (Section 4). This definition suggests
of the
the [Link] a e
the partners can be the agent of

ACT, 1932
3.21 THE INDIAN PARTNERSHIP
 that, subject tothe provisions of the Act, a partner 5
Section [Link] this position by providing
of the fim for the purpose of the
business of the firm The partner indeed virtually embraces the the ae
both a principal and an agent. So as far as
the partnership, he may properly be deemed
a principal and so far as he acts for his partners. he
charconcetacterh
he acts for himself and in his own interestf in the cormmon

bedeemed as an agent.
may progery
Portner
that he has a community of interest
The principal distinction between him and a mere agent is
partners in the whole property and business and Aiabilíties of partnership, whereas an agent as
with othe
interest in either. such has
The principal distinction between him and a mere agent is that he has a community of interest
with hoothet
nartners in the whole property and business and liabilities of partnership, whereas an agent as such
interest in either.
The rule that a partner is the agent of the firm for the purpose of the business of the firm cannot be applied.
all transactions and dealingsbetween the partners themslves. ft is applicable only to the act done by pan
for the purpose of the business of the firm, to thiydPoushe) o u
2. IMPLIED AUTHORITY OF PARTNER AS AGENT OF THE FIRM (SECTION 19):
Subject to the provisions of section 22, the act of a partner which is done to carry on, in the usual way, businese
of the kind carried on by the firm, binds the firm.
The authority of apartner to bind the firm conferred by this section is called his "implied authority".
In the absence of any usage or custom of trade to the contrary, the implied authority ofa partner does not
empower him to-(hat g oot implied cutoyitySeuior|92
(a) Submit adispute relating to the business of the firm toarbitrationout of cowst judoemel
(b) open a banking account on behalf of the firm in his own name:
gee c) compromise or relinquish any claim or portion of a claim by the firm; ppoiniod by thepai
withdraw asuit or proceedings filed on behalf of the firm;
waive%(e) admit any liability in a suit or proceedings against the firm;
Om ) acquire immovable property on behalf of the firm; oghoy bo
(g) transfer immovable property belonging to the firm; and Aqvee onbekalP2
(h) enter into partnership on behalf of the firm
MODE OF DOING ACT TO BIND FIRM (SECTION 22): In order to bind a firm, an act or instrument done or
executed by a partner or other person on behalf of the firm shall be done or executed in the firm name, or in
any other manner expressing or implying an intention to bind the firm.
At the very outset, you should understand what is meant by "implied authority". You have just read that every
partner is an agent of the firm for the purpose of the business thereof. Consequently, as between the partners
and the outside world (whatever may be their private arrangements between themselves), each partneris
agent of every other in every matter connected with the partnership busines; his acts bind the firm.
Hhe
Sections 19(1) and 22 deal with the implied authority of a partner. The impact of these Sections is that the
act of a partner which is done to carry on, in the usual way, business of the kind carried on by the firm
binds the firm, provided that the act is done in the firm name, or any manner expressing or implying an
intention to bind the firm. Suchan authority of a partner to bind the firm is called his implied authority, It
is however subject to the following restrictions:

1. The act done must relate to the usual busines$ of the firm, that is, the act done by the partner must be
within the scope of his authority and 2)
related to the normal business of the firm.

3.22
THE INDIAN PARTNERSHIP ACT, 1932
 Custom 0 Ugnge of fRe irm deper,
2. The act is such as is done for
normal conduct
husiness will depend on the nature of business of the
and firm. The usual way of carrying on the oal
ha act tobe done in the circumstances
name of the firm
of each particular case
or in any other (Section 19(1)1
bind the firm (Section 22). manner expressing or implying an
Thus. a partner has implied intention to
authority
wth the partnership business and to bind the firm by all acts done by hirn in
econe of partnership. You must which are done in thà usual way and are not in atl'rmatters connected
kinds of business. remember that an implied authorityof a partnertheir nature beyond the
may differ in different
Evample 5: X, a partner in a irm of leyes
EArm without authority. The othersolicitors, borrows money and executes a prornissory note in the name
partners are not liable on the note, as it is not
business of a solicitor to draw, accept, or part of
tner of frm of bankers to draw, endorse negotiable instrurments; however, it may be the ordinary
accept or endorse a bill of exchange on usual for one
behalf of the firm.
If partnership be of a general commercial nature
(i) he may pledge or sellthe partnership property:
(ii) he may buy goods on account of the partnership:
(iii) he may borrow money, contract debts
and pay debts on account of the
(iv)he may draw, make, sign, endorse,
transfer,
partnership:
billsof exchange, cheques and other negotiate and procure to be discounted, Promissory notes,
negotiable
Coction 19(2) contains the acts which are beyond the papers in the name and on account of the
implied authority of the partners. partnership.
R EXTENSION AND RESTRICTION OF
PARTNERS' IMPLIED AUTHORITY (SECTION 20):
The implied authority of a partner may be extended or
the following conditions, the restrictions imposed on the
restricted by contract between the partners. Under
implied authority of a partner by agreement shall be
effective against a third party:
1. The third party knows about the restrictions, and
2. The third party does not know that he is dealing with a partner in a [Link] UCote

Example 6: A, a partner, borrows fromB1,000 in the name of the firmn but in excess of his
and utilizes the same in paying off the debts of the firm. Here, the fact that the firm
authority,
has contracted debts
suggests that it is a trading firm, and as such it is within the implied authority of Ato borrow money for
the business of the firm. This implied authority, as you have noticed, may be
restricted by an agreement
between him and other partners. Now if B, the lender, is unaware of this restriction imposed on A, the firm
will be liable to repay the money to B. On the contrary, B's awareness as to this restriction will absolve the
firm of its liability to repay the amount to B.
It may be noted that the above-mentioned extension or restriction is only possible with the consent of all
the partners. Any one partner, or even a majority of the partners, cannot restrict or extend the implied
authority.

A, a partner, borrows from BRs 1,000in the name of the firm but in excess of his authority, and utilizes the
same in paying off the debts of the firm. Here, the fact that the firm has contracted debts suggests that
it is a trading firm, and as such it is within the implied authority of Ato borrow money for the business of
the firm.
This implied authority, as you have noticed, may be restricted by an agreement between him and other
partners. Now if B, the lender, is unaware of this restriction imposed on A, the firm will be liable to repay
the money to B. On the contrary B's awareness as to this restriction willabsolve the firm of its liability to
repay the amount to B.

1932
3.23 THE INDIAN PARTNERSHIP ACT,
 (SECTION 21):
AUTHORITY IN AN EMERGENCY
4. PARTNER'S
do all such acts for
a partner has authority, in an ermergency, to the purpose of
protecting
According tothe firm
sectionfrom loss
21, as would be done by a person of ordinary prudence, in his own case, acting under

acts bind the firm.

similar circumstances, and such

PARTNER (SECTION 23)

EFFECT OF ADMISSIONS BY A
repregertation/ onPkssion,
Partners, as agents of each other can make binding admissions but only in relation to partnership transaction
and in the ordinary course of business. An admission or representation by a partner will not however, bind the
firm if his authority on the point is limited and the other party knows of the restriction. The section speaks
of admissions and representations being evidenced against the firm. That is to say, they will affect the firm
when tendered by third parties; they may not have the same effect in case of disputes between the partners

themselves.

motorcycle biko
Example 7: Xand Yare partners in a firm dealing in spare parts of different brands of
spare part is suitable f
purchases a spare part for his Yamaha motorcycle after being told by Xthat the
for the motor
motorcycle. Yis ignorant about this transaction. The spare part proves to be unsuitable
and it is damaged. X and Y both are responsible to Z for his loss.

EFFECT OF NOTICE TO ACTING PARTNER (SECTION 24)

The notice to a partner, who habitually acts in business of the firm, on matters relating to the affairs of the
firm, operatesas anotice to the firm except in the case of afraud on the firm committed by or with the consent
of that partner. Thus, the notice to one is equivalent to the notice to the rest of the partners of the firm, just
as a notice to an agent is notice to his principal. This notice must be actual and not constructive. It must be
feceived by a working partner and not by a sleeping partner. It must further relate to the firm's business. Only
then it would constitute a notice to the firm.
Bonotibe
Example 8: P, Q, and Rare partners in a business for purchase and sale of second hand goods. Rpurchases
a second hand car on behalf of the firm from S. In the course of dealings with S, he comes to know that the
car is astolen one and it actually belongs to X. P and Q are ignorant about it. All the partners are liable to
X, the real owner.
The only exception would lie in the case of fraud, whether active or tacit.

Example 9:A, a partner who actively participates in the management of the business of the firm, bought
for his firm, certain goods, while he knew,ofaparticular defect in the goods. His knowledge as regards the
defect, ordinarily, would be construed as the knowledge of the firm, though the other partners in fact were
not aware of the defect. But because Ahad, in league with his seller, conspired toconceal the defect from
the other partners, the rule would be inoperative and the other partners would be entitled to
reject le
goods, upon detection by them of the defect.
mili bhaga
 LIABILITY TO THIRD PARTIES
The question of liability of
follows: partners(SECTION 25
to third TO 27)
parties may be
considered under different heads. These are as
1. LIABILITY OF APARTNER FOR ACTS OF THE
The partners are jointly
and severally FIRM (SECTION 25)
their express or implied
authority,
acts done towards the business
responsible
This is
to third
parties for
of the r because that all the acts all acts vhich come inder the
done within the scöpe of
scope of authority are the
The expression 'act of firm' 9niÃes
connotes any act or
firm, which gives rise to a right
enforceable by or
omission by allthepartners or by any
25, it is necessary that the act of
the firm, in against the firm. Again, in order to partner
or agent of the
he was a respect of which liability is broughtbringa
party, must have been done while case under Section
partner to be
enforced againsta
Example 10; Certain persons were found to
Vioaihtringementaf atrademark by the firm have been partners in a
took firm when the acts
t of the
alleged infringement, it being place, it was held that they constituting an
were liable for damages
firm.
Clouime. immaterial that the damages arose after the arising
dissolution of the
2. LIABILITY OF THE FIRM FOR
WRONGFUL ACTS OF A
extent as the partner for anyPARTNER
Tho Grmn is liable to the same (SECTION 26):
acts of a partner, if they are done by the loss or injury caused to a third
partner while party by the wrongfu
(a) in the ordinary course of the business of the frm acting:
(b) with the authority of the partners.
Ifthe act in
question can be regarded as authorized and as falling
Section 26, the fact that the method employed within either of the categories mentioned in
by the partner in doing it was
affect the question. Furthermore, all the parthers in a firm unauthorized or wrongfut would
are liable to a third party for loss or injury
Roeaused tÍ him by the negligent act of a partner acting in the ordinary course of the
[Link] ev e
Example 11: One of the two partners in coal mine acted as a Q00cdokrt
in omitting to have the shaft of the mine
manager was guilty of personal negligence
properly fenced. As a result thereof, an injury was caused to a
workman. The other partner was also held responsible for the same.

3. LIABILITY OF FIRM FOR MISAPPLICATION BY PARTNERS (SECTION 27):

'It may be observed that the workings of the two clauses of Section 27 is designed to bring out clearly an
important point of distinction between the two categories of cases of misapplication of money by partners.
Clause (a) covers the case where apartner acts within his authoritý and due to his authority as partner, he
receives money or property belonging to a third party and misapplies that money or property. For this provision
to the attracted, it is not necessarythat the money should have actually come into the custody of the fim.
On the other hand, the provision of clause (b) would be attracted when such money or property has come into
the custody of the firm and it is misapplied by any of the partners.
The firm would be liable in both the cases.
receipt ofmoney by one partner is not within the scope of his apparent authority, his receipt cannot be
comes
Lirm regarded as areceipt by the firm and the other partners will not be liable, unless the money received
into their possession or under their control.
able
stands his car in the parking place but
Example 12: A, B, and Care partners of a place for car parking. P
the firm is liable for the acts of A.
Asold out the car to a stranger. For this liability,
ACT 1932
3.25 THE INDIAN PARTNERSHIP
 (SECTION 29)
TRANSFEREE OF APARTNER'S INTEREST
RIGHTS OF
take
give

Asharein a partnership is transferable like any other property, but as the partnership relationship is based
iduc1mutual confidence, the assignee of a partner's interest by sale, mortgage or otherwise cannot enjoy the sam
rights and privileges as the original partner.
The rights of such a transferee are as follows:
() During the continuance of partnership, such transferee is not entitled:
(a) to interfere with the conduct of the business,
(b) to require accounts, or
(c) to inspect books of the firm.
He is only entitled to receive the share of the profits of the transferring partner and he is bound t
accept the profits as agreed to by the partners, i.e., he cannot challenge the accounts.
(I1) On the dissolutionof the firm or on the retirement of the transferring partner, the transferee willbe
entitled, against the remaining partners:
(a) to receive the share of the assets of the firm to which the transferring partner was entitled, and
(b) for the purpose of ascertaining the share, he is entitled to an account as from the date of the dissolution.
By virtue of Section 31, which we will discuss hereinafter, no person can be
introduced as a partnerin
a firm without the consent of all the partners. Apartner cannot by transferring his own
interest, make
anybody else a partner in his place, unless the other partners agree to accept that person às a partner.
At the same time, apartner is not debaYred from transferring his interest. A
partner's interest in the
partnership can be regarded às an existing interest and tangible property which can be assigned.
Transferee's Right

During the continuance of Partnership On dissolution of Firm or on retirement of transterring

Transferee has the right
to receive the share of profit of
Partner
As against the remaining Partners, transferee is
the transferring Partner. lentitled
bound to accept the acCount of
To receive the share of assets of the Firm to
profit agreed to by the Partners.
which the transferring Partner was entitled, and
For the purpose of ascertaining that share
transferee is entitled to an account as from the
date of the dissolution.

THE INDIAN PARTNERSHIP ACT, 1932 3.26

 MINORS ADMITTED TO THE BENEFITS OF
PARTNERSHIP (SECTION 30)

c
e observed that a minor cannot be bound by a
contract
woidable. Therefore, a minor cannot become a partner in because
a minor's contract is void and not
a firm because partnership is founded on a
contract. Though a minor cannot be a partner in a firm, he can
ership under Section 30 of the Act. In other words, he can nonetheless
be admitted to the benefits of
be validly given a share in the partnership
profits. When this has been done with the consent of all the partners then the
partner will be governed under Section 30 as follows: rights and liabilities of such a

1. Rights:
(i) A minor partner has a right to his agreed share of the profits and of the firm.
(ii) He can have access tO, inspect and copy the accounts of the firm. Seporake lcut
(iii)He can sue the partners for accounts or for payment of his share but only when
severing his connection
with the firm, and not otherwise.
(iv)On attaining majority, he may within 6 months elect to become a partner or not to
become a partner.
If he elects to become a partner, then he is entitled to the share to which he was
entitled as a minor.
If he does not, then his share is not liable for any acts of the firm after the date of the
public notice
served to that effect.

2. Liabilities:
(i) Before attaining majority: Léntted iabiuty is limiteod)
(a) The liability of the minor is Confined only to the extent of his share in the profits and the property
of the firm.
(b) Minor has no personal liability for the debts of the firm incurred during his minority.
(c) Minor cannot be declared insolvent, but if the firm is declared insolvent his share in the firm
vests in the Official Receiver/Assignee (which means minor can recover his share fn the firm on
proportionate basis from official receiver/assignee)

(ii)After attaining majority:

Within 6 months of his attaining majority or on his obtaining knowledge that he had been admitted to
the benefits of partnership, whichever date is later, the minor partner has to decide whether he shall
remain a partner or leave the firm.
Where he has elected not to become partner, he may give public notice that he has elected not to
become partner and such notice shalldetermine his position with regard to the firm If he fails to give
such notice he shall become apartner in the firm on the expiry of the said six months.
(a) When he becomes partner: If the minor becomes a partner on his own willingness or by his failure
to give the public notice within specified time, his rights and liabilities as given in Section 30(7
are as follows: Jnli mte
(ii) He becomes personally liable tothird parties for all acts of the firm done sine he was admitted
to the benefits of partnership.
 (i1)Hisshare hthe property and the profits of he firm remains the sarme to which he was entitla

asa minor.

(6) His ights andnot to become

liabilities a partner
continue to be those of a minor up to the date of giving publie notice
(b) When he elects
(i) His share shall not be liable fer any acts of the firm done after the date of the notice.
(i)He shall be entitled to sue the partners for his share of the property and profits, It rmay be
noted that such minor shall give notice to the Registrar that he has or has not become a partner

31E
CONSEQUENCES OF PARTNER COMING IN AND GOING OUT (SECTION
AnyTEGAL
change in the relation of partners will result in reconstitution of the partnership firm. Thus, on admissien
of a new partner or retirement of a partner or expulsiôn of the partner, or on insolvency of apartner ett. a

firm willbe reconstituted:

31):
) INTRODUCTION OF APARTNER (SECTION
A AS we have studiedearlier, subject toa contract between partners and to the provisions regarding mi
in a firm, no new partners can be introduced into a firm without the consent of all the existing partners.

>edaeretRights and liabilitiesof new partner: The liabilities of the new partner ordinarily commence from the date
De oc when he is admitted as a partner, unless he agrees to be liable for obligations incurred by the firm prior
to the date. The new firm, including the new partner who joins it, may agree to assume liability for the
existing debtsof the old firm, and creditors may agree to accept the new firm as their debtor and discharae
Nthe old partners. The creditor's consent is necessary in every case to make the transaction operative
Qabiovatiop is the technical term in a contract for substituted liability, of course, not confined only to cate
ofcottag of partnership.
OBut a mere agreement amongst partners cannot operate as Novation. Thus, an agreement betweenthe
partnersand the incoming partner that he shall be liable for existing debts will not ipso factogivecreditors
of the firm any right against him.

In case of partnership of two partners: This section does not apply to a partnership of two partners which
is automatically dissolved by the death of one of them.

Ai) RETIREMENT OF APARTNER (SECTION 32):

(1) Apartner may retire:
Ped o a) with the consent of all the other partners:
b) in accordance with an express agreement by the
frAnePc) where the partnership is at will, by giving notice inpartners; or
writing to all the other partners of his intention
to retire.

epho Aretiring partner may be discharged from any liability to any third
party for acts of the firm done before
his retirement by an agreement made by him with such third
party and the partners of the reconstituted
firm, and such agreement may be implied by a course of
dealing between the third party and the
reconstituted firm after he had knowledge of the retirementCUrned butorduto
(3) Notwithstanding the retirement of a partner from a
firm, he and the
partners to third parties for any act done by any of them which wouldpartners continue to be liable as
Rude done before the retirement, until public notice is have been an act of the firm it
given of the retirement:
Provided that a retired partner is not liable to any third party who
that he was a partner.
deals with the firm without knowing
poiner
THE INDIAN PARTNERSHIP ACT, 1932 3.28
 (4) Notices under
firm. sub-section (3) may be given by the retired
partner or by any partrier of the reconstituted
Vishnu Chandra Vs.
The Supreme Court in
Chandrika
Vishnu
Prasad [Supreme Court)
to dissociate fromn the Chandra Vs. Chandrika Prasad, held
R
morehends partnership
a situation where abusiness', in a clause of the
that the expression "if any
partner wants
indicated that in the event of partnership
partner wants to retire from deed which was being construed,
retirement, the partnership businessthewillpartnership.
not
The exoression elearly
Example 13: Mere retirement of a corne to an end
iness was carried out, would partner, who was the tenant of the
of the tenancy premises in which the partnership
not result in
partners even though the
retiring assignment
partner ceases to have any right, title orrights in favou of the remaining
fhe ten cn cy vights will interest in the
(iii) EXPULSION OFA PARTNER (SECTION 33): Continup uorth the ore
business
DarteC
as such

Dldfim tyangfor Newfim

LeiabilinSpBCD&b)

(ieNewPstne) New

(i) the power of expulsion must have

existed in a contract between the partners:
(ii) the power has been exercised by a
majority of the partners; and
(iii) it has been exercised in good faith.
If all these conditions are not
present, the expulsion is not deemed to be in bona fide
business of the firm. interest of the
The test of good faith as required under Section 33(1) includes three things:

The explusion must be in the interest of the

partnership

The partner to be expelled is served with a

notice

He is given an opportunity of being heard.

" If a partner is otherwise expelled, the expulsion is null andvoid.

It may be noted that under the Act, the expulsion of partners does not necessarily result in dissolution of the
firm. The invalid expulsion of a partner does not put an end to the partnership even if the partnership is at wil
and it will be deemed to continue as before.
Example 14: A, Band Care partners in a Partnership firm. They were carrying their business successfully
for the past several years. Spouses of Aand Bfought in ladies club on their personal issue and A's wife
was hurt badly. Agot angry on the incident and he convinced Cto expel Bfrom their partnershijp frm.
Bwas expelled from partnership without any notice from Aand C. Considering the provisions of indian
Partnership Act, 1932 state whether they can expel a partner from the firm?
1932
3.29 THE INDIAN PARTNERSHIP ACT
 Apartner may not be expelled from afirm bya majority of partners except in exercise, in good
conferred by contract between the partners. It is, thus, essential that:
Þ) the power of expulsion must have existed in a contract between the partners:
faith, of powers
(ii) the power has been exercised by a majority of the partners; and
(i)it has been exercised in good faith.
If all these conditions are not present, the expulsion is not
deemed to be in bonafide interest of the
the firm.
Thus, according to the test of good faith as required under
Section 33(1), business
o
remember that provisions of Sections 32 expulsion
In this context, you should also of Partner Bis not
discussed, will be equally applicable to an expelled partner as if he (2), (3) and (4) valid,
was a retired partner, which we have just
(iv) INSOLVENCY OF APARTNER (SECTION 34):

(1) Where a partner in a firm is

the order of adjudication is adjudicated
as an insolvent he ceases to be a
made, whether or not the firm is hereby partner on the date on which
(2) Where under a contract
between the partners the firm is not dissolved.
as an insolvent, the estate of a dissolved by the
partner so adjudicated is not liable for any act ofadjudication of a partner
not liable for any act of the
insolvent, done after the date on which the order ofthe firm and the firm is
adjudication is made.
The estate of the insolvent
partner is not liable for
the act of the firm done
after the date of order of
He will be ceased to be The firm is also not liable
adjudication for any act of the
a partner from the very
date on which the order insolvent partner after
of adjudication is made. the date of theorder of
adjudication

Ordinarily but not

invariably, the insolvency of a
The insolvent partner partner results in dissolution
cannot be continued of a firm; but the partners
as a partner.
Effects of Insolvency are competent to agree
among themselves that the
adjudication of a partner as
an insolvent will not give rise
to dissolution of the firm.
 (v) LIABILITY OF ESTATE OF
DECEASED PARTNER (SECTION 35)Y

Ordinarily, the effect of the

the dissolution of the death of a partner is the
hnors are competent partnership, by death of dissolution
partner is
of the
partnership, but the rule in regardto
as regards the
to agree that the subject to
death of one will not have the a contract Between the parties and the
surviving
deceased partner may be partngrs un\ess the firm consists of only two effect of dissolving the
absoled
give any notice either to the from liability for the future partners. order that the estaté
In partriership
of the
public or the persons having obligatiors of the firm, it is not
dealings with the firm. necessary to
Example 15: Xwas a partner in a firm. The x' ifethrne xno
Was made after X's firm ordered goods in X's lifetime:.but the
death. In such a case, X's estate delivery of the goods
only a personal decree against the surviving nartnere would not be for the debt:
bands of those partners. AÀ suit for adSudyernent Creditor Can
against the partnership assets in have
goods sold and
deceased partner. This is because there was no delivered would not lie against the the
goods in X'srepresentatives
debt due in respect of the of the
lifetime.
RIGHTS OF OUTGOING PARTNER TO
An outgoing partner may CARRY ON COMPETING BUSINESS
carry on business Competing with
1 but subject to contract to the
(SECTION 36)
that of the firm and he may
(a) use the firm name,
contrary, he may not, advertise such business
(b) represent himself as
carrying on the business of the firm or
(c) solicit the custom of
persons who were dealing with the firm before he
nduce ceased to be a partner.
eexception to(3echon
Agreement in restraint of trade- Apartner may make 27)ICA, 872
be a partner he will not carry on an agreement with his
any business similar to that of the firm partners that on ceasing to
Specified local limits and, notwithstanding anything within a specified period or within
such agreement shall be valid if the contained in section 27 of the Indian Contract Act, 1872.,
restrictions imposed are reasonable.

RIGHT OF OUTGOING PARTNERIN CERTAIN CASES TO

SHARE
According to section 37, Where any member of a firm has died or SUBSEQUENT PROFITS (SECTION 37)
surviving or continuing partners carry on the business of the firm otherwise ceased to be partner, and the
final settlement of accounts as between them and with the property of the firm without any
the outgoing partner or his estate, then, in the
of a contract to the contrary, the absence
outgoing partner or his estate is entitled at the option of himseif a his
representatives to such share of the profits made since he ceased to be a partner as may be
use of his share of the property of the firm or to interest at attributable to the
the rate of six per cent per annum on the amount
of his share in the property of
the firm:
Corial Rotio
3.31 THE INDIAN PARTNERSHIP ACT, 1932
 Provided that whereby contract between the partners, an option is given to surviving or
to purchase the interest of a deceased or outgoing partner, and that
th option is duly continuing partners
the deceased partner, or the outgoing partner or his estate, as the case may be, is notexercised, the
or other share of profits; but if any partner assuming to act in exercise of the
entitled to any
dfestate
option does not in all further
respects comply with the terms thereof, he is liable to account under the
foregoing provisions of this [Link]
Example 16: A, B and C are partners in a
manufacture of machinery.
partnership property and profits. Abecomes bankrupt
Ais
entitled to three- eighths ofof the
Out A's share of the whereas and Ccontinue the business
B the
partnership assets or settling accounts with his estate. without paying
eighths of the profits made in the A's estate is entitled to thres.
partnership affairs.
business, from the date of his bankruptcy until the final
liquidation of the
Example 17: A, B and C are
partners. C retires after selling his share in the
to pay the value of the partnership firm. Aand Bfail
share to C as agreed to. The value of
from the firm would be pure debt the share C on the date of his
of
from the date on which he ceased to
be a partner as per the
retirement
entered between the parties. C is entitled to agreement
recover the same with interest.
REVOCATION OF CONTINUING GUARANTEE BY CHANGE IN FIRM (SECTION 38)
According to section 38, a continuing guarantee given to a firm or to third party in
agreement to the contrary, (revoked as to future respect of the transaction of
a firm is, in the absence of an
change in the constitution of the firm To be cove Yed wi
transactions from the date of any
ea- Kahis Chorw witk of cotat
quarntee- UTCA,182
 Page No.
Unit 2 :Relation of Pastnenß Date

The fa Uowinq aNe the ighÍ the pasners

)Everj prtnex has a ght tor 4okee pàhi A Ae
Con duct oetRe buine9ygince 4heir mandige ment
powes are -exteg ive, unlec atheoe areod ufon.
Thexe may be atem; înhe
ondy iited pouer ofmqunagement toia putney
hat tRe Manage ment power wil yemoin ioith onty

vey prre whetaeyave or, gleepiecR enti ed to

R3 acces boo kes of Re fim and to inPt anc
K8 take opies texef inhona Pide man nexo

Shal hwe a sig ht fo aceeRs to and to

4)In 0uhne nah eN, de cisiorg gab Shall ibe taken on -the
82basiaof Re opinia g eeimajoity of He paatn
here evem ptner hal hauje e gkt, to
expieAs his opi nion ad must at ingood fat
But nohng e nfRenature of buinex tan be mude
withot he orgent of all 4he ptne

5)A8 a qeneral le no pastnex is entitted to eieve

Rxenuneration for taking part in te Londut of the
exiept ohen ?
lousi neS , exce
thexe 9 an ex pYAS oeee MeAm ageemerd
cowse of cleati ngs between the pattne
Cordi nuedus a o the Pim
Cappupiakon o totpnft, ': only tà pot yeay)
6) Pandnesaxeentitfedto&seteive 4helenk
Hha Pvfit ghoging aho a per tAe
sand in te abeNe of omyaqreemerdp
Shaningatio i deemed tobe equal
As ageneal le, patnes ae not en
to inteNeSt on apitetentep
CXpreNs agieementto that efect
Pachce of the paytiwar pwtnership
trade Cuttom to that effeot
tatutom pouigian to tht ePRed
(appo Prhon of Po fby. ony in Prot
Dn adValte mode b y him to the iompeAannn
and

It ischoge agoinst, P?t

0Evey patnex has a. iht to ber indernnied
by the Pim att in espet oP payment mude
and: abiiteynuwsrÉd by hinthe ordinsa

OnasenerSimilarircumfanee
 Page No.
Date

The folnooSe the duitieof 4he Porstneg:

)Thes pastne%s ghoudd caN onthe.o busiss to e
Qxeatct tommonad vamtuge und Yen dey Ao, ame
Pantne
De tkingi
0f +hing affe chng the im amd must a# in
utmost qood fai

-the onduct ot Hhe Buiinesseto indemnilytat the

mig co ndiicA

3) vey pardnerigtóUmd t att en diqerda to

i ctiei in tAe,ieondictofithe buaines

3Tt is 4he dty -the pantnés o o tibukt

Ceuallky tothee toss e ustained by ttei im
5) CaLLAe
A paU dpex shall indemniAy vofs
to it bu kia
the simfox any as
wil fulnelek

6) ACeor dhng to setion l6Subietto`ontrat'between

a)iea pastnex deives amy poi fox hingelt km

4he iem or the tam name he 3hall auo u toy

that ofit amd ay it to the fiam
ons puy cnd t oratount Dutyto 2DD
t osselc Rhaxe toDwty oD5
indemniy
fox DyDuty
to
entuy (ondut tDDuty D
:1A y for mniRy to
neship Pat oPinde toTDwy
92wt
DutesGenerol
i DIS
Pastner eDuteg
D
Ateo ey
TBoo fo
mnified beinde Rightto
on
ance Parstnex tointerest
on Right 1-3 Ra
ommigsion galasy toRight RE
ie Pr&hore toRigkt Ry
(ots toBooks
Aof atRrg R3
cieionh RntrRig
to kt
Buunes (ondaet tros Right Rir
farstneS. ofRightt
buinens inhim
otth iadeú
compeHngy
wite ánd natue
as patners BcnebIfa Ae
 Date

of Ac mission Icpresetati'o n Sec 23

G1entaal Rule cept 'on

Any aomision/ep 8etation NDT
made By e Part ner int ak LABLE for adrnissioy
ordine Corse of Busiek 0f Poustner ?f

fot pontw limited

e Thepurtnecid not
LAND) hawe cutd
i)Thi'rd prty knowS
xsit aboutegtaion.
 Date

(8ec 20) b
Gerion and eviCHon of Implied 4uk
Extonion of Restictioy st
implied Awhoat implied Autthont
ie all ouing moe Le. alouwing les30r act by
acts by parthes Pertne than are ustom ann
gthan ane allowed.
Customaily allourd
IGeneal
Fxeely Atowrd. Rule Exeptorg
Hm iabe fo Re, taictipIg about Yatii
ats f panstrex
done wiA NALIO OR
ertended athoits0 2) The thid panty due
Ls ton er k Gm 'able not know that p9
dekheefoy the act he is deain uotth is
pantnox
even i done
toitwittin Resticion ig
VALID
Goey Ba'nesy
FIRM NOT LIBLE
for tie aty of pagtne
done ithin set
 Asi9Rit inh

rtneipy) toPartnesdepende expYeSi Was

ys Nomal Nognal tae yes
yes ng
OR Oct

oa
nmp done
emexqenty lying
uines
nes toFm
leab
. O
tomgCus Busines
doing by
hange om Doe
Incude coge? to fastner
te bind
Impled
tutkoat
Tontnex Sec 19

transfex
immosbkvI) Vi) Ögubmit)
accqie Caunude a
openrutsnfortenel
hewe
s0xdinayCoug
Bank olen e
08 Qutio
immovab Ac Poes the
digput theat
not aty
D ?
le hs0un, t
axbitoion
gut a
Bios of
donefastne2 Ciabletheor
behal?
propey
of aeo
kem

m SFmhabte
liable
Fmnot not a
able Em
sot

A
2Emegen
the able
iocugtaniel
imilax
A38 man patnex
CA
Athsaity
mplied
NOT
AqreegtoOn B,
A,
c ey Fmnotlable
o otAexwigeless n
B 0Ydinagy to
cate.8et
not win protet
fep he
iable hal
Pmdente
to 24
o
bir
Secion - l6 - Pergonad Profi ened by Ptners
when a Dartney of a the f m
Pexgonal Poofs

from any tr0ncction with te fiym.

tyanation between1 pastne} cnel fm
OR
NameOse

Busines toA Con

non

compeing gimila
to
then 1e Ptner ghall -

a) fox diglos e).

(6) payo sthe of8 to the e'm.'