1.

Introduction to the Partnership Act, 1932

The Partnership Act, 1932 is the key legislation governing partnership firms in
Bangladesh, India, and other jurisdictions with similar common law roots. It codifies the law
relating to partnerships, which was earlier based on common law and equity.

This Act has 74 Sections, but in Bangladesh, only the parts relevant to non-dissolved
firms apply.

It governs:

• Formation of partnerships
• Rights and duties of partners
• Relationship with outsiders
• Dissolution of partnerships

The Act is largely based on the Indian Contract Act, 1872, especially its earlier provisions
under Sections 239–266 which originally covered partnerships before being repealed.

2. Brief History of Partnership Law

• Before 1932: Partnership law in the Indian subcontinent was governed under the
Indian Contract Act (1872), specifically under Chapter XI (Sections 239–266).
• 1932: The Partnership Act was passed as a separate legislation to provide clarity on
the specific nature of partnerships, as these businesses had grown in number and
complexity.
• The law is contractual in nature, but it also reflects elements of trust and fiduciary
duty.
• The Act came into force on 1st October 1932.
• Bangladesh still follows the inherited version with contextual modifications.

3. Definition and Nature of Partnership (Section 4)

Section 4 – Definition of Partnership:

“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.
 Key Elements:

1. Agreement – Partnership arises by contract, not by status.

2. Profit sharing – Must be for a business intending to make a profit.
3. Mutual agency – Every partner is both an agent and principal.

Legal Nature of Partnership:

• It is not a separate legal entity like a company.

• It is a collective body of individuals working under mutual trust.
• Every partner is liable personally and jointly for the firm’s obligations.

4. Mode of Finding Existence in Partnership

Understanding if a firm is truly a partnership involves several tests. Courts do not rely only
on what the parties “say” but on the real conduct and terms of agreement.

4.1 Test of Partnership (Section 6)

Section 6 – Mode of determining existence of partnership:

In determining whether a group of persons is a firm, regard shall be had to the real relation
between the parties, as shown by all relevant facts.

So, label is not enough. Court checks:

• Is there a valid agreement?

• Is there profit sharing?
• Is there mutual agency?

Case: Cox v. Hickman (1860) 8 HLC 268

Facts: Two trustees were managing a business and sharing profits with creditors.
Held: Sharing profit is not conclusive; mutual agency is the real test.

4.2 Real Relation Between the Parties

Even if there is a profit-sharing agreement, if the intention to act as partners is absent, there
is no partnership.
 Example: Lending money and receiving part of profit ≠ Partnership
Landmark: Mollow March & Co. v. The Court of Wards (1872)
Held: A share in profits alone doesn’t create partnership unless agency and joint business are
established.

4.3 Joint Ownership and Sharing Gross Returns

Mere joint ownership of property and sharing gross returns (not net profits) is not enough
to prove partnership.

Section 6 Explanation I: Co-owners of property sharing gross returns are not necessarily
partners.

Case: Syed Abdul Khader v. Rami Reddy, AIR 1979 SC 553

Facts: Parties jointly owned a bus and shared income but didn’t jointly manage or run the
business.
Held: Not partners—no mutual agency or business operation jointly.

4.4 Firm and Firm Name

Section 4 Explanation I:
The persons who have entered into a partnership with one another are called individually
“partners”, collectively “a firm”, and the name under which their business is carried on is
called the “firm-name.”

• Firm has no separate legal identity.

• Firm name is just a convenience of reference.

5. Distinction between Partnership and Co-Ownership

Point Partnership Co-ownership

Can arise by operation of law or
Origin By agreement (contract)
inheritance
Profit Sharing Must exist Not necessary
Mutual Agency Yes No
Transfer of Cannot transfer without
Can transfer his share
Interest consent
 Case: Govind Nair v. Kumar Bhanu, AIR 1981 Ker 44
Held: Co-owners who don’t carry on business jointly are not partners.

6. Distinction between Partnership and Joint Hindu Family Business

Point Partnership Joint Hindu Family

Formation By agreement By status (birth)
Number of members Max 20 No limit
Authority Every partner is agent Only Karta has authority
New member Needs consent Automatically by birth
Liability Joint and several Limited to ancestral property for others
Case: Champaran Cane Concern v. State of Bihar, AIR 1963 SC 1737
Held: Distinction lies in mutual agency and contractual basis in partnership.

7. Distinction between Partnership and Company

Point Partnership Company

Legal Status Not separate legal entity Separate legal entity
Liability Unlimited Limited
Regulation Partnership Act, 1932 Companies Act
Transferability Restricted Freely transferable (in public companies)
Perpetual Succession No Yes
Number of Members Max 20 2–200 (Private), 7+ (Public)
Case: Salomon v. Salomon & Co. Ltd. (1897) AC 22
Held: Company is a separate person from its shareholders.

Critical Analysis

• Partnership law promotes flexibility and trust, but at the cost of legal protections.
• Absence of legal personality causes confusion in ownership and liability.
• The law still follows colonial-era principles—there is a need for reforms.
• Concepts like mutual agency are powerful, but risky in commercial realities today.
 1. Introduction

The Partnership Act, 1932 governs partnership law in Bangladesh. It defines the rights,
duties, and legal structure of business partnerships. Partnership is a relationship arising out
of a contract between two or more persons who agree to carry on a business and share its
profits. The law balances contractual freedom with certain fiduciary obligations, making
partnership a mix of trust and business.

• Governing Law: Partnership Act, 1932

• Came into force: 1st October 1932
• Applicable in Bangladesh with amendments

2. Essentials for Formation of Partnership

Section: 4

"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."

Essentials:

1. Agreement: Partnership must arise from a contract (not status).

2. Business: Must be a lawful business.
3. Profit-sharing: There must be an agreement to share profits.
4. Mutual Agency: Each partner must act as agent and principal.

Landmark Case: Cox v. Hickman (1860)

Fact: Creditors received profits but were not managing the business.
Held: Sharing profits alone does not prove partnership; mutual agency is the true test.

3. Exceptions (Who are not Partners)

Section 6 Explanation:

Even if someone shares profits, they may not be a partner if there's no mutual agency.

Common Exceptions:

1. Co-owners sharing gross returns (not profits)

 2. Lenders receiving interest as profit portion
3. Servants or agents receiving commission
4. Widows or heirs receiving annuities from business

Case: Mollow March v. Court of Wards (1872)

Held: Receiving profit as repayment or annuity ≠ partnership.

4. Register of Firms

Sections: 56 to 71

• Section 58: Application for registration

• Section 59: Registrar’s power to record entry
• Section 63: Rectification, alteration, and notices

In Bangladesh:

Registration is not mandatory, but an unregistered firm cannot sue to enforce contractual
rights.

Case: Seth Loonkaran Sethiya v. Ivan E. John (1977)

Held: Unregistered firm cannot sue for recovery of dues.

5. Kinds of Partners

1. Active Partner – Participates in daily affairs.

2. Sleeping Partner – Invests money but stays inactive.
3. Nominal Partner – Lends name but no capital/work.
4. Partner in Profits Only – Shares only profits.
5. Sub-Partner – Not a partner in the firm but shares another partner’s profits.
6. Minor Partner – Admitted to benefits only.
 6. Partner by Estoppel or Holding Out

Section: 28

If a person by words/conduct represents himself as a partner, or knowingly allows others to

believe so, he becomes liable as if he were a partner.

Case: Lake v. Dukes (1864)

Held: One who allows himself to be represented as a partner is liable to third parties.

Exception: If the person dies or is declared insolvent, and firm continues using the
name, he won’t be liable.

7. Duration of a Firm

• Partnership at Will (Section 7): No fixed period; can be dissolved at any time by
notice.
• Particular Partnership (Section 8): Formed for a specific venture or time.

Legal Tip: If no clause mentions duration, it’s presumed to be a partnership at will.

8. Property of the Firm

Section: 14

Includes:

• Property brought in by partners

• Property acquired with firm’s money
• Goodwill
• Assets used exclusively for business

Case: Boda Narayana v. V. Subba Rao

Held: What is used for business purpose and acquired from firm funds is firm property.
 9. Minor Admitted to Benefits of Partnership

Section: 30

A minor cannot become a full partner, but can be admitted to the benefits of an existing
firm.

• Must have consent of all partners.

• Cannot be made liable for losses.

Key Idea: Minor is not a full partner, but a beneficiary.

10. Benefitted Minor’s Rights and Liabilities (Before Majority)

Rights:

• Right to share profits.

• Right to access accounts.
• Right to sue for benefits.

Liabilities:

• No personal liability for debts.

• Only liable up to his share in the firm.

Section 30(2) clearly protects minor from unlimited liability.

11. Minor Partner's Rights and Liabilities (After Attaining Majority)

• Within 6 months of turning 18, must choose to:

o Become a partner, or
o Not become a partner

If no decision is communicated = treated as a full partner.

Section 30(5):

• If becomes partner → liable for past & future debts.

• If not → liability ends from date of notice.
 12. Non-Partner Persons: Rights and Liabilities

Even if not a partner, a person may still face liability:

Types:

1. Partner by Estoppel/Holding Out – Liable to outsiders.

2. Sub-partner – No direct rights against the firm.
3. Heirs/Legal Representatives – Limited rights/liabilities.
4. Former partners – Liable for acts before retirement unless public notice is given.

Case: Scarf v. Jardine (1882)

Held: Liability depends on whether third party dealt with firm believing in presence of the
person as partner.
 Detailed Explanation
1. Introduction

The law of partnership governs the relationship arising out of an agreement between persons
who want to carry on a business together and share profits. The Partnership Act, 1932 came
into force on 1st October 1932 in British India, and it continues to be the primary legislation
governing partnerships in both Bangladesh and India.

This Act fills the gap between contractual freedom (as established under the Contract Act,
1872) and business cooperation, especially for small and medium businesses.

The preamble doesn’t exist, but the intent is to regulate:

• Formation
• Operation
• Rights & duties of partners
• Dissolution and consequences

2. Essentials for Formation of Partnership

[Section 4]

Definition:
"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."

From this, the essentials are:

1. Agreement between persons: Must be contractual (not by status like HUF).

2. Two or more persons: One person alone cannot form a partnership.
3. Carrying on a business: Must be continuous and lawful.
4. Profit sharing: Sharing of losses is not mandatory, but profit sharing is.
5. Mutual agency: This is the real test. Each partner is both a principal and an agent.

Case: Cox v. Hickman (1860)

Facts: Creditors of a bankrupt business took over to recover debts and shared profits.
Judgment: No partnership as there was no mutual agency.
3. Exceptions

Not every agreement involving shared profits creates a partnership. Explanation 1 to Section
6 clarifies the exceptions.

Exceptions include:

• Co-owners sharing gross returns

• Lenders receiving a share of profit as interest (S.6 Explanation (b))
• Servants or agents receiving a share of profit
• Widows or heirs of a deceased partner receiving annuities

Case: Mollow March & Co. v. The Court of Wards (1872)

Court held: Mere sharing of profits is not decisive—intention and agency must be proved.

4. Register of Firms

[Sections 56–71]

• Registration of firms is optional, not mandatory.

• It is done at the Registrar of Firms under Section 58.
• Contents of the statement include:
o Firm name
o Principal place
o Names and addresses of partners
o Date of joining
o Duration

However, unregistered firms face legal disabilities under Section 69:

• Cannot sue another firm or a partner to enforce contractual rights.

• Exception: They can be sued and can file cases for dissolution or accounting.

5. Kinds of Partners

1. Active Partner – Participates in daily affairs

2. Sleeping (Dormant) Partner – Invests but does not manage
3. Nominal Partner – Only lends name, no capital or management
4. Partner in Profits Only – Shares profits, not losses
5. Minor Partner – Admitted to benefits only
6. Sub-Partner – Shares profit from a partner, not the firm
 7. Partner by Estoppel or Holding Out – Based on conduct or representation (see next
topic)

6. Partner by Estoppel or Holding Out

[Section 28]

Definition:
If a person, by words or conduct, represents himself (or knowingly allows others to represent
him) as a partner, he is liable as if he were a partner.

Conditions:

• Representation (express or implied)

• Reliance by third party
• Credit given on that belief

Case: Lake v. Duke of Argyll (1844)

The Duke allowed his name to be used in partnership documents. Court held him liable as a
partner by estoppel.

7. Duration of a Firm

[Section 7]

Firms can be:

• Particular partnership: For a specific venture (ends after completion)

• Partnership at will: No fixed period; can be dissolved anytime under S.43

8. Property of the Firm

[Section 14]

Includes:

• All property brought in by partners

• Assets acquired from firm money
• Goodwill (intangible but valuable)
The property is jointly owned and used exclusively for the firm’s business, unless agreed
otherwise.

Case: Boda Narayana Murthy v. Kancharla Kesava Rao (1972)

Held: Property bought from partnership funds is firm’s property, even if registered in
partner’s name.

9. Minor Admitted to the Benefits of Partnership

[Section 30]

• A minor cannot become a partner, but with consent of all, may be admitted to the
benefits of partnership.
• Has right to profit, access to accounts, but not personally liable.

Upon attaining majority (within 6 months), must:

• Elect to become full partner (express/implied)

• If silent, becomes partner by default (liable for past and future acts)

10. Benefitted Minor's Rights and Liabilities

Rights:

• Share of profit
• Inspect books
• Sue for benefit (not dissolution)

Liabilities:

• Not personally liable (before majority)

• Liability limited to his share in the firm
• Post-majority liability if he elects to become partner

Case: CIT v. Dwarkadas & Co. (1971)

Minor’s income from firm is not to be taxed as his personal income.
11. Minor Partner's Rights and Liabilities

(Same as above but post-majority if they become full partner)

• Then fully liable like other partners

• Liable for firm’s past debts too
• Has voting, managerial and other legal rights

12. Non-Partner Persons’ Rights and Liabilities

• Sub-partner: Not liable to third parties. Only has internal agreement with a partner.
• Nominal partner: Liable to third parties but no internal rights.
• Lender receiving profit-share: Not a partner (S.6 Explanation (b))
• Creditor misrepresented as partner: May be liable under estoppel

Key Rule: Third-party perception and mutual agency are decisive.

13. Distinction between Partnership and Co-Ownership

Although both may involve joint holding and profit sharing, there are critical legal
distinctions.

Basis Partnership Co-Ownership

May arise by inheritance, status, or
Formation Always by a contract (Section 4)
agreement
Business Must carry on a business Not necessary to carry on business
Profit-sharing Essential Not mandatory
Mutual
Exists (key test) Does not exist
Agency
Cannot transfer share without
Transferability Co-owner may transfer interest
consent
Liability Joint and several Separate and proportionate
Case: Govind Nair v. Kumar Bhanu
Co-owners merely sharing income from a joint property were held not to be partners since
they did not run a business or act as agents of each other.
14. Distinction between Partnership and Joint Hindu Family Business

These two forms differ fundamentally in origin, membership, and management.

Basis Partnership Joint Hindu Family

Basis of Creation Contract (voluntary) Status (birthright under Hindu law)
Regulation Partnership Act, 1932 Hindu Succession Act
Number of Members Max 20 (for business) Unlimited
Management Any or all partners may manage Only Karta manages
Liability All partners: unlimited Only Karta is personally liable
Inclusion Consent required to add partner Membership by birth
Case: Champaran Cane Concern v. State of Bihar (AIR 1963 SC 1737)
Held that only Karta can bind the family and others are not considered business partners
under law.

15. Distinction between Partnership and Company

The most significant distinction is the separate legal entity of a company versus the
contractual grouping of individuals in a partnership.

Basis Partnership Company

Legal Status No separate personality Separate legal entity
Governing Law Partnership Act, 1932 Companies Act, 1994 (Bangladesh)
Formation By agreement Through registration
Perpetual Succession Ends with change in partners Continues irrespective of members
Liability Unlimited Limited to shares held
Management Partners themselves Directors (appointed)
Number of Members 2–20 max 2–200 (Private), 7+ (Public)
Ownership Transfer Restricted Freely transferable (public)
Case: Salomon v. Salomon & Co. Ltd. (1897) AC 22
This case firmly established that a company has its own legal personality, distinct from its
shareholders.
 Kinds of Partners under the Partnership Act, 1932
Although the Act does not categorically classify all types of partners in one place, courts and
jurists have recognized various kinds of partners based on their role, contribution, and
public perception. Each type has distinct rights, duties, and liabilities, many of which are
governed by general rules found in Sections 9 to 17 (Rights and Duties of Partners), Section
30 (Minor Partner), and Section 28 (Partner by Estoppel).

Let us now examine each kind:

1. Actual or Active Partner

Definition:

An actual or active partner is one who takes an active part in the conduct and management of
the partnership business.

Rights:

• Right to take part in business (Section 12(a))

• Right to be consulted in all business matters (Section 12(c))
• Right to inspect accounts and records (Section 12(d))
• Right to share profits as per agreement (Section 13(b))

Liabilities:

• Personally liable jointly and severally for all firm obligations (Section 25)
• Must indemnify the firm for losses caused by fraud (Section 10)
• Cannot transfer interest without consent (Section 29)

Example:

If A, B, and C are partners and A is managing daily operations, signing contracts, and hiring
staff—A is an active partner.
2. Sleeping or Dormant Partner

Definition:

A sleeping partner contributes capital and shares in profits, but does not participate in the
day-to-day running of the firm.

Rights:

• Right to share profits

• Right to access accounts
• Right to object to decisions that affect capital or agreement

Liabilities:

• Liable like any other partner to outsiders (Section 25), even if the public is unaware
of his involvement.
• Internally, he is not responsible for mismanagement unless directly involved.

Example:

D invests money in a firm of X and Y but remains silent in business affairs. He is a sleeping
partner.

3. Nominal Partner

Definition:

A nominal partner does not contribute capital, does not share profit or loss, and does not
manage business, but allows his name to be used as if he is a partner.

Rights:

• No internal rights (no share in profit, no decision-making power)

Liabilities:

• Liable to third parties due to representation, even though he is not truly a partner.
• Operates under doctrine of holding out (Section 28)
 Case: Lake v. Dukes (1864)

The court held a person liable to creditors because he had permitted himself to be publicly
represented as a partner.

4. Partner in Profits Only

Definition:

This type of partner agrees to share only in the profits, but not in the losses of the firm.

Rights:

• Full right to inspect books and share profits

• Can participate in decisions, depending on the partnership deed

Liabilities:

• Externally (to third parties): liable for all debts and acts of the firm
• Internally (among partners): not liable to bear losses unless agreed

Note: Partnership Act does not recognize “profit-only” shield against third parties.
Section 25 makes all partners liable jointly and severally.

5. Sub-Partner

Definition:

A sub-partner is not a partner in the firm itself, but shares in the profits of an individual
partner.

Rights:

• Has rights only against the partner with whom he has an arrangement
• Cannot inspect firm accounts or interfere in management

Liabilities:

• No liability to third parties or firm

• Not considered part of the firm under Section 4
 Example:
P is a partner in a firm and agrees to share half his profits with his brother Q. Q is a sub-
partner.

6. Minor Partner (Admitted to Benefits of Partnership)

[Section 30]

Definition:

A minor cannot become a partner but can be admitted to benefits of an existing partnership
with unanimous consent of the partners.

Rights (During Minority):

• Right to profit share

• Right to access books
• Right to sue for benefits, but not for dissolution

Liabilities (During Minority):

• Not personally liable for debts

• Liability limited to his share in firm property

On Attaining Majority:

• Must decide within 6 months whether to become a partner

• If he opts in, he becomes liable for past and future debts
• If he opts out, liability ends on date of notice

Case: CIT v. Dwarkadas & Co. (1971)

Minor’s share in profit is not treated as his personal income if he is admitted only to benefits.
7. Partner by Estoppel or Holding Out

[Section 28]

Definition:

A person who represents himself as a partner (or allows others to do so) and thereby induces
third parties to deal with the firm, is liable as a partner, even if he is not one in fact.

Rights:

• No internal rights; he is not a partner in the eyes of the firm

Liabilities:

• Personally liable to third parties for obligations incurred during such representation

Key Conditions:

1. Representation (by words or conduct)

2. Reliance by third party
3. Loss or obligation caused due to belief in that representation

Exception: If the person is deceased or insolvent, and the firm continues using his name,
he is not liable.

Final Analysis:

• The Partnership Act blends contractual and fiduciary elements in these roles.
• Even non-partners (like nominal or estoppel partners) can incur external liability.
• The true partner is determined not by label but by conduct and intention (as
clarified in Section 6 and Cox v. Hickman).
• The categories reflect flexibility in business roles, but courts prioritise third-party
protection over internal arrangements.
 Limited Partnership – A Detailed Explanation

1. Definition of Limited Partnership

A Limited Partnership is a special type of partnership where at least one partner has
unlimited liability (called a general partner), and at least one other partner has limited
liability, meaning their risk is restricted to the amount they invested.

It is not governed by the Partnership Act, 1932. Instead, it is governed by special

statutes, such as:

• The Limited Partnerships Act, 1907 (UK origin)

• Bangladesh Partnership Act, 1932 does not recognize limited partnerships
explicitly
• Some jurisdictions in India and other common law countries have introduced
Limited Liability Partnerships (LLPs) via special legislation, like the LLP Act,
2008 (India)

In Bangladesh, limited partnerships are not formally recognized under general law,
but contractually structured arrangements may mirror them in private partnerships,
especially in joint ventures.

2. Key Features of Limited Partnership

Feature Explanation
Dual class of One or more general partners with unlimited liability; one or more
partners limited partners with liability limited to contribution.
Registration
In countries recognizing it, registration with Registrar is mandatory.
Requirement
Limited Liability Cannot participate in management; otherwise they lose limited
Partner liability status.
General Partner Manages the firm, binds the firm, and bears full liability.
Legal Status Not a separate legal entity unless registered as LLP.
Continuity If the general partner dies or retires, the partnership usually dissolves.

3. Types of Partners in Limited Partnership

1. General Partner
o Has unlimited liability
 o Manages the business
o Liable for firm debts and obligations
2. Limited Partner
o Only invests capital
o Has no right to manage
o Liability is capped to the invested amount
o Not personally liable unless he interferes in management

4. Rights and Liabilities

A. Limited Partner

Rights:

• Right to inspect books

• Right to receive share of profit
• Right to receive capital back upon winding up
• Right to sue the general partner if duties are breached

Liabilities:

• Liability is limited to the capital contributed

• If the limited partner manages or represents the firm publicly, they lose limited
liability
• Not allowed to bind the firm to third parties

B. General Partner

Rights:

• Right to manage and represent the firm

• Right to bind the firm by contract
• Right to share profits as per agreement

Liabilities:

• Personally liable jointly and severally

• Liability is unlimited, even for acts of others done in the course of business
 5. Comparison: General Partnership vs Limited Partnership

Basis General Partnership Limited Partnership

Legal Under Partnership Act,
Not formally under 1932 Act (in Bangladesh)
Recognition 1932
General partner – unlimited; Limited partner –
Partner Liability All partners – unlimited
limited
Management All partners may manage Only general partners may manage
In jurisdictions where recognized, must be
Disclosure Not compulsory
registered
Risk High for all partners Lower for limited partner

6. International Position: LLP and Limited Partnerships

• India: Introduced Limited Liability Partnership Act, 2008 – combines features of

company and partnership. LLP is a separate legal entity.
• UK: Governed by Limited Partnerships Act, 1907.
• USA: Every state has its own LLP or LP legislation.

In Bangladesh, only general partnerships are formally governed by the Partnership

Act, 1932, but private agreements may structure limited risk arrangements contractually.

7. Case Reference: Example-Based Illustration

Although not a Bangladeshi case, the principle is well illustrated by:

Smith v. Anderson (1880) 15 Ch. D. 247

Facts: A group of persons subscribed to a joint scheme to promote ships. One investor tried
to avoid liability by claiming he was a mere investor.
Held: Where a person shares in profit and participates in the venture, he may be
considered a general partner, unless explicitly stated otherwise.

Relevance: A limited partner must be clearly defined and separated from management, or
else he risks unlimited liability.
Critical Analysis

• The idea of limited partnership is beneficial for investors who wish to earn profit
without bearing full risk.
• However, in absence of formal legislation in Bangladesh, such arrangements lack
statutory protection and must rely on contractual drafting.
• The growth of LLPs worldwide shows demand for hybrid structures that offer
limited liability with flexible management.
• Bangladesh may consider adopting LLP legislation to promote startup culture and
foreign investment.
 Property of the Firm under the Partnership Act, 1932

1. Statutory Provision – Section 14

Section 14 of the Partnership Act, 1932 defines what is considered as “property of the firm.”
It states:

“Subject to contract between the partners, the property of the firm includes all property and
rights and interests in property originally brought into the stock of the firm, or acquired... for
the purposes and in the course of the business of the firm.”

This means the partnership property is not limited only to the capital contributed by the
partners but also extends to all assets used or acquired in the course of business.

2. What Constitutes 'Property of the Firm'

Section 14 provides a non-exhaustive list, which includes:

A. Capital and Assets Originally Contributed

• Any movable or immovable property (cash, stock, furniture, buildings, machinery)

brought in by partners for the business.
• This becomes joint property unless the agreement states otherwise.

B. Property Acquired with Firm’s Money

• If an asset is purchased using partnership funds—even if in the name of one partner—

it becomes firm property (unless proven otherwise).

C. Goodwill of the Business

• Goodwill is explicitly recognised as property of the firm.

• It includes the firm's reputation, customer base, trade name, and business value.
• Can be sold during dissolution.

D. Property Used in Course of Business

• Even if purchased by a partner in his name, if used exclusively for the firm, courts
may presume it is firm property.
 3. Key Judicial Principles and Case Laws

Case 1: Boda Narayana Murthy v. Kancharla Kesava Rao (AIR 1972 AP 197)

Facts: Property purchased in a partner’s name using firm money.

Held: Property was firm property since it was acquired from partnership funds for business
purposes.

Principle: Title is less important than source of funds and purpose of acquisition.

Case 2: Narayanappa v. Bhaskara Krishnappa (AIR 1966 SC 1300)

Held: Property used in business and treated as joint property by conduct of partners may be
firm property even without formal transfer.

Case 3: Gurbux Rai v. Kartar Singh (AIR 1980 P&H 290)

Held: Merely allowing firm to use property does not automatically make it firm property
unless there is intention or agreement to treat it as such.

4. Distinction: Firm Property vs Personal Property of Partners

Basis Firm Property Personal Property

Source of Purchase From firm’s funds From individual’s money
Ownership Joint among all partners Owned by individual partner
Use Exclusively for firm business May be for private or firm use
Treatment upon Dissolution Divided among partners Returned to owner
If no clear agreement exists, courts examine intention, usage, and funding source.

5. Goodwill – An Intangible but Valuable Asset

• Goodwill refers to the reputation and customer loyalty the business enjoys.
• Can be bought or sold during dissolution or retirement of a partner.
• Courts treat it as part of firm’s assets.
 Case: Commissioner of Income Tax v. B. C. Srinivasa Setty (1981)
Held: Goodwill is a capital asset and subject to taxation when transferred.

6. Contractual Override

Section 14 is subject to contract between the partners. That means:

• Partners can exclude certain property from being treated as firm property.
• A partner may allow use of his land for business without transferring ownership.
• The agreement must be clear, unambiguous, and preferably in writing.

7. Critical Analysis

• The principle behind Section 14 is to ensure that assets used in business are jointly
accountable.
• However, in absence of written records, disputes often arise about ownership.
• Courts have adopted a practical and intention-based approach in interpreting
ownership.
• In modern practice, it is strongly advised to document property ownership, especially
for land, buildings, and machinery.

Conclusion

The property of a firm under Section 14 is a fluid and inclusive concept. It comprises all
tangible and intangible assets that are:

• brought into the firm,

• acquired with firm funds, or
• used exclusively for firm business.

Proper documentation and mutual understanding among partners are essential to avoid legal
disputes, especially during dissolution, death, or retirement.
 Advanced Topics on Firm Property under Section 14 of
the Partnership Act

1. Partner’s Property in Firm’s Use

Concept:

Sometimes a partner allows the firm to use his personal property (like land, building,
machinery) without transferring ownership. The use alone does not convert it into firm
property, unless there is a clear intention or agreement to treat it as such.

Section 14 is subject to contract between partners. So, intention governs.

Case: Gurbux Rai v. Kartar Singh (AIR 1980 P&H 290)

Facts: A partner allowed firm to use his land but did not transfer title.
Held: Use alone is not sufficient to treat the property as firm’s—intention must be
established.

Key Principle:

Mere use of a partner's personal property by the firm ≠ firm property.

Practical Risk:

• Disputes arise during dissolution when other partners claim equal share in such
property.
• If not clarified, prolonged litigation may result.

2. Conversion of Property to Firm’s Use

Concept:

If a partner intends to convert his personal property into firm property, there must be:

• Clear intention
• Agreement or conduct showing change in ownership
• Ideally, transfer entry in books of account
 Not mandatory to execute a deed—but strong evidence must exist.

Case: Narayanappa v. Bhaskara Krishnappa (AIR 1966 SC 1300)

Held: Property brought into the firm becomes firm property when there is clear intention,
even without formal documentation.

Practical Example:

• A partner brings his personal shop into use by the firm.

• Later, in the books, the asset is recorded as “Firm Property.”
• Such conversion must be supported by conduct and records.

3. Property Subsequently Acquired

Concept:

Property acquired during the course of the partnership may become firm property if:

• Purchased with firm funds

• Purchased for the business
• Used exclusively by the firm

Under Section 14, if the property is acquired for the purpose of the business, it is
presumed to be firm’s asset.

Case: Boda Narayana v. Kancharla Kesava Rao

Held: Property purchased during partnership with firm’s money becomes firm’s property—
even if registered in the name of a single partner.

Note:

If a partner buys a property for his personal use during the firm's existence—but uses firm
money—it will be firm property unless proven otherwise.
 4. Property Bought In

Concept:

"Bought in" refers to acquisition of assets using firm funds or during auctions (e.g., buying
foreclosed assets in firm’s name).

If a partner buys in his own name, but with firm’s money or for firm use, courts may
treat the property as firm property, unless a contrary intention is clearly shown.

Case: Addanki Narayanappa v. Bhaskara Krishnappa

Held: Even without documentation, conduct and use can indicate property is for the firm.

A tricky situation arises when:

• A partner buys land in his own name using firm money, but claims it as personal.
• If he does not account for that purchase in the books, litigation may follow.

Critical Analysis

Strengths of the Legal Framework:

• Section 14 gives a flexible but principled definition.

• Courts prioritize intention and conduct over formality.
• Protects both internal partners and external creditors.

Weaknesses / Legal Gaps:

• The law does not require documentation for conversion → creates ambiguity.
• No provision for valuation of partner’s property converted into firm assets.
• Oral agreements are allowed but hard to prove → high risk of manipulation.

Special Challenges:

• In real estate-heavy partnerships, title disputes frequently arise.

• Heirs of deceased partners may challenge firm’s claim over property.
• If firms use family-owned property, lines often blur between personal and business
ownership.
 Possible Problematic Questions That Arise

1. Can use of property over a long period be treated as implied transfer to firm?
o Courts say no—intention is essential.
o Long use ≠ ownership.
2. What if property is in partner’s name, but acquired with firm money?
o Presumption is: firm property—unless partner rebuts with evidence.
3. During dissolution, how is value of such property accounted for?
o If firm property: included in firm assets.
o If personal: returned to partner after settling accounts.
4. If there’s no written deed, can property still be treated as firm’s?
o Yes, based on conduct, usage, source of funds, and partners’ admissions.
5. If the property is mortgaged or charged, who bears the liability?
o If firm property: all partners jointly.
o If personal: individual partner, unless firm benefited.

Conclusion

Understanding the boundaries between partner’s property and firm property is crucial in
partnership law. Section 14 offers a flexible yet powerful tool for determining ownership, but
documentation and clarity of intention are vital to avoid disputes. Courts lean on conduct,
source of funds, and mutual understanding—not just registration or titles.
 Partnership Act, 1932 – Complete Commentary with Case
Laws and Section-wise Analysis
This book offers an in-depth explanation of the Partnership Act, 1932, focusing on each
important topic, statutory provisions, landmark case laws, and critical commentary. It is
structured for academic, professional, and examination purposes.

...

15. Critical Problem Scenarios and Model Answers

...

Q6. Two firms with similar names exist. One is registered, the other is not. A
customer confuses them and sues the unregistered one. Can the firm defend itself?

Relevant Law: Section 69 (Non-registration consequences), Section 58 (firm name in

register)

Answer: No. The unregistered firm cannot enforce or defend contractual rights due to its
status. It also may be liable for passing off or confusion caused due to similar name.

Case Reference: Not directly on point, but general principles of contract and
misrepresentation apply.

Analysis:

• Naming clarity is crucial.

• Registrar should have stronger controls to prevent name overlap.

Q7. A sleeping partner’s name was never disclosed to outsiders. After retirement, is
he required to give public notice?

Relevant Law: Section 32(3) Proviso

Answer: No. A dormant partner who was never known to outsiders is not required to give
public notice upon retirement.
 Analysis:

• Protects privacy of passive investors.

• But creates risk of silent liability if name was even informally used.

Q8. A partner deposits personal property into firm for business use. No express
agreement. Later, he claims ownership. Is it firm property?

Relevant Law: Section 14 – Property of the firm

Case: Boda Narayana v. V. Subba Rao

Answer: If property is used for firm purposes and entered into firm books as capital or
asset, it becomes firm property, unless clear evidence proves otherwise.

Analysis:

• Burden of proof on partner claiming personal ownership.

• Must maintain separate records to preserve claim.

Q9. A firm continues using goodwill of a deceased partner without paying his heirs.
What are the legal remedies?

Relevant Law: Section 37, Section 55

Answer: Heirs of deceased partner can claim:

• Share of profits attributable to use of their goodwill/property, or

• Interest @6% p.a. until payment (Section 37)

Case: Garner v. Murray (analogous)

Analysis:

• Goodwill has value.

• Usage without consent or settlement invites compensation.
 Q10. Can a partner be expelled by majority vote for misconduct if the partnership
deed is silent?

Relevant Law: Section 33 – Expulsion must be bona fide and as per agreement

Case: Blisset v. Daniel (1853)

Answer: No. Expulsion must be expressly provided in agreement. Even then, it must be
in good faith.

Analysis:

• Procedural fairness and contractual provision are mandatory.

• Abuse of majority power is not allowed.
 Relations of Partners to Third Parties
(Under Sections 18 to 30 of the Partnership Act, 1932)

Introduction

Partners are agents of the firm and of each other when acting in the course of business.
Therefore, any act done by a partner within their authority—express or implied—can legally
bind the firm in contracts with third parties.

Express Authority of Partner

• Express authority is directly given by the partnership agreement or by mutual

consent.
• A partner must act within the boundaries of such authority.

Section 19(1) – A partner is an agent of the firm for its business.

Polkinghorne v. Holland (1934)

A partner guaranteed a third party’s loan without express authority.
Held: Firm was not liable.

Implied Authority of a Partner

• Arises from the nature of the firm and ordinary course of its business.

Section 19(1) – A partner has implied authority to do acts usual in the business.

Examples:

• Buying/selling goods
• Hiring employees
• Receiving payments
• Issuing receipts
• Managing accounts
 Scope of the Implied Authority

Section 19(2) excludes the following from implied authority:

A partner cannot (without express authority):

• Submit disputes to arbitration

• Open bank accounts in their own name
• Transfer immovable property
• Admit liabilities in legal suits
• Compromise firm claims

Goodman v. White (1874)

Signing a promissory note was beyond business practice.
Held: Firm not bound.

Restriction of Implied Authority

Section 20 – Partners can contractually restrict implied authority.

Such restriction binds third parties only if they have notice.

Scarf v. Jardine (1882)

Partner exceeded internal limits. Third party was unaware.
Held: Firm still liable.

Partner’s Authority in an Emergency

Section 21 – A partner may do all necessary acts to protect the firm from loss in
emergencies, like:

• Preventing perishable goods from rotting

• Taking emergency insurance cover

United India Sugar Mills v. M.S. Ramaswamy (1962)

Emergency actions to protect firm's assets were upheld.
 Modes of Exercising Authority

1. Actual Authority – Express or implied from contract

2. Apparent Authority – Third party reasonably believes it exists
3. Usual Authority – Based on trade custom

Cox v. Hickman (1860)

Sharing profits is not enough—must have mutual agency.

Admissions by a Partner

Section 23 – Admissions/statements made by a partner:

• Bind the firm only if made in the ordinary course of business

Behari Lal v. Sunil Kumar (1938)

Admission by inactive partner held non-binding.

Effect of Notice to Acting Partner

Section 24 – Notice given to an acting partner is deemed notice to the firm, provided it
is:

• In the ordinary course of business

• Within scope of authority

Lang v. Gray (1865)

Notice to a managing partner was binding on firm.

Liabilities of Partners to Third Parties

Section 25 – Partners are jointly and severally liable for firm debts.
Section 26 – Firm is liable for wrongful acts of a partner done in ordinary business.
Section 27 – Firm is liable for misuse of third-party property/money by any partner.
Section 28 – Even a non-partner can be liable under doctrine of holding out.
Section 29 – Incoming partners are not liable for debts prior to joining.
 Hamlyn v. Houston & Co. (1903)
Partner bribed foreign official while conducting firm’s business.
Held: Firm liable, as act was in course of employment.

Critical Analysis

• This part of the Act strongly protects third parties dealing with the firm in good faith.
• But partners must maintain clarity about who is authorised to act on behalf of the
firm.
• Restrictions should be notified to outsiders, or else the firm remains liable.
• The doctrine of holding out creates liability even when there is no real partnership—
only appearance.
 Partnership Act, 1932 – Complete Commentary with Case
Laws and Section-wise Analysis
This book offers an in-depth explanation of the Partnership Act, 1932, focusing on each
important topic, statutory provisions, landmark case laws, and critical commentary. It is
structured for academic, professional, and examination purposes.

...

15. Critical Problem Scenarios and Model Answers

...

Q6. Two firms with similar names exist. One is registered, the other is not. A
customer confuses them and sues the unregistered one. Can the firm defend itself?

Relevant Law: Section 69 (Non-registration consequences), Section 58 (firm name in

register)

Answer: No. The unregistered firm cannot enforce or defend contractual rights due to its
status. It also may be liable for passing off or confusion caused due to similar name.

Case Reference: Not directly on point, but general principles of contract and
misrepresentation apply.

Analysis:

• Naming clarity is crucial.

• Registrar should have stronger controls to prevent name overlap.

Q7. A sleeping partner’s name was never disclosed to outsiders. After retirement, is
he required to give public notice?

Relevant Law: Section 32(3) Proviso

Answer: No. A dormant partner who was never known to outsiders is not required to give
public notice upon retirement.
 Analysis:

• Protects privacy of passive investors.

• But creates risk of silent liability if name was even informally used.

Q8. A partner deposits personal property into firm for business use. No express
agreement. Later, he claims ownership. Is it firm property?

Relevant Law: Section 14 – Property of the firm

Case: Boda Narayana v. V. Subba Rao

Answer: If property is used for firm purposes and entered into firm books as capital or
asset, it becomes firm property, unless clear evidence proves otherwise.

Analysis:

• Burden of proof on partner claiming personal ownership.

• Must maintain separate records to preserve claim.

Q9. A firm continues using goodwill of a deceased partner without paying his heirs.
What are the legal remedies?

Relevant Law: Section 37, Section 55

Answer: Heirs of deceased partner can claim:

• Share of profits attributable to use of their goodwill/property, or

• Interest @6% p.a. until payment (Section 37)

Case: Garner v. Murray (analogous)

Analysis:

• Goodwill has value.

• Usage without consent or settlement invites compensation.
 Q10. Can a partner be expelled by majority vote for misconduct if the partnership
deed is silent?

Relevant Law: Section 33 – Expulsion must be bona fide and as per agreement

Case: Blisset v. Daniel (1853)

Answer: No. Expulsion must be expressly provided in agreement. Even then, it must be
in good faith.

Analysis:

• Procedural fairness and contractual provision are mandatory.

• Abuse of majority power is not allowed.