Unit IV: Indian Partnership Act, 1932

Dr. Nikhila Shankar Tigadi

Forms of Business Organisation & Nature of partnership
▪ Sole- trade Business (where one single individual with his own resources, skill and efforts carries on
his own business)
▪ Partnership firm (where two or more persons join together for jointly carrying on some business)
- Earlier, Section 11 of the Companies Act, 1956, imposed a limit on the maximum number of persons
in a partnership, 20 in case of banking business and 10 in case of any other business. However, it is
now raised to 50 partners by the enactment of Indian Companies Act, 2013.
▪ Company (formed under the Companies Act, 2013)
▪ The distinctive feature of the company is, a company is an artificial person distinct form its members
and the liability of the members is limited.
▪ While, the Partnership is a more suitable form of business, as less formalities are required to form
and dissolve the partnership firm. Just an agreement between the partners are sufficient. The
Partnership firm operates with the least statutory control.
 BACKGROUND OF INDIAN PARTNERSHIP ACT, 1932
▪ The law of partnership was the part of Indian Contract Act 1872 which was dealt under sections 239 to 266
(Chapter XI). However, in 1932, it was repealed and Indian Partnership Act,1932 came into existence.

▪ This Act came into force on 1st October, 1932. The Act consists of 74 sections.

▪ A partnership arises from the contract. So the contract is governed not only by the provisions of the Partnership
Act, but also by the general law of contract in such matters, where the Partnership Act does not specifically make
any provision.

▪ For instance: The provisions of offer, acceptance, consideration, free consent, legality of object etc. are applicable
to the Contract of Partnership too.

▪ However, Section 30 of Indian Partnership Act, 1932 provides for the position of minor contract, therefore, the
provisions of the Indian partnership is applicable.
 Meaning of Partnership
▪ Sec. 4 of Indian Partnership Act, defines Partnership as:

“Partnership is the relation between the persons who have agreed to share the profits of the business carried on
by all or any of them acting for all”.

▪ The person who has entered into the partnership agreement with one another is individually called partners and
collectively known as a firm.

▪ Sec.2(b) of the Indian Partnership Act, 1932 defines the term business as:

▪ Business includes every trade, occupation or profession.

▪ Partnership firm has no separate legal entity from its partners.

▪ Partnership is not a juristic person since the firm has no separate legal existence.
 ESSENTIAL ELEMENTS OF PARTNERSHIP (Mode of Determining
Existence of Partnership –Section 6)
➢ Association of two or more persons
• There should be at least two competent parties to form a partnership. Hence, any person who is a minor or of unsound mind are
not qualified by law to be a partner.
➢ Agreement (Sec.5)
• There must be an agreement to form a partnership.
• This agreement may be express or implied.
• Partnership is created by contract and not from status. Ex:- members of a Hindu undivided family carrying on a family business
as such, or a Burmese Buddhist husband and wife carrying on business as such, are not partners in such business
• If one of the partners is expired, his son or daughter will not automatically become partners unless there is an agreement between
them to carry on the business as a partner.
➢ Business
• A partnership can be formed only for the purpose of carrying on some business. Where there is no business to be done there can
be no question of partnership.
• The term business includes every kind of commercial activity aimed at earning profits. The business for instance may be of working
as tailors, engaging in legal profession, rendering medical services, producing a film or purchasing and selling of goods.
• The business to be carried on by the firm must be legal.
• When the goods are purchased for resale, it is a business transaction. However, if a group of persons
purchase goods in bulk and divide the goods amongst themselves with a view to have the benefit of bulk
purchase.- not partnership.
- The Co. purchased the oil in its own name
• Coope v. Eyre (1788) without any notification to the plaintiffs
that other three persons had any concern in
Agreement to purchase the oil and it.
distribute the same between itself - Later, the Co. became bankrupt, the seller
and three persons, who have agreed sued the other three persons (to recover
to pay for the oil to Eyre & Co the price of the oil).
- Held: Oil purchased was not for resale,
three other hence there was no business transaction
Eyre & company between Co. and the three other and
persons
therefore no partnership between them.
- Reasons: Not agents- three other persons
were interested in the purchase and not in
resale.
▪ The Business should be ‘carried on’ by all the partners or any of them acting for all of them.
- Carried on involves series of transactions. Single transaction of purchase and sale by a group of persons does not
mean carrying on business

Purchased the property for

consideration of 2 lakh and sold the
A B same later for 3 lakh and shared the
profit equally. – Not Partners

- However, there might be possibility that the partners may engage in a single venture or undertaking and that may
involve the carrying on of a business. For instance: Production of film.

- Plaintiff and two defendants joined together and obtained a contract for the maintenance of a road. Though the
transaction was arising out of single transaction, the firm had to employ certain workers, supervise the work,
prepare the bills, finalize the work, get the approval from the government and finally receive the bills. All these
activities meant carrying on business and therefore held to be a partnership. –K. Jaggaiah v. Kokumanu (1984)
➢ Sharing of profits (Sec.6)
• The object of every partnership must be to carry on the business and share the profits.
• Profits must be distributed among the partners in an agreed ratio.
• The partners may agree to share profits in any manner they like. They may share it equally or in any other
proportion.
• Exception
- The following persons who receives share or payment are not a partner:
▪ The Money Lender
▪ The Servant or agent (Remuneration)- McLaren v. Verschoyle (1901)
▪ The widow or child of a deceased partner- Home v. Hammond (1884)
▪ The seller of goodwill may be entitled to share the profits of a business in consideration for the sale of
goodwill
- A doctor sold the good will of medical practice and entered into an agreement with the buyer of the
goodwill that he would help such buyer to introduce patients for 3 months and he would be entitled to
half share of profits and incur the expenses. Held: No partnership between the doctor and the purchaser.-
Pratt v. Strick
➢ Mutual agency (Sec.6)
▪ Real test of Partnership is Mutual Agency
▪ The business of partnership may be carried on by all the partners or any of them acting for all.
▪ In a firm each partner is a representative of the other partners.
▪ Each of the partners is acting as an Agent to other partners.
➢ Restriction on the transfer of shares
▪ No partners can sell or transfer his share to the third party without the consent of all the partners.
➢ Extent of liability
▪ Liability of each partner for the firm is unlimited.
▪ The creditors have the right to recover from the firm debt from the private property of any or all the
partners.
➢ No separate entity
▪ Partnership is an association of person who are individually called as partners and collectively called
firm.
▪ Legally a partnership firm is not a separate entity from the partners.
 TYPES OF PARTNERSHIP
- At the time of partnership agreement, the partners may fix the duration of the partnership or they may not fix the
duration.
➢ Partnership for a fixed term
• It is a partnership created for a fixed period of time. When the fixed period is over, partnership comes to an end.
➢ Partnership at will
• According to Sec 7 of the Act, where partners have not agreed on the duration of the partnership or termination, it is
called Partnership at will. – Kangamal v. Theatre Abirami, Partnership Concern (2009)
• A Partnership at will may be dissolved by any partner by giving notice in writing to all the partners of his intention to
dissolve the firm.
➢ Particular partnership
• When a partnership is formed for a specific venture, the partnership is called particular partnership. (Sec. 8)
• It comes to an end on the completion of the venture.
➢ General Partnership
• When the partnership is created for the purpose of carrying out the business. There is no particular task that has to be
completed. The task is general in nature.
 Types of Partners
1) Actual or Active
2) Sleeping or Dormant partners
3) Incoming Partner
4) Outgoing Partner
5) Secret Partner
6) Nominal Partners or Ostensible Partners
7) Partner in profits only
8) Partner by Estoppel or holding out
9) Minor as a partner for benefits (As a Beneficiary)
1) Actual or Active Partners
▪ A partner who is by agreement actively involved in the management of the business is known as Actual or
Active partner.
▪ He carries on the daily business on behalf of all the partners. This means he acts as an agent of all the
other partners on a day to day basis and with regards to all ordinary business of the firm.
▪ Hence when an active partner wishes to retire from the firm he must give a public notice about the same.
▪ Unless he gives a public notice he will be liable to third parties for all acts even after his retirement.
2) Sleeping or Dormant partners
▪ A sleeping partner is a partner who does not take active part in the management of the business or the
daily functioning of the partnership firm, i.e. he does not take an active part in the daily activities of the
firm.
▪ He is however bound by the action of all the other partners.
▪ He merely invests towards capital and claims a share of the profit as per agreement.
▪ If such a dormant partner retires he need not give a public notice of the same
3) Incoming partner
• A person who is admitted as a partner in an existing partnership is called as incoming partner.
• He is not liable to the creditors for anything that has happened before he joined the business
4) Outgoing partner
• Partner leaving the existing firm is called an outgoing partner or retiring partner.
• An outgoing partner is liable for the debts incurred before retirement
5) Secret Partner
• In a partnership, the position of secret partner lies between the active and sleeping partner.
• The membership of the firm of a secret partner is kept secret from the outsiders and third parties.
• His liability is unlimited since he holds a share in profit and shares liabilities for losses in the business.
• He can even take part in working for the business.
6) Nominal Partners or Ostensible Partners
• A partner who merely lends his name to be a partner without having any real interest in the business.
• He does not invest any capital and he does not share any profits of the firm.
• May be the reputation of such individuals may enhance the business of the partnership firm
7) Partner in profits only
• By agreement, this type of partner will only share the profits of the firm, he will not be liable for any loss caused
by the firm.
• When dealing with third parties he will be liable for all acts of profit only, he will share none of the liabilities
8) Partner by Estoppel or holding out
• When a person is not a partner but he pretends to be partner by words spoken or written or by his conduct is
called partner by estoppel or holding out.
• He shall be liable for the third party who deals with the firm on the supposition that he is a partner even though
he is not a partner.
 MINOR AS A BENEFICIARY
• A minor cannot become a partner in the partnership because according to Indian Contract Act, 1872
Minor is incapable of entering into the contract of partnership but he may be admitted to the benefits
of partnership with the consent of all the partners.- Sec. 30, The Partnership Act, 1932.

• The position of minor partner is studied under two heads:

➢ Position before majority:

• Every minor as a beneficiary has a right of share in the profits and property of the business as agreed
by the members.

• Minor's share is liable for the acts of the firm but the minor is not personally liable for any such act.

• Minor may not sue the partners for an account or payment of his share of the property or profits of
the firm.
➢ Position after majority:
• The minor has to declare within six months on attaining majority or obtaining knowledge that he had
been admitted to the benefits of partnership, whichever date is later, that whether he shall continue in
the firm or leave it.
• If he fails to declare, he becomes partner in the firm at the end of six months.
1) When he elects to be a partner:
• He becomes personally liable to all the third parties for all the acts of the firm since he is admitted to the
benefits of partnership.
• He is entitled to the share in the profits of the firm, as he was entitled as a minor.
2) When he elects not to become a partner:
• His right and duties continue to be as a minor up to the date of notice.
• He is not liable for any act of the firm done after the date of public notice.
• He has a right to sue the partners if his share of profits is denied.
 PARTNERSHIP DEED
• Partnership is the result of an agreement which may be in writing or formed verbally. But it is desirable to

have the partnership agreement in writing to avoid future disputes.

• The deed is required to be duly stamped as per the Indian Stamp Act, 1889 and duly signed by all the

partners.

• The agreement between the partners is written in a partnership deed.

• Partnership deed is not a public document like M.O.A (Memorandum of Association)

 CONTENTS OF PARTNERSHIP DEED
1) Name of the firm.
2) Name and addresses of all the partners.
3) Nature and place of the business.
4) Term or duration of partnership.
5) Amount of capital to be contributed by each partner.
6) The interest to be allowed on capital, and charges on drawings.
7) Rights of partners.
8) Duties of partners.
9) Ratio in which the profits and losses are to be shared.
10) The procedure of admission and retirement of a partner.
11) Settlement of amount in case of retirement, death of partners or dissolution of the firm.
12) The procedure to be adapted in case of disputes.
 RULES TO BE FOLLOWED IN THE ABSENCE OF PARTNERSHIP DEED

• The partners will share the profits and losses equally.

• They will not get any interest on capital.

• No salary for the partners.

 Relation of Partners Inter se (Sec. 9 -17)
- Relation of partners Inter se means relation of partners to one another, i.e., the rights and duties of the
partners as between themselves.
- Two fundamental principles:
a) Freedom to settle their mutual rights and duties by their own voluntary agreement. (Sec. 11)
- The rights and duties of the partners are to be determined by the mutual agreement, which is however,
subject to the provisions of the Act.
- Further, Section 11 (2) gives the liberty to the partners to make a contract that a partner shall not carry on
any business other than that of the firm while he is a partner. (Exception to Section 27 of Indian Contract
Act, 1872)
b) Mutual trust and confidence. (Sec. 9)
- Every partner is bound to be just and faithful to each other and has the power to bind them into any
amount of liability.
 RIGHTS OF THE PARTNERS (Sec.12 & 13)
1) Right to participate in the conduct of business (Sec 12(a))

▪ Each partner has the right to participate in the business of partnership so as to promote the interest of the firm and
not for damaging the interest of the firm.

Suresh Kumar v. Amrit Kumar (1982) A partner in order to undermine the position of the managing
partner, wrote to the Principals of the firm not to supply motor
vehicles and to the bankers to not to honor the firm’s cheques.
Held: Partner was acting against the interest and injunction was
issued.
Horace Kevin Gonsalves v. Prabha Ganpat One of the partner executed a power of attorney in favor of a third
Borkar (2015) person to deal with the property of the firm, without the consent of
the other partners. Held: Power of attorney was held to be invalid.
2) Rights to access and inspect books and accounts (Sec 12 (d))
This right is also given to the active and dormant partner. Each partner has a right to access and inspect the books of
account of the firm.
3. Right to be indemnified (Sec 13(e))
▪ The partners have a right to be indemnified for the decision taken in the course of the business. But such a
decision is to be taken in the case of urgency and should be of such nature that the ordinary prudent person
would take and incurred some personal expenditure.
4. Right to express his opinion (Sec 12 (c))
▪ Each partner has a right to express his opinion with regard to the business affairs.
▪ When there is a difference of opinion between the partners, majority of the partners cannot ignore the minority
and take decisions without consulting them.
▪ The difference of opinion may be as to:
a) The ordinary matters connected with the business, the same may be resolved by the decision of majority of
the partners after giving an opportunity to express to all the partners.
b) Where the matter is of fundamental importance (for ex: Admission of partner), consent of all the partners is
must be obtained. This provision is subject to the contract between the parties.
5. Right to Profits (Sec 13(b))
- Partners have right to share profits as per the terms agreed in the partnership deed.
- In the absence of the agreement, Partners are entitled to share equally in the profits/losses earned or incurred
by the firm.
- Since every partner is entitled to share the profits, no other remuneration, as a general rule, is paid to a partner
for the management of the firm’s business. However, if a partners agree, additional salary or commission is
paid to a partner for the efforts taken up by him in running the business.
6. Right to Interest on capital and advances (Sec 13 (c) & (d)
- Partners are not entitled to interest on the capital subscribed by the partners unless agreed by the partners in
the partnership deed.
- The interest, if any to be paid is agreed by the partners, shall be paid only out of profits.- Sec 13 (c)
- If any partner has advanced further capital, he is entitled to claim interest on the further advances at the rate
of 6% per annum. - Sec 13 (d)
7. Right to prevent the introduction of a new partner [Section 31]
- Every partner has the right to prevent the introduction of a new partner without the consent of all the existing
partners.
8. Right to retire [Section 32]
- Every partner has the right to retire with the consent of all other partners and in the case of a partnership at will,
by giving notice to that effect in writing to all the other partners.
9. Right not to be expelled [Section 33]
- Every partner has the right not to be expelled from the firm by any majority of partners unless such power is
conferred by partnership agreement and is exercised in good faith.
10. Right to carry on competing business [Section 36(1)]
- Every outgoing partner has a right to carry on a competing business and to advertise such business. But, he
cannot (i) use the firm's name; (ii) represent the firm, or (iii) solicit the firm's customers.
11. Right to share subsequent profits [Section 37]
- Every outgoing partner or the estate of any partner who ceased to be a partner has the right to claim either a
share in the subsequent profits of the firm or interest @ 6% p.a. on his share in the firm's property till the
accounts are finally settled.
 Duties of partners
▪ Duty to carry on the business to the greatest common advantage (Sec 9)
- Partnership is based on mutual trust and confidence.
- Partners should not make any personal gain at the cost of others.
▪ Duty to be just and faithful to each other (Sec 9)
- As there is a mutual agency between the partners and for the act of the one partner, he can bind other partners to an
unlimited extent, therefore, every partner is expected to be just and faithful to his co-partners.
- For instance: when an active partner is acting on behalf of sleeping partner; where a partner is guilty of a conduct which
destroys mutual confidence viz., one partner commits adultery with another partner’s wife.
▪ Duty to render true accounts (Sec 9)
- Every partner is bound to keep and render true and complete accounts of all the partnership moneys with him.
- Every partner has the right to have access to and to inspect and take a copy of any of the books, including the account books
of the firm.
- Partners should not mix up his money with that of the firm nor should he wrongly spend or misappropriate the firms money.
▪ Duty to render full information of all things affecting the firm (Sec 9)
- As every information to the agent is deemed to be the information to the Principal, therefore, it is the duty of
every partner to pass on full information of all things affecting the firm to his other fellow partners.
- Concealment of the facts by a partner renders him liable to others.
▪ Duty to indemnify fraud (Sec 10)
- Where a partner commits a fraud against the third party while acting in the ordinary course of business of the
firm, the third party can make the firm liable for the same.
- Section 10 allows the firm to recover the indemnity from the partner guilty of fraud because of which the firm
had to suffer the loss.
▪ Duty to act diligently [Sec 12(b) and 13 (f)]
- It is the duty of the partners to act with due care and diligence because his actions will affect all other partners.
If his wilful act causes a loss or injury to other partners, he is entitled to pay compensation to the affected
partners.
▪ Duty to use the firm property exclusively for the purpose of business (Sec 14 & 15)
- The partners can use the firm property for the purpose of the business but not for its personal purpose. The
partner must use the property in a lawful manner. They must not make a personal gain from such property.
▪ Duty not to earn personal profits or to compete (Sec 16 & 17)
- As the partnership business belongs to all the partners jointly, therefore, no partner is expected to make any
personal profit at the cost of the other partners and he is also not expected to engage in competing
business. (Sec 16)
Bentley v. Craven (1853) One of the partners in a firm of sugar refiners, who was considered an expert in
the job, was entrusted with the duty of purchasing sugar for the firm for being
refined. He himself was a whole sale dealer in sugar and therefore he supplied the
sugar that he had purchased at lower price to the firm, without the knowledge of
the other partners and thereby made profits. Held: the partner was bound to
account to the firm for the profits made.
Gordon v. Holland (1913) A partner sold the land belonging to the firm to a bona fide purchaser and then
repurchased that land himself. Held: all the benefits made by this partner on re-
purchase of the land had to be given to the firm.
▪ Duty not to compete

- Partner should not carry on a competing business.

- If a partner carries on any business of the same nature as and competing with that of the firm, the partner
shall account for all the profits earned in competing business.
 Relation of Partners to third Parties
▪ The relation between the partners and third parties is founded on the principle of Mutual agency. i.e., a partner is an
agent of the firm and all the partners of the firm are bound by the act of a partner as any principal would be bound by
the act of his agent.

Liability of Partners

▪ Liability of partners for the acts of the firm (Section 25): All the partners are jointly and severally liable for the acts of the
firms. He is liable only for those acts which are done at the time when he is a partner.

▪ Liability of a firm for the wrongful acts of partner (Section 26): When any wrongful act or omission is done by any of its
partners in the ordinary course of its business or with the consent of other partners then the firm is liable to the same
extent as a partner.

▪ Liability of a firm for the misapplications by partner (Section 27): When any partner is acting as an agent, receives the
money from the third party and misapplies it or the firm receives the money and money are misappropriated by any of its
partners, then the firm is liable to pay for the loss suffered.
Liability of a partner for the acts done within the authority
- A partner being the agent of the firm, his act binds the firm provided that the partner is acting within
the authority vested in him.
- As like the Contract of Agency, the authority of the partner may be either express or implied.
- Express Authority: Where the authority is conferred by the words spoken or written.
- Implied Authority: An authority is said to be implied, when it is inferred from the circumstances of
the case.
- For instance: If a partner is authorized to recover 1 lakh rupees from B. In this case, partner also has
the implied authority to file a suit for recovery of the amount.
- Section 19(1) provides 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. The authority of a partner to bind the firm conferred by this section is called
‘implied authority’.
When an act of a partner binds the firm?
- 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.

- Where a partner signs an instrument or executes a document without clearly indicating that he is acting as a
partner or on behalf of others although the name of the firm is mentioned in the letter head, will not create the
liability on the other partners.

- One of the partner signed, a promissory note paper on which the name of the firm ‘Lahore Cotton Bailing Press’
was printed, without indicating that he was signing as a partner or on behalf of the firm. Held: Partner should
be made personally liable. Johnstone v. Jan Bibi (1928).
 Statutory Restriction on implied authority of a partner (Sec.
Acts within the implied authority 19(2))
▪ Purchasing goods on behalf of the firm in ▪ Cannot submit a dispute relating to the business of the firm
which they deal. to arbitration
▪ Selling the goods of the firm. ▪ Cannot open a bank account on behalf of the firm in his own
name.
▪ Receiving payments of the debts and giving
receipts for them. ▪ Cannot withdraw a suit or proceedings on behalf of the firm.

▪ Settling accounts with the person dealing ▪ Cannot compromise or relinquish any claim or portion of a
with firm. claim by the firm.
▪ Cannot acquire immovable property on behalf of the firm.
▪ Engaging servants for the partnership
business. ▪ Cannot transfer immovable property belonging to the firm.
▪ Borrowing money on the credit of the firm ▪ Cannot enter into partnership on behalf of the firm.
- Extension or restriction of implied authority by agreement (Sec. 20)

- Partner’s authority in an emergency (Sec. 21)

- Admission and representation made by one partner concerning the affairs of the business (viz.,
execution of any document, payment of money, supply of goods or financial condition of the
business) will be evidence against all the other partners – Sec. 23

- Effect of notice to an acting partner except in cases of fraud (Sec 24)

 Doctrine of Holding Out (Sec. 28)
▪ Generally, a person who is not a partner is not
made liable. However, there are certain A B C
circumstances, where a person who is not a
partner is deemed to be a partner and made
liable.
▪ According to the doctrine of Holding out, if a
person who is not a partner, by his
representation, creates an impression in mind D E
of the third party that he is a partner, on the
basis of which the third party gives the credit
to the firm, the person making the
representation will be held out to be a
partner.
 Essentials of Doctrine of Holding Out
1. Representation:
- A representation must be made by person by words spoken or by his conduct that he is a partner in the
firm.
- Motive of the person making the representation is immaterial.
- A person knowingly permitted the representation to be made by someone else. – Munton v. Rutherford .
- Mere carelessness in allowing oneself to be represented may not necessarily mean that he has knowingly
permitted to be represented as a partner. – Tower Cabinet Co. v. Ingram (1949)
2. Acting on the faith of representation and giving credit
- If a person while giving the credit does not know about the representation, he can’t take the advantage of
this doctrine and make such a person liable as a partner.
- Limitation on doctrine of holding out: The doctrine of holding out is not applicable in cases of tort
committed by one of the partners.
▪ Position of a retiring partner or deceased partner under doctrine of holding out
 REGISTRATION OF PARTNERSHIP
▪ Registration of Partnership is not mandatory under the Indian Partnership Act, 1932. However, non-registration of partnership might
suffer from some key critical disabilities.
PROCEDURE FOR REGISTRATION
▪ Sec 58 & 59 deal with the procedure for the registration of the firm.
▪ An application in the prescribed form has to be filed with the registrar of firms of the area, where place of the business of the firm
is situated or proposed to be situated.
▪ Sec 57 deals with appointment of registrar of firms. The state govt. is empowered to appoint registrar of firms for carrying out the
purposes of act and lays down the areas within which they shall exercise their powers and perform their duties.
• The application shall state the following:
1) The name of the firm.
2) The place of the business of the firm.
3) The name of any other place where the firm carries on business.
4) The date when each partner has joined the firm.
5) The name in full and the permanent addresses of all the partners.
6) The duration of the firm.
• The application shall be signed and verified by each partner or his agent specifically authorized for this purpose
in the manner prescribed by law.
• When the registrar is satisfied that the provision of sec 58 have been compiled with, he shall make an entry of
the application in the register of firms and will issue the certificate of registration.
Change in the Partnership firm
a) Firm’s name
b) The Principle place of Business
c) The name of its other places of business
d) Date of joining of each partner
e) Change in details of partner
f) The duration of the firm
Note: In case of change in firm’s name or the principal place of business, there is a need for fresh registration.
While in case of name of its other places of business, Date of Joining of each partner, change in details of the
partner, the duration of the partner, just intimation to the registrar is sufficient.
• Registration of Partnership is NOT COMPULSORY though an unregistered firm suffers from certain disabilities

Effects of Non-registration (Sec.69)

1) A partner cannot sue the firm or any partners to enforce a right arising from a contract or a right arising from
the Partnership Act.

2) An unregistered firm cannot sue a third party to enforce a right arising from a contract.

3) Unregistered firm or any of its Partners cannot have a right of set-off in a proceeding initiated by a third
party to enforce a right arising from a contract.

4) Third parties can file a suit against the firm or any of its partners.
 Introduction and Outgoing Partner
▪ Introduction of partner means admission of a new partner to the existing partnership.
▪ Modes of introduction of a partner (Sec 31)
a) With the consent of all the existing partners
b) In accordance with a contract between the partners – Byrne v. Reid (1902)
c) In accordance with the provisions of Section 30 (Minor Partner).
▪ A new partner may be admitted into partnership firm only with the consent of all the partners. A new
partner admitted will not be liable for any acts of other partners or firm before his admission.
Rights and Liabilities of a New Partner
▪ The liabilities of new partner commences from the date when he is admitted as a partner in a partnership
firm.
▪ A person who is introduced as a partner into a firm does not thereby become liable for any act of the firm
done before he became a partner unless otherwise agreed by a new partner.-Central Bank of India v. Tarseema
Compress Wood Mfg. Co. (1997)
 Outgoing Partner
▪ Section 32 to 38 deal with different modes through which a partner may cease to be a partner.
▪ Under these provisions, when the partner ceases to be a partner, the partnership is not dissolved and it continues with the
remaining partners.
▪ A partner may cease to be a partner in following ways:
a) Retirement of partner (Sec. 32)
• Section 32 of the Act provides for the retirement of partners:
• Any partner may retire:-
1) With the consent of all the other partners
2) In accordance with an express agreement by the partners
3) Where the partnership is at will, by giving notice in writing to all the other partners of his intention to retire
- Firm not dissolved on the retirement of a partner.
Liabilities of retired partner
• Liability for the acts done before retirement: Retired partner continues to be liable for his acts until he is
discharged under section 32(2).
• Liability for the acts done after retirement: The third party can still presume mutual agency between the
outgoing and continuing partners until a public notice of a retirement is given.
b) Expulsion of partner (Section 33)

▪ Generally, a partner may not be expelled from a firm by any majority of the partners

▪ A partner can be expelled only in an exceptional cases subject to the following conditions:

1. The power to expel has been conferred by a contract of partnership

2. Such power has been exercised in good faith- Blissett v. Daniel (1853)

• Liability of an expelled partner

- The position of the expelled partner is exactly the same as that of a retired partner.

- An expelled partner continues to be liable for the acts of firms and other partners, unless he is discharged from the liability
under section 32(2).

- An expelled partner continues to be liable for the acts of firms and other partners till he or any other partners gives a public
notice about his expulsion.
c) Insolvency of a partner (Section 34)

▪ When a partner is declared as insolvent by the court, it leads to the following consequences:

- He ceases to be the partner of a partnership firm from the date of adjudication.

- His estate which is in possession of official liquidator ceases to be liable for any act of the firm
whether the partnership subsequently dissolves or not.

▪ Partnership firm ceases to be liable for any act of insolvent partner after the date of adjudication

▪ Whether the partnership is also dissolved on the insolvency of the partner?

d) Death of a Partner (Section 35)

- On the death of a partner, the partner ceases to be a partner. However, the partnership firm may
continue if the other partners so agree.
 Rights of Outgoing Partner
1. Right to carry on a competing business
- A partner who leaves the firm by retirement, expulsion or insolvency, has a right to carry on a business
competing with that of the firm. He may also advertise such business. However, subject to three restrictions:
a) He cannot use the name of the firm for his business.
b) He cannot represent himself as carrying on the business of the firm, and therefore, he is not allowed to
mislead the public by misrepresenting that he is still carrying on the firm’s business.
c) He cannot solicit the customers or persons who were dealing with the firm.
2. Right to share subsequent profits until the amount due to him has been paid
- The outgoing partner or his representative, who has not been paid his share of property has either:
a) To claim such share of profits made since he ceased to be a partner as may be attributable to the use of his
share of the property of the firm;
b) To claim an interest at the rate of 6% per annum on the amount of his share in the property of the firm.
 DISSOLUTION OF A FIRM
▪ Dissolution of the firm means dissolution of partnership among all the partners of the firm.
▪ It means the business of the firm comes to an end.
MODES OF DISSOLUTION OF FIRM
1) Dissolution without the order of the court
Dissolution of the firm without the order of court may take place in the following ways:
a) Dissolution by agreement (Sec. 40): A firm may be dissolved with the consent of all the partners or
by the contract between the partners. The Contract for the dissolution of firm may be express or
implied.
b) Compulsory Dissolution (Sec. 41): A firm is compulsorily dissolved in the following circumstances:
▪ If some events takes place which makes it unlawful for the business of the firm to be carried on.
c) Dissolution on the happening of certain contingencies (sec 42): A firm is dissolved on the following four
contingencies:
• On the expiry of the fixed term.
• On completion of the venture or undertaking.
• On the death of a partner.
• On the insolvency of the partner.
d) Dissolution by notice (sec 43): Where the partnership is at will, the firm may be dissolved by any
partner giving notice in writing to all the other partners of his intention to dissolve the firm.
2) Dissolution by Court (sec. 44):
According to Sec. 44 of the Indian Partnership Act, on filing the suit by a partner, the Court may dissolve
a firm on any of the following grounds, namely :-
a) Insanity: The court may dissolve the firm where a partner has become of unsound mind. The firm
may dissolve on the petition of any of the partner or by the next friend of insane partner.
b) Permanent incapacity: When a partner has become permanently incapable of performing duties,
any other partner may apply for dissolution in the court. The incapacity must be of a permanent
nature such as physical disablement, illness etc.
c) Misconduct: The court may order the dissolution of firm on account of misconduct of any partner other than the one filling a
suit for dissolution.

d) Persistent breach of agreement: When a partner willfully or persistently commits breach of the partnership agreement
relating to the affairs of the firm or conduct of the business, the court may at instance of any of the other partners dissolve
the firm.

e) Transfer of the whole of partner’s interest:

f) Business working at loss: Where the business of the firm cannot be carried on except at a loss, the court may order dissolution
of the firm

g) When dissolution is just and equitable

LIABILITY OF PARTNERS AFTER DISSOLUTION (Sec.45)

▪ The partners continue to be liable as such to third parties, if done before the dissolution, until public notice is given of the
dissolution

▪ Notice of Dissolution may be given to public by any partner

RIGHT OF PARTNERS TO HAVE BUSINESS WOUND UP AFTER DISSOLUTION (Sec.46)
• When the firm is dissolved every partner has a right to apply for the firm’s property in the
payment of debts and liabilities.
• If there is any surplus it needs to be distributed among the partners.
• The partners have mutual obligations and rights until the affairs of the firm is wound up.
Settlement of partnership account (Section 48)
➢ When the partnership is dissolved, the accounts of the partners needs to be settled under the
usual course of business. Various modes can be used for the settlement of accounts.
➢ Losses, including deficiencies of capital, shall be paid first out of profits, next out of capital, and,
lastly, if necessary, by the partners individually in the proportions in which they were entitled to
share profits
➢ The asset of the firm and the capital contributed by the partners to meet up the deficiency in the
capital is applied in the following order:
• Repayment to third parties
• The amount which is due to partner, from firm, other than capital
• The amount which is due to partner on account of capital
• And if any amount is left then it is distributed among all the partners in their profit sharing
ratio.
Paying Firm Debts and Separate Debts (Sec. 49)
➢ In a case when there are joint debts from the firm and the separate debts from the partner then
• joint debts from the firm is given priority and
• if any surplus is left, then separate debts from the partner is to be paid off.
➢ The property of the individual partners is applied firstly for the payment of separate debts.
RIGHT TO RESTRAIN FROM THE USE OF FIRM-NAME OR FIRM-PROPERTY.
➢ Section 53 states that unless there is contract to the contrary, a partner can restrain other partners
• from carrying similar activities,
• using the firm’s name or
• using firm’s property
• for their own benefit until the affairs of the firm have been completely wound up
Return of Premium on the Premature Dissolution of the firm (Section 51)
• When the firm is dissolved before the expiry of a fixed period, then a partner paying a premium can receive a
return of a reasonable part of the premium.
Such rules are not applicable in a case :-
1) When the dissolution of partnership occurs by the death of a partner unless there is a express stipulation in the
contract.
2) When the partnership is dissolved by misconduct of partner who paid the premium
3) The dissolution is in pursuance of an agreement containing no provision for the return of the premium or any
part of it.
Contract Rescinded for Fraud or Misrepresentation (Sec.52)
• When the partnership arising from the contract is rescinded due to fraud and misrepresentation, then the party who
has rescinded the contract will be entitled :
- To the lien on remaining assets.
- He will be treated as a creditor for the payment of any debts made by him.
- To be indemnified by the partners guilty of misrepresentation or fraud against all debts of firms
Sale of Goodwill after Dissolution of Firm (Sec. 55)

• The goodwill is treated as an asset.

• The goodwill is included in the assets while settling the account after the dissolution of the firm.

• The goodwill may be sold separately or with other assets.

• Once the firm is dissolved and goodwill is sold then any partner can carry on a similar business or advertise a
business competing with the buyers of the goodwill.
Thank You!