Contract Law Final Draft

CHANAKYA NATIONAL LAW UNIVERSITY, PATNA
A Project
On
NATURE OF PARTNERSHIP
Submitted To: Submitted By:
Mr. Ravi Ranjan Parijat
Teacher Associate IIIrd Semester
769
Nature of Partnership
Parijat Singh, CHANAKYA NATIONAL LAW UNIVERSITY Page 2

Acknowledgment
I am feeling highly elated to work on the topic Nature of Partnership under the
guidance of my Law of Contract teacher Mr Ravi Ranjan sir. I am very grateful to him for the
exemplary guidance. I would like to enlighten my readers regarding this topic and I hope I
have tried my best to pave the way for bringing more luminosity to this topic.
I would like to thank my parents for their incessant help and support which made me what I
am today. I also wish to extend my gratitude my friends, without whose cooperation this
project was not possible. Apart from all these, I want to give special thanks to the
librarian of my university who made every relevant materials regarding to my topic
available to me at the time of my busy research work and gave me assistance.

INTRODUCTION
The Indian Partnership Act was enacted in 1932 and it came into force on 1 st day of October,
1932. The present act superseded the earlier law relating to Partnership, which was contained
in Chapter XI of the Indian Contract Act, 1872. The Act is not exhaustive. It purports to
define and amend the law relating to Partnership. Indian Partnership Act was separated
because at that time, there was a change in business at the global level and the provisions
contained in Indian Contract Act were not sufficient in the eyes of the legislature. Also they
wanted to make the procedure simple for carrying out the business.
A partnership is formed when two or more persons agree to carry on a business together. This
agreement can be written or oral. A partnership is formed when two or more people intend to
work together to carry on a business activity. No local or state filings are required to create
this type of partnership. This is different than a corporation, which does not come into
existence until Articles of Incorporation have been filed with the Secretary of State.
The research methodology used in the project is basically the doctrinal method as no field
work is done on this topic. The whole project is made with the use of secondary source. The
aim of the project is to present a detailed study of Concept of Partnership through decisions
and suggestions.
This topic consists of six chapters. This topic deals with the meaning, definition and nature of
Partnership. Further with the creation and determination of Partnership, then rights and duties
of partners which is further sub divided into relations of partners interest and relation of
partner with third parties. Then, dissolution of a firm and lastly conclusion of the concept of
partnership.

Research Methodology
For the purpose of research the researcher has relied on secondary sources to look for
information relating to CONCEPT OF PARTNERSHIP. The researcher has done this
keeping in mind the frequently asked questions arising out of this topic. The researcher has
aimed at doctrinal method of research and will try to critically analyse and provide an un-
biased account on this topic.
Aims and Objectives

The researchers prime objective is to present a detailed study of Concept of Partnership
through decisions and suggestions. It aims to descriptively provide an overview of concept of
partnership. The researcher is going to limit its scope to the legislations concerning this topic
and also to the case laws which concern this topic.
Sources of Data:
The following secondary sources of data have been used in the project-
BOOKS
MAGAZINES
WEBSITES
ARTICLES

Table of Contents
Introduction..............................................................................................................................6
1.Meaning, Definition and Nature of Partnership.................................................................7
2.Creation and Determination of Partnership.....................................................................15
3.Rights and Duties of Partners............................................................................................20
4.Dissolution of a Firm...........................................................................................................38
5.Conclusion............................................................................................................................48
Bibliography.......................................................................................49

MEANING, DEFINITON AND NATURE OF

PARTNERSHIP
Section 4 of the Indian Partnership Act, 1932, defines partnership in the following words:-
Partnership is the relation between persons who have agreed to share profits of a business
carried on by all or any one of them acting for all.
Persons who have entered into partnership with one another are called individually partners
and collectively a firm and the name under which their business is carried on is called the
firm name.
Section 4 of the present act corresponds to Section 239 (e) of the Indian Contract Act the
provision of the repealed Section 239 (e) has been adopted in present Section 4 with some
changes. In Section 4, the element of agency has been given due emphasis and the provision
relating to the firm name has been added. The repealed Section 239 (e) contained
illustrations which are still relevant and useful. The repealed Section 239 (e) contained
following illustrations:
(a) A and B buy 100 bales of cotton, which they agree to sell for their joint account A and
B are partners in respect of such cotton.
(b) A and B buy 100 bales of cotton, agreeing to share in between them. A and B are not
partners.
(c) A agrees with, a goldsmith, to buy and furnish gold to B, to be worked up by him and
sold, and that they shall share in the resulting profit or loss. A and B are partners.
(d) A and B agree to work together as carpenters, but A shall receive all profits and shall
pay wages to B. A and B are not partners.
(e) A and B are joint owners of a ship. This circumstance does not make them partners.
Essentials Elements
In Raghunath Sahu v. Trinath Das1, a Division Bench of the Orissa High Court pointed out
the three essential elements of Partnership- (1) an agreement between the persons concerned;
(2) this agreement should be for sharing profits of a business, and (3) the business should
either be carried on by all or anyone of them on behalf of all. The first element is regarding
1
AIR 1985 Ori 8, 10

the contractual nature of partnership. The second element indicates motive or sharing of
profits for which the partnership is established. The third element makes it clear that the
person or persons who carry on business act as agents of all the partners2.
In Helper Girdharbhai v. Saiyed Mohmad Mirasaheb Kadri and others3, Sabyasachi, J. (as he
was then) of the Supreme Court observed: Whether there was a partnership or not in certain
cases be a mixed question of law and fact, in the sense that whether the ingredients of
Partnership as embodied in the law of partnership were there or not in a particular case must
be judged in the light of the principles applicable to partnership. The first question, therefore,
is what a partnership is. That has to be found in Section 4 of the Partnership Act, 1932 which
says Partnership is the relation between persons who have agreed to share profits of a
business carried on by all or any one of them acting for all. Section 6 of the said Act
reiterates that in determining whether a group of persons is or is not a firm, or whether a
person is or is not a partner in a firm, regard shall be had to the real relation between the
parties, as shown by all relevant facts taken together. The following important elements must
be there in order to establish partnership: (1) there must be an agreement entered into by all
parties concerned; (2) the agreement must be to share profits of business, and (3) the business
must be carried on by all or any of the persons concerned acting for all.
Even when a deed is named as partnership deed, courts have held that the nature of
relationship is not determined by the mere use of the word partnership either in the
arguments or in the pleadings. There must be three elements before any relationship which
can be called a partnership comes into existence: (1) there must be an agreement entered into
by all the parties concerned; (2) the agreement must be to share profits of the business; and
(3) the business must be carried on by all or any of the persons concerned (in) action for all.
All these elements must exist in a partnership4.
The above three elements can be discussed under the following four heads:-
(1) Agreement
(2) Business
(3) Sharing of Profits
2
Dr. S.K. Kapoor, Contracts-II, 10th edition, Allahabad, Central Law Agency, 2005,p-252
3
AIR 1987 SC 1782
4
S.K. Parthasarthy Naindu v. K. Rama Naidu, AIR 2001 Mad. 399,407

(4) Mutual Agency
(1) Agreement- According to Section 4, the first essential element of Partnership is

agreement. Section 4 makes it clear that partnership is a relation between persons who have
agreed to share profits. There can be no partnership without an agreement. Section 5 further
clarifies this by providing that the relationship of partnership arises from contract and not
from status. In Deputy Commissioner of Sales Tax (Law), Board of Revenue(Taxes) v. M/s
K. Kelukutty5, the Supreme Court has held that relation between partners is founded on
agreement between them. Hence the basis of partnership and firm is partnership agreement.
The source of partnership is partnership agreement. In the words of Pathak, J. The
foundation of a partnership and, therefore, of a firm, is a partnership agreement. A partnership
agreement is the source of partnership; it also gives expression to other ingredients defining
the partnership, specifying the business agreed to be carried on, the persons who will actually
carry on the business, the shares in which the profits will be divided and several other
considerations which constitute such an organic relationship. It is permissible to say that a
partnership agreement creates and defines the relation of partnership and therefore identifies
the firm.
It is, however, not necessary that the agreement must be formal or in writing. It is also not
necessary that it must always be express. It may be implied or may be inferred from the
conduct of the parties.
(2) Business - The second essential element of partnership is business because without
business there can be no partnership. A very wide definition of the word business has been
given in Section 2(b) of the Indian Partnership Act. According to Section 2(b), business
includes every trade, occupation and profession. The word business should be interpreted
in its practical sense rather than in its literal meaning. It is not necessary that the business
should be of long standing and permanent. A single commercial transaction may constitute a
business. According to Lindley, if the persons are not already partners, share profits and
losses of a particular transaction, they may be partners for the said particular transaction. For
example, if two advocates or solicitors who are not partners, are appointed jointly to plead a
case and they agree to divide the profits, they become partners in respect of this particular
case. Similarly, a partnership can be limited to sale and purchase of a particular jewellery, in
the work of the patent, its work or operation in any particular place, exploitation of the
5
AIR 1985 SC 1143

contract of service, sowing, harvesting crops or sale of any particular crop. In all such cases
the rights and duties of partners are governed by crop, the same principles which apply to
ordinary partnership. But such rights or obligations are essentially less wide or vast. The
question as to what extent persons can be considered partners depends completely on their
agreement and conduct.
The above mentioned views of Lindley have been approved by the High Court of Andhra
Pradesh in Kotapally v. Kokumanu Venkatasatyanarayana6. Approving the said views the
High Court observed that, thus the test is if there is any activity which can be called a
business for that transaction. It is not necessary that there must be more than one transaction.
It is sufficient that a transaction is capable of being carried on by two or more persons. Hence
a single contract with the government can be a subject-matter of partnership. Section 8 of the
Indian Partnership Act also provides: A person may become a partner with another person in
particular adventures of undertaking.
It is, however, necessary that the business must be in existence. If a business has simply been
contemplated and has not been started, the partnership shall not be deemed to be in existence.
For example, in Ram Priya Saran v. Ghanshyam Das7, the plaintiff and the defendant agreed
that after the acceptance of their tender, they shall construct the dam in partnership. In order
to deposit earnest money the plaintiff gave Rs. 2000 to the defendant. The tender was not
accepted. The question for consideration before the court was whether the partnership had
come into existence. The Allahabad High Court held that this was a partnership agreement
but its terms indicated that the partnership was to start after the acceptance of the tender and
work would start in its pursuance. Since tender was not accepted, work did not commence
and the partnership did not come into existence between the parties. Hence the plaintiff is
entitled to receive the earnest money from the defendant.
(3) Sharing of Profits Another essential element of partnership is sharing of profits of

motive is not to share profits; it shall not constitute a partnership. Thus sharing of profits or
participation in profits of a business is one of the important essential elements of partnership.
Thus sharing of profits or participation in profits of a business is one of the important
essential elements of partnership. Before 1860 this essential element was considered so much
important that if two or more persons agreed to carry out a business with the objective of
6
AIR 1984 AP 149-150
7
AIR 1981 All. 184

sharing profits, it was considered to be decisive of constituting a partnership between them.

In 1860 the decision in Cox v. Hickman8, brought about a revolutionary change in this
respect. Delivering the judgement Lord Cranworth of the House of Lords said that sharing of
profits is good evidence that the business in which profits have been incurred is being carried
on behalf of the persons who are sharing profits. In other words, sharing of profits is prima
facie evidence of partnership. But the decisive test is mutual agency. The real basis of liability
is that the business is being carried on behalf of the persons sharing profits.
(4) Mutual Agency If two or more persons agree to carry on a business to share profits,
it is still possible that the partnership may not come into existence. In order to constitute a
partnership, mutual agency is most essential. The facts of this case are that two persons (iron
merchants) carried on business in partnership. Due to financial crisis they obtained loans.
Having not been able to repay the debts, they executed a trust deed in favour of creditors.
Some of the creditors were made trustees of the business. These included Cox and
Wheatcroft. Under the deed the property was assigned to the trustees and they were
empowered to enter into contracts and execute instruments to carry on business and to divide
the profits among the creditors. This deed was executed for the realization of the debts given
by the creditors. After the recover y of the debts, the property was to be restored to the above-
mentioned two partners. Cox never acted as trustee and retired. Wheatcroft acted as trustee
for some time and then retired. Other trustees who were carrying on carrying on business
became indebted to Hickman and executed a bill of exchange. The Bill of Exchange having
not been accepted and paid, Hickman sued the trustees for recovery of money on account of
the goods delivered. The trustees could be held liable if they were partners. The court held
that they were not partners and hence they were not liable. In his judgement Lord Cranworth
said that where two or more persons are partners in an ordinary business, is entitled to bind
other partners by contracts. For ordinary purposes of the business, each partner is the agent of
other partners. Therefore all partners are bound by ordinary business contracts of other
partners. It was argued that creditors were sharing the profits of the business. But Lord
Cranworth held: .a right to participate in the profits affords good evidence that the
trade in which profits have been made was carried on behalf of the persons sharing profits.
But the real ground of liability is that the trade has been carried on by persons acting on his
behalf that he stood in relation of the principal. Every partner is an agent of the
partnership, and his position is governed by the same rules as that of an agent. A partner
8
(1860) 8 HLC 268

virtually embraces the character of both a principal and agent. The above discussion also
establishes that partnership is the branch of the law of agency. Section 18 of the Partnership
Act further clarifies and confirms this. Section 18 provides: Subject to the provisions of this
Act, a partner is the agent of the firm, for the purposes of the business of the firm.
Thus the firm as well as other partners will be bound by the act of the firm. In Narcinva V.
Kamat v. Alfredo Antonio Doe Martins9, the appellant, a partner of the firm drove the car of
the firm negligently and as a result of it one person died. The car was insured in the name of
the firm. The Supreme Court held that every partner of the firm will be deemed to be insured.
Every partner, if he possesses a driving license, will be entitled to drive it. Every partner of
the firm is an agent of the firm.
NATURE OF PARTNERSHIP
Partnership is a form of business organisation, where two or more persons join together for
jointly carrying on some business. It is an improvement over the sole trade business, where
one single with his own resources, skill and effort carries on his own business. Due to the
limitation of the resources of only a single person being involved in the sole-trade business, a
larger business requiring more investment and resources than available to a sole-trader cannot
be thought of in such a form of business organisation. In a Partnership, on the other hand, a
number of persons could pool their resources and efforts and could start a much larger
business, than could be afforded by any of these partners individually. In case of loss also the
burden gets divided amongst various partners in a Partnership10.
As pointed out by the Supreme Court of India in Mrs. Bacha F. Guzdar v. Commissioner of
Income Tax11, partnership is only a group of persons and the name of the firm is the brief
method of describing the partners. On the other hand company is a separate juristic entity and
is distinct from its shareholders. In another case, Maharani Mandalsa Devi v. Ramnarain
Private Ltd.12, the Supreme Court has held that only for certain purposes partnership has been
conferred upon a limited personality and that this legal fiction cannot be further extended.
Partnership is not a legal entity. The persons individually called partners are called a firm
collectively and the name and the name with which they carry on business are called the firm
name.
9
(1985)2 SCC 574
10
Dr. R.K. Bangia, Contracts-II, Faridabad, Allahabad Law Agency,2010,pp- 164,165
11
AIR 1955 SC 74
12
AIR 1965 SC 1718

Any two or more persons can join together for creating partnership. Section 11 of the
Companies Act, 1956 imposes a limit as to the maximum number of persons in a partnership.
In a partnership for the purpose of carrying on banking business, there can be a maximum of
10 partners, whereas if the partnership is for carrying on any other business, there can be a
maximum of 20 partners. If the number of members in any association exceeds the above
stated limits, that must be registered as a Company under the Companies Act, otherwise that
will be considered to be an illegal association. As against partnership, where the maximum
number of partners can be 10 or 20, depending on the nature of the partnership business, there
could be possibly much larger number of members in a company. In a private Company there
can be a maximum of 50 members, whereas in case of a public Company there is no such
limit to the maximum number. Therefore, if a much larger business than could be afforded by
only 10 or 20 persons is sought to be carried on, a company works out to be a better form of
business organisation than partnership. For instance, there could be a public Company having
1,00,000 members each one of them having contributed just Rs. 10, and thus having a capital
of Rs. 10,00,000 for its business. A Company, as a form of business organisation may be
better than a partnership in another way also. It is an artificial person, distinct from its
members, and has much longer life than that of a partnership, whereas the partnership being
nothing but an aggregate of all the partners, partnership has a much smaller span of life than a
Company. In the case of a company, the liability of a member (shareholder) is limited to the
extent of the amount of shares purchased by him, whereas in case of partnership, the liability
of every partner is unlimited, and this is factor is of great advantage in the case of a
Company, from the point of view of risk of investors in the business.
In certain respects, a partnership is a more suitable form of business organisation than a

Company. For the creation of partnership just an agreement between various persons is all
what is required, whereas in the case of a Company, there are a lot of procedural formalities
which have to be gone through before a Company are created. For the day to day running of
the business, maintenance of the accounts, holding of meetings, distribution of profits and
numerous other things a Company is subject to a lot of statutory control, whereas the partners
are their own masters for regulating their affairs. Even for the dissolution of partnership, a
mere agreement between the partners is enough, but that is not so in case of Company, which
can be wound up only after a certain set procedure is followed. Since all the profits are to be
pocketed by partners in a partnership firm, there is a great incentive to make the business
successful, but that is not so in case of a Company.

CREATION AND DETERMINATION OF PARTNERSHIP
Section 5 declares that the relation of partnership arises from contract, not from status. It may
be too elementary to say that a partnership can arise only by an agreement between the parties
concerned and in no other way, yet the point is important. It is one of those elements which
clearly display the distinction between a partnership and the other business relations, like
joint family carrying on business, which do not arise by agreement, but are the result of
status, operation of law, succession or inheritance13.
Section 5 which lays emphasis upon this point is as follows:
Partnership not created by status - The relation of partnership arises from contract and
not from status; and, in particular, the members of a Hindu undivided family carrying on
such are not partners in such business.
Hindu Undivided Family: A joint Hindu family is the creation of Hindu law. A joint Hindu
family running a Hindu undivided family (HUF) business differs from a partnership in two
respects, namely, (1) it is not dissolved by death of any member and (2) a member of the
family becomes a member by operation of law14.
It necessarily follows that the members of the joint Hindu family cannot be said to be partners
of the partnership firm only because Karta or any other coparcener has joined the partnership
firm as a partner15.
On the contrary, it has long been recognised that the partnership is not a species of joint
tenancy and that in the absence of any contrary agreement, there is no survivorship as
between partners, at least in so far as it concerns the beneficial interest in the partnership
assets16.
But in HUF the rule of survivorship is attracted17.
13
Dr. Avatar Singh, Introduction to Law of Partnership, 8th edition, Lucknow, Eastern Book
Company, 2005,p-7
14
Baijnath Prasad v. Ram Gopal AIR 1939 Cal 92
15
CIT v. Agarwal Brothers & Co. (1970) 75 ITR 451
16
Syndicate Bank v. R.S.R. Engg. Works (2003) 6 SCC 265
17
M.R. Mallick, Goyles The Law of Partnership, 2nd edition, Kolkata, Eastern Law House,
2006, p-59

Starting a new business, if joint family business: The karta of a Hindu joint family may
start a new business and all the coparceners including minors may be admitted to the benefits
of such a business. But unless such a business is started or carried on with their express or
implied consent the adult coparceners are not liable for the loss incurred in such a business.
As a minor is incapable of giving consent a minor coparcener is not liable for loss of such
business, unless he has participated in the carrying on of the business after attainment of
majority. But if the coparcenary consists of the father and his sons the sons whether major or
minor are liable to the extent of their shares in the joint family property for the debts of a new
business started by the father as being ancestral debts or on account of pious obligation of the
sons to pay their fathers debt not incurred for immoral purposes18
However, whether the alleged new business is really a new business or an extension of the
existing business depends upon the nature of the business concerned. If the family is a trading
family and the extended business is no more hazardous or speculative than the one which is
existing it may not be regarded as a new business19.
When a joint family business is a business of a contractor the business becomes no new
business, if after execution of one contract a new job is undertaken for execution. Similarly, if
the business as a contractor came to a standstill after the death of the father and the widow
and one of the sons on attaining majority revives it, it does not become a new business20.
However, the Privy Council has observed that the karta of a joint Hindu family is not
prohibited by any law from starting a new business with the aid of the joint family funds
although alienation of joint family property for the purpose of such a business is not
justifiable21.
Such a business would, at the outset, be separate business of the karta. But if in course of
time the profits of the business are blended with the family funds, it loses the character of a
separate business and becomes joint family business liable for partition amongst the
coparceners. If the karta borrows money or alienates joint family property for such new
business the transaction cannot be binding on the other coparceners unless it can be shown
18
Venkatasami v. Palaniappa, AIR 1929 Mad 153
19
Prasenjit Mehta v. United Commercial Bank AIR 1979 Pat 151
20
Nasirabad Urban Co-operative Bank v. Gyan Chand AIR 1980 Raj. 73
21
Benaras Bank v. Hari Narayan AIR 1932 PC 182

that it was beneficial for the family or and the family estate or at least it was necessary for
starting of a new business22.
The managing member of karta while managing joint family business may expand the family
business, but he cannot claim that the said expansion or extension of the business is his
separate acquisition on the plea that the said separate acquisition or expansion is on the basis
of his own special skill and labour23. The position may be otherwise, if the managing member
had his own separate assets from which the said expansion was made and the joint family
income was not utilised to expand such business24.
Section 6 of the Indian Partnership Act provides:
Mode of determining existence of partnership - In determining whether a group of

persons is or is not a firm, or whether a person is or is not a partner in a firm, regard shall
be had to the real relation between the parties, as shown by all relevant facts taken
together.
Explanation I : The sharing of profits or of gross returns arising from property by persons
holding a joint or common interest in that property does not of itself make such persons
partners.
Explanation II : The receipt by a person of a share of the profits of a business, or of a

payment contingent upon the earning of profits or varying with the profits earned by a
business, does not itself make him a partner with the persons carrying on the business;
and, in particular, the receipt of such share or payment
(a) by a lender of money to persons engaged or about to engage in any business
(b) by a servant or agent as remuneration,
(c) by the widow or child of a deceased partner, as annuity, or
(d) by a previous owner or part-owner of the business, as consideration for the sale of the
goodwill or share thereof;
does not of itself make the receiver a partner with the persons carrying on the business.
22
Chaitanatha v. Ram Chandra AIR 1955 SC 799
23
Supra 18, p-64
24
Kumaraswami v. Subha Gownder AIR 1977 Mad 353

Undoubtedly, it is not an easy task to determine whether a group of persons constitute a

partnership or not. Often specific instruments mention the word partner vaguely without
carrying about its legal connotation. Simply, by the use of the word partner in an instrument
or by any description, persons concerned do not become partners. On the other hand, if legal
requirements or essential elements as mentioned above are fulfilled, no description will
prevent them from becoming the partners. Similarly, a statement that a person is a partner
will not essentially make him a partner in law. Therefore, in order to determine whether a
group of persons is or is not a firm or whether a person is or is not a partner in a firm regard
shall be had to the real relation between the parties as shown by all relevant facts taken
together.25
In Khan v. Miah26, certain persons obtained loan from Bank in joint names to purchase
premises for restaurant. They also entered into contract for purchase of equipment and
laundry for the restaurant. But their relationship terminated before the opening of the
restaurant. The trail Judge held that a business existed between and that there was a
partnership. The Court of Appeal reversed this decision by a majority holding that they had
not become partners in a restaurant business by the date when the relationship was
terminated.
Thus the main question, inter alia, before the House of Lords was whether there existed a
partnership before the relationship broke down. The House of Lords allowed the appeal
reserving the decision of the Court of Appeal27.
A pertinent question arises, after having defined partnership in Section 4 and having made
clear in Section 5 that partnership is created by contract and not by status, what was the need
of adding Section 6. Probably the main reason for this was that the framers of the Act were
aware that the definition contained in Section 4 did not clarify the position. Although Section
4 outlines clearly three essential elements, namely: (a) agreement; (b) business; and (c)
sharing of profits, it simply indicate the fourth element, i.e., mutual agency. The word
carried on by all or any one of them acting for all indicates the element of mutual agency.
But these words do not clarify the position beyond all doubts. The reason for this inference is
also based on the fact that the six illustrations given in two explanations of section 6, though
there is sharing of profits there is no partnership because of the absence of the element of
25
Raghunath Sahu v. Trinath, AIR 1985 Ori. 8, at p-10
26
(2000) 1 WLR 2123
27
Supra 2, p-259

mutual agency. Thus it would not be wrong to conclude that with a view to emphasize the
element of mutual agency these illustrations have been given. The illustrations given in
Section 6 are following:-
(1) Sharing of profits or of gross returns arising from property by persons holding a joint
or common interest According to Explanation1 of Section 6, the sharing of profits or
of gross returns arising from property by persons holding a joint or common interest
in that property does not of itself make such persons partners. For example, where
joint owners collect rent out of properties received in gift and no business is carried
on by all or anyone of them on behalf of all, there is no partnership. therefore, in such
a case, suit for dissolution of partnership cannot be filed. In such a case, the proper
suit will be the suit for partnership and account28.
(2) Persons receiving share of profits out of business As provided under Explanation 2
of Section6 of the Partnership Act, the receipt by a person of a share of the profits of
a business or of a payment contingent upon the earnings of profits or varying with the
profits earned in business, does not itself make him a partner with the provisions
carrying on the business. In this illustration also no partnership constituted because
the element of mutual agency was not present29.
28
Ibid, pp-259,260
29
Ibid, p-260

RIGHTS AND DUTIES OF PARTNERS
RELATIONS OF PARTNERS INTER SE
Chapter III (Section 9 to 17) of the Indian Partnership Act contains provisions concerning
Relations of Partners to one another, i.e., the rights and duties of the partners as between
themselves.
Section 11 of the Act contains the general rule that the mutual rights and duties of the partners
are to be determined by their mutual agreement. The provisions are as under:
Section 11: Determination of Rights and Duties of Partners by contract between the partners-
(1) Subject 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, and such contract may be express or
may be implied by a course of dealing.
Such contract may be varied by consent of all the partners, and such consent may be
expressed or may be implied by a course of dealing.
(2) Agreements in restraint of trade Notwithstanding anything contained in Section 27 of

the Indian Contract Act, 1872, such contracts may provide that a partner shall not carry on
any business other than that of the firm while he is a partner.
As it has been noted above, this section incorporates the general principle that the mutual
rights and duties of the partners may be determined by a contract between themselves. They
may themselves decide that how much investment or labour is to be put by whom, or whether
a partner will be entitled to any remuneration, apart from sharing the profits, or what will be
the profit sharing ratio, etc. Such contract may be expressed or implied by a course of
dealing. The mutual rights and duties which may have been agreed upon between the partners
may be subsequently varied by the consent of all the partners. Such variance or change in the
mutual rights and duties may also be made either expressly or by an implied consent through
a course of dealing between the partners.
In Pabitra Construction Co. v. UCO Bank30, three partners opened a joint account with the
respondent bank with special instruction that any one of the two partners would be entitled to
30
AIR 2008 Cal. 103

operate the bank account. In the course of business transaction, disputes arose between them
and one of them gave written instructions to the respondent bank, not to clear any cheque
unless all the three partners jointly operate the account in deviation from the earlier
instruction. The Bank, in view of such instructions, refused to clear two cheques issued by
two of the partners. The action taken by the Bank was held as quite justified by the Calcutta
High Court.
The court explained that in a partner business, all the partners were equally interested in
case of profit and loss arising out of business and if all the three partners jointly opened an
account, one of them could subsequently decide not to continue with the said account or even
give instruction to stop further transaction unless the dispute among them was resolved.
The Court held that if one of the joint account holders decided to change the mode of
operating the account, which was initially agreed to by the parties, the Bank should not
continue with the account based on the instruction initially given to it so long the dispute was
not settled by the parties.
Agreement in restraint of trade- 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. Although according to Section 27 of the Indian Contract Act, agreement in restraint
of trade is void, but such an agreement entered into between the partners as stated above will
be valid31.
The right of the partners to make any contract to regulate their mutual rights and duties is
subject to the provisions of the Partnership Act. For instance, certain duties of the partners
are incorporated in Section 9 and 10, which have to be adhered to by all the partners and they
are not subject to contract between the partners.
Thus, the disabilities suffered by the partners of an unregistered firm, as envisaged by Section
69, are binding on every partnership and the partners cannot agree contrary to those
provisions. Similarly, the provisions contained in Section 41 regarding compulsory
dissolution of a firm on the happening of certain events are binding on every firm. In the
same way, the right of the partners to file a suit for dissolution of a firm under section 44, is
not subject to contract between the partners. Section 11, which permits partners to make any
31
Exceptions to section 27, Indian Contract Act are also contained in Sections 36(2), 54 &
55(3) of the Indian Partnership Act.

contract for regulating their mutual relations, is subject to the provisions of the Act, and
Section 44 is one such provisions. Therefore, a partner can always invoke the jurisdiction of
the court under section 44 for the dissolution of the firm32.
As has been noted above, Section 9 and 10 contain certain duties by which all the partners are
bound and the duties cannot be negative by a contract between the partners. Section 12 to 17
contains various other mutual rights and duties of the partners. Each one of those sections has
been made subject to contract between the partners. It means that the rights and duties
incorporated in Sections 12 to 17 are to be applied to the partners, if they have not made any
contract to the contrary. For instance, if the partners have agreed to the proportion in which
they will be sharing profits and losses then their agreement will prevail, but if the partners
have not agreed to anything on the profits, then according to Section 13 (b) the partners are
entitled to share equally in the profits earned, and shall contribute equally to the losses
sustained by the firm.
RIGHTS OF THE PARTNERS
It has been noted above that various rights and duties of the partners contained in Sections 12
to 17 are subject to contract between the partners. Therefore, unless it has been agreed
otherwise, the following rights as contained in the above mentioned provisions are there:
1. Right to take part in the conduct of the business [Section 12(a)]:-
Every partner has a right to take part in the conduct of the business. But this right is
subject to contract between the partners.33
As per the provisions laid down in Section 12(a), every partner has a right to take part in the
conduct of the business. Since the business of the partnership belongs to all the partners,
every partner is entitled to take part in the conduct of the business 34. Unless there is a
contract to the contrary between the partners the court cannot, through an injunction, prevent
or restrain a partner from taking part in the conduct of the business. So will be the case where
there is controversy or difference of opinion among the partners35. A partner can be deprived
of his right to take part in the conduct of business only through a contract between partners36.
32
N. Satyanarayana v M. Venkata Bala, AIR 1989 A.P. 167.
33
Section 12(a)
34
Supra 10, p-190
35
Bishambhar Dayal v. Moolchand, AIR 1964 Raj. 179
36
Supra 2, p-277

2. Right to express opinion [Section 12(c)]:-
any difference arising as to ordinary matters connected with the business may be decided
by a majority of the partners, and every partner shall have the right to express his opinion
before the matter is decided, but no change may be made in the nature of the business
without the consent of all the partners.37
According to the above stated provision, when there is difference of opinion between the
partners, majority of the partners cannot be ignore the minority and take decisions without
consulting them. The difference of opinion may be either (i) as to ordinary matters connected
with the business, or (ii) matters of fundamental importance.
When the difference of opinion pertains to an ordinary or routine matter connected with the
business, the same may be resolved by a decision of the majority of the partners. But before
the matter is decided every partner must be provided with an opportunity to express his
opinion. In this connection Lord Eldon observed, I call that the act of all, which is the act of
majority, provided all are consulted, and the majority are acting bonfide, meeting not for the
purpose of negativing, what anyone have to offer, but for the purpose of negativing, what,
when they met together, they may, after due consideration, think proper to negative: For a
majority of partners to say We do not care what one partner may say, we, being the majority,
will do what we please, is, I apprehend, what this court will not allow. The power of the
majority has to be exercised in good faith. If, for instance, the majority of partners decide to
expel a partner without sufficient cause, the expulsion would be set aside.
When the matter is not an ordinary or a routine matter but is of fundamental importance,
consent of all the partners is needed. Admission of a new partner to the firm or a change in
the nature of the business is the matters of this nature. This provision being subject to
contract between the partners, they may decide that in all matters it is the decision of majority
which will prevail38.
3. Right to have access to books of the firm [Section 12(d)]:-
Subject to contract between the partners, every partner has a right to have access to and
to inspect and copy, any of the books of the firm.39
37
Section 12 (c)
38
Supra 10, p-191
39
Section 12(d)

According to Section 12 (d), every partner has a right to have access to and to inspect and
copy any books of the firm. This right is available to both active and dormant partners. This
right is not only in respect of books of accounts but in respect of any books of the firm. A
partner could exercise this right either personally or by engaging an agent for the purpose.40
4. Right to share profits [Section 13(b)]:-
The partners are entitled to share equally in the profits earned. This is subject to contract
between the partners.41
Every partner has the right to share the profits. Generally, the partners provide in their
agreement as to what will be the proportion in which they will share the profits. For example,
in a firm of three partners, it may be agreed that the profit sharing proportion will be
2/4:1/4:1/4. According to Section 13 (b), in the absence of any such agreement, the partners
are to share the profits equally and also to contribute equally to the losses sustained by the
firm and not in the proportion in which various partners contribute capital. If any partner
alleges that their shares are unequal, he has to prove an agreement to that effect.42
5. Right to receive interest on the capital subscribed [Section 13 (c) & (d)]:-
Subject to contract between the partners, where a partner is entitled to interest on the
capital subscribed by him, such interest shall be payable only out of profits. 43
As per Section 13 (c), generally, no interest on capital subscribed by the partners is to be

given because the partners share the profits of the business of the firm. In case the partners
agree that interest on capital is to be given, such interest shall be payable only out of profits.
A partner making for the purpose 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. This again is subject to contract between the partners.44
As per Section 13 (d), sometimes over and above the capital subscribed by the partners, the
firm may need extra money. In case a partner makes any payment or advance beyond he
40
Supra 10, p-191
41
Section 13 (b)
42
Supra 10. P-192
43
Section 13 (c)
44
Section 13 (d)

amount of capital he has agreed to subscribe, he is entitled to interest thereon at the rate of six
per cent per annum.
6. Right to Indemnity [Section 13 (e)]:-
Subject to contract between the partners, 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.45
A partner while acting on behalf of the firm may make certain payments and also incur some
liabilities. According to Section 13(e), he is entitled to claim indemnity for the same. The
indemnity can be claimed for the acts done by a partner in the ordinary proper conduct of the
business and also for doing some act in an emergency for the purpose of protecting the firm
from the loss46.
DUTIES OF THE PARTNERS
Section 9 and 10 incorporate certain duties of the partners which are not subject to contract
between the partners, whereas certain duties have been provided from Section 12 to 17, each
one of those provisions has been made subject to contract between the partners. The duties
of the partners as incorporated in these sections are being explained below.
Section 9 mentions a number of duties by which all the partners are bound. It provides
General duties of the partners- partners are bound to carry on the business of the firm to
the greatest common advantage, to be just and faithful to each other, and to render true
accounts and full information of all things affecting the firm to any partner or his legal
representative.
The duties as contained in this provision are:
45
Section 13 (e)
46
Supra 10, p-192

1. Duty to carry on the business to the greatest common advantage: -

Partnership is based upon mutual confidence and trust. It is, therefore, necessary that no
partner should gain any personal advantage at the cost of others. One of the duties mentioned
in Section 9 is that partners must carry on the business to the greatest common advantage.
This provision is to be read with Section 16(a) of the Act according to which 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. He is bound to account for that profit to the firm.
In Bentley v. Craven47, a firm which had been established for refining sugar consisted of four
partners. One of the partners, who were considered to be expert in the job, was authorised to
purchase sugar for the firm for refining. Instead of purchasing sugar from the market he
supplied his own sugar, which he had purchased earlier at much lower price and thus made
considerable profit. He did not disclose this fact to other partners that he was making profit in
this particular transaction. It was held that the firm was entitled recover the profit thus made
by this partner.
2. Duty to be just and faithful to each other:-
Another duty mentioned in Section 9 is that the partners must be just and faithful to each
other. Persons enter into partnership with others on the basis of their mutual confidence and
trust. There is mutual agency between the partners and every partner is the agent of all others
and he can bind them to unlimited extent. Every partner is, therefore, expected to be just and
faithful to his co-partners. The partners must perform their functions with utmost fairness.
Thus, Section 33 provides that even if the contract between the partners authorised the
expulsion of a partner, the fellow partner must exercise this power in good faith. In case a
partner is guilty of a conduct which destroys mutual confidence, e.g., one partner commits
adultery with another partners wife that could be a ground on which the court may order
dissolution of the firm.48
3. Duty to render true accounts :-
Rendering true accounts is another duty which is imposed by Section 9. Every partner is ,
therefore, bound to keep and render true and complete accounts of all the partnership moneys
47
(1853) 18 Beav. 75 : 104 R.R. 373
48
Abbott v. Crump (1870) 5 Beng. L.R. 109

with him. He also must make these accounts available to the other partners because every
partner has a right to have access to and to inspect and copy any of the books, including the
account books of the firm49. The partnership funds in the hands of a partner must be spent by
him properly for the purpose of the firms business and the partner concerned should keep
proper vouchers in respect of the expenses. He should not mix up his money with that of the
firm nor should he wrongly spend or misappropriate the firms money, otherwise he will be
accountable for the same towards the firm.
4. Duty to render full information of all things affecting the firm :-
Every partner is an agent of the firm. According to the law of agency, information to the
agent is deemed to be information to the principal. Section 9, therefore, makes it incumbent
on 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. In Law v. Law50,
it has been held that if a partner, who is entitled to repudiate the contract on the ground of
concealment of facts by the other co-partner, does not insist on full disclosure, but rather
agrees to the modification of the original bargain, such a partner cannot subsequently
repudiate the contract.
5. Duty to indemnify for fraud [Section 10] :-
Duty to indemnify for loss caused by fraud every partner shall indemnify the firm for
any loss caused to it by his fraud in the conduct of the business of the firm.51
The firm is liable not only for the contract made by one of them on behalf of other but also
for wrongful act or omission of a partner acting in the ordinary course of business of the firm.
If a partner commits fraud against a 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 entitles the firm
to recover indemnity from the partner guilty of fraud because of which the firm had to suffer
the loss. Unlike the provisions of Section 12 to 17, the duty mentioned in this section is not
subject to the contract between the partners. It is therefore, not possible for a partner to
negative his liability towards the firm for loss caused to the firm due to his fraud. This section
in absolute terms provides that every partner shall indemnify the firm for any loss caused to
49
Section 12(d)
50
(1905) 1 Ch. 140
51
Section 10

the firm by his fraud in the conduct of the business of the firm and leaves no scope for the
guilty partner to contract himself out of such liability.
6. Duty to be diligent [Section 12(b) and 13(f)]
According to Section 12 (b), every partner is bound to attend diligently to his duties in the
conduct of the business of the firm. If a partner is negligent in the performance of his duties,
this may cause loss not to that partner alone but to the whole firm. It has, therefore, been
provided in Section 13(f) that if the firm suffers any loss by the wilful neglect of a partner, he
shall indemnify the firm for the same. The expression wilful neglect means an act done
intentionally or deliberately rather than by inadvertence or an accident.52 An act done in good
faith and bonafide cannot be termed as wilful neglect. In Cragg v. Ford53, a partner who was
made in charge for winding up the business of the firm made some delay in disposing of
some bales of cotton, ignoring the suggestion of a fellow partner. The prices of cotton fell
considerably and loss was caused due to the delayed sale. It was held that the defendant was
not liable for the loss as there was no wilful neglect on the part of the partner concerned
because he was acting bonafide and did not anticipate the sudden fall in the prices.
7. Duty to properly use the firms property [Section 14 and 15]:-
According to Section15, the property of the firm is to be used by the partners exclusively for
the purposes of the firms business rather than the private and personal use of a partner.
2Although every partner has an interest in the property but no one can deal with any specific
item of property as his own. In Addanki Narayanappa v. Bhaskara Krishnappa54, the
Supreme Court explained the nature of the rights of the partners in the following words:
..whatever may be the character of a property which is brought in by the partners when the
partnership is formed or which may be acquired in the course of the business of the
partnership, it becomes the property of the firm and what a partner is entitled to is his share of
profits, if any , accruing to the partnership from the realization of this property, and upon
dissolution of the partnership to a share in the money representing the value of the property.
No doubt, since a firm has no legal existence, the partnership property will vest in all the
partners and in that sense every partner has an interest in the property of the partnership.
52
Tamboli v. G.I.P. Rly., AIR 1928 P.C. 24
53
(1842) 1 Y & C. Ch. Cas. 280
54
AIR 1966 SC 1300, at p-1303

The property of the firm has got to be used exclusively for the purpose of the business of the
firm. If any partner derives any profit or personal advantage by the use of the partner of the
firm, he has to account for that profit and pay the same to the firm 55. This rule is subject to
contract between the partners.
Section 14 defines the property of the firm as the property of the firm Subject to contract
between the partners, the property of the firm includes all property and rights and interest
in property originally brought into the stock of the firm, or acquired by purchase or
otherwise, by or for the firm, or for the purpose and in the course of the business of the
firm, and includes also the goodwill of the business.
Unless the contrary intention appears, property and rights and interest in property
acquired with money belonging to the firm are deemed to have been acquired for the
firm.
According to the above mentioned provision, the property of the firm not only includes what
is originally brought into the stock of the firm but also whatever is subsequently acquired, by
purchase or otherwise. Partners may bring an immovable property also into the common
stock and that becomes the property of the firm. Even if the property contributed by one
partner be an immovable property, no document, registered or otherwise, is required for
transferring the property to partnership56.
Section 14 of the Partnership Act, 1932 expressly declares that property exclusively
belonging to a person, on his entering into partnership with others, does not become a
property of the partnership merely because it is used for the business of the partnership, in the
absence of an agreement to the contrary.
Thus, such property will become property of the partnership only if there is an agreement,
express or implied that the property was under the partnership agreement, to be treated as the
property of the partnership.57
8. Duty not to earn personal profits or to compete [Section 16]:-
The partnership business belongs to all the partners jointly. It is therefore, expected of every
partner that he will act to the greatest common advantage rather than acting for personal
55
Section 16(a)
56
Firm Ram Sahay v. Bishwanath, AIR 1983 Pat. 221, at p-223
57
Arjun Kanji Thankar v. S.K. Thankar, (1969) 3 SCC 555

profit at the cost of other partners. He should also not engage in a competing business.
Section 16 contains the following provision as regards such duty.
Personal profits earned by partners - Subject to the contract between the partners, -
(a) if a partner derives any profits 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.
A partner is the agent of the firm for the purpose of the business of the firm. According to the
rules of the law of agency, no agent can deal on his own account in the business of agency
without the consent of the principal.58 If an agent, without the consent of his principal, deals
in the principal of agency on his own account instead of on account of his principal, the
principal is entitled to claim from the agent any benefit which may have resulted to him from
the transaction59. Section 16(a) makes every partner accountable to the firm for any personal
profit made by him:
(i) From any transaction of the firm,
(ii) From the use of the property or business connection of the firm, or
(iii) From the use of the firm name.
In Bentley v Craven60, one of the partners in a firm of sugar refiners, who was considered
expert in the job, was entrusted with the duty of purchasing sugar fro the firm for being
refined. He himself was a whole sale dealer in sugar. He supplied his own sugar which he
had purchased at a lower price, to the firm at eh prevailing market rates and thereby made
considerable profit. He did not let his co-partners know that he was selling his own sugar to
the firm and thereby making profit out of this transaction of the firm. It was held that he was
bound to account to the firm for the profit thus made by him.
58
Section 215, Indian Contract Act.
59
Section 216, Indian Contract Act.
60
(1853) 18 Beav. 75

Similarly, if a partner, without the knowledge of the other co partners, directly or indirectly,
he purchases the property of the firm and thereby gains some benefit, he has to account for
that benefit to the firm.
In Gordon v. Holland61, a partner sold the land belonging to the firm to a bonafide purchaser
and then repurchased that land himself, it was held that all the benefits made by this partner
on re-purchase of the land had to be given to the firm.
A partner is supposed to devote himself solely to the business of the firm. He 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, he shall account for and pay to the firm all profits made in
the competing business.
(1) RELATIONS OF PARTNERS TO THIRD PARTIES
The relation between partners on the one hand and the third parties on the other is founded on
the principal contained in Section 18, which reads as under:
Partner to be agent of the firm - Subject to the provisions of this Act, a partner is the agent
of the firm for the purposes of the business of the firm.
For the purposes of the business of the firm, a partner is an agent of the firm. It means that a
firm ,that is, 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. Mutual Agency between the partners is one of the
essentials to create partnership. Every partner having the capacity to act as firms agent, the
act done by any partner renders the whole firm liable towards a third party. Law of
partnership is generally stated as a branch of the law of principal and agent. Relations of
partners to third parties are thus founded on the principle of mutual agency between the
partners.
61
(1913) 108 L.T. Rep. 385

Nature and Extent of Liability of the Firm for the

Acts of a Partner [Section 18-27]
The question of liability of the firm for the acts of a partner is being discussed under the
following sub heads:
(A) Nature of liability of the partners towards third parties, and
(B) The kinds of acts for which the partners are liable which are as follows:
(1) Liability for the acts done within the authority of a partner (Section 18,19,20 and
22). Such authority may be either express or implied authority.
(2) Liability when a partner acts in emergency (Section 21);
(3) Liability on ratification of a partners act;
(4) Liability for admission made by a partner (Section 23);
(5) Liability on notice to an acting partner (Section 24);
(6) Liability for torts and wrongful acts (Section 26); and
(7) Liability for misapplication of money or property (Section 27)
(A) The nature of liability of the partners towards third parties [Section 25]
Section 25 contains the following provision to explain the nature of liability of the
partners of a firm:
Liability of the partner for acts of the firm - Every partner is liable jointly with all
the other partners and also severally, for all acts of the firm done while he is a
partner.
A principal is liable for the act of his agent done by him on his behalf. According to Section
18, it has been noted above, a partner is an agent of the firm for the purpose of the business of
the firm. Obviously, therefore, the whole of the firm, which means all the partners of the firm,
become liable for an act of the firm done by any partner. As regards the nature of liability of

the partners, Section 25 states that every partner is jointly and severally liable for all acts of
the firm done while he is a partner.
(B) The kind of acts for which the partners are liable
(1) Acts done within the authority of a partner (Section 18,19, 20 and 22)
A partner being an agent of the firm, his acts bind the firm provided that the partner is
acting within the authority vested in him. As in a contract of agency, the authority of the
partner may also be either express or implied.
Express Authority
An authority is said to be express when it is given by words spoken or written62.
Implied Authority
An authority is said to be implied when it is to be interfered from the circumstances of the

case; and things spoken or written, or the ordinary course of dealing, may be accounted
circumstances of the case. For instance, A is authorised to recover Rs. 5,000 from B. In
this case A has the implied authority to file a suit for the recovery of the amount.
In the context of partnership the scope of implied authority has been explained by Section
19(1) as under:
Subject to the provisions of section 22, 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 his "implied authority".
In any business it may not be possible to expressly mention each and every thing which
can be done by an agent or a partner. Depending on the nature of the business some of the
authority may be deemed to be vested in a partner so that the business can be properly
and efficiently run. Such an authority is known as implied, apparent, ordinary or
ostensible authority. In such a case the firm will be bound to the third parties even
though for such an act no specific express authority has been conferred on the partner. For
an act to be covered within the implied authority, it is necessary that
62
Section 187, Indian Contract Act

(i) The act should be done in relation to the partnership business, and
(ii) The act should be done in usual way, in relation to a business of the kind carried
on by the firm.
(2) Partners authority in an emergency [Section 21]
Sometimes even if a partner does not have either express or implied authority to act on behalf
of the firm, his act can bind the firm if the same has been done in a situation of emergency as
described in Section 21. The section reads as under:
Partners authority in an emergency - A partner has authority, in an emergency; to do all

such acts for the purpose of protecting the firm from loss as would be done by a person of
ordinary prudence, in his own case, acting under similar circumstances, and such acts bind
the firm.
Section 21 confers an authority on a partner in emergency for doing all such acts for the
purpose of protecting the firm from loss as would be done by a person of ordinary prudence
in his own case. For such an act the firm would be bound towards the third party. The
authority conferred by this section is similar to the authority conferred upon an agent under
Section 189 of the Indian Contract Act.
(3) Ratification of a partners act
When an agent does an act on behalf of a principal but without the principals prior authority,
the principal may grant subsequent approval to such an act, i.e., ratify the same. If the
principal ratifies the act, the same effect follows as if the act had been performed with his
prior authority. The relation between various partners being that of principal and agent, the
rules of the law of agency are applicable in such a case also. Even if a partner has acted
without any authority, if the act is subsequently ratified by the other partners, the act will
become binding on them. For instance, a partner A, without any authority, borrows Rs. 10,000
from B. As act is ratified by the other partners. Thereafter, they become bound to pay that
sum to B.
(4) Admission made by a partner [ Section 23]

Admission made by a partner - An admission or representation made by a partner

concerning the affairs of the firm is evidence against the firm; it is made in the ordinary
course of business.63
According to Section 23, an admission or representation made by a partner concerning the

affairs of the firm is evidence against the firm, if it is made in the ordinary course of business.
This is so because every partner is the agent of the firm for the firms business. For example,
admission by one partner regarding making of a contract, execution of a document, payment
of money, supply of goods or financial conditions of the firm, will be evidence against all the
other partners. It is, of course, necessary that such admission or representation must have
been made in the ordinary course of business. Similarly, representations made by a partner
also have the same effect.
The admission and representations constitute evidence against the firm provided a third party
wants to make use of such admissions or representations.
An admission and representation made by a partner is simply evidence against the firm.
Evidence can be given to disprove such admissions or representations made by a partner as
they do not constitute conclusive proof of the matters admitted or represented.
(5) Effect of notice to an acting partner [Section 24]
Effect of notice to an acting partner - Notice to a partner who habitually acts in the
business of the firm of any matter relating to the affairs of the firm operates as notice to the
firm, except in the case of a fraud on the firm committed by or with the consent of that
partner.
Section 24 embodies another general principle of the law of agency. Notice to an agent
concerning the matters of agency is deemed to be a notice to the principal. Section 24
provides that notice to a partner who habitually acts in the business of the firm of any matters
relating to the affairs of the firm operates as a notice to the firm.
Such a notice binds only such partners who are there at the time when the notice was given.
Therefore, if some notice had been given earlier, it will not bind a partner who is introduced
as a partner after such notice. Similarly, an outgoing partner cannot ordinarily be bound by a
notice relating to subsequent matters. However, if a public notice of dissolution of a firm or
63
Section 23

ceasing of a partner to be a partner has not been given, the partners continue to be liable as
before and notice in such cases may affect even those partners who are no more partners.
(6) Liability for torts and wrongful acts [Section 26]
A principal is vicariously liable for the torts and the other wrongful acts committed by his
agent in the course of the business of the agency. Every partner being an agent of the firm for
the business of the firm, the same principle has been recognised by the Indian Partnership Act
also. Section 26 contains the following provisions in this regard:
Liability of the firm for wrongful acts of a partner - Where, by the wrongful act or omission
of a partner acting in the ordinary course of the business of a firm or with the authority of his
partners, loss or injury is caused to any third party, or any penalty is incurred, the firm is
liable therefore to the same extent as the partner.
It has been noticed above that for an act of the firm, every partner is liable and that includes
liability for wrongful acts also. Section 26 specifically provides regarding such liability. It
states that whereby the wrongful act or omission of a partner loss or injury is caused to any
third party, or any penalty is incurred, the firm is liable therefore to the same extent as the
guilty partner. The wrongful acts may be tort, fraud, negligence or misapplication of money
or misappropriation of property. Section 27 explains such liability separately in case of
misapplication of money or property.
(7) Liability for misapplication of money or property by a partner [Section 27]
Section 27 recognises the liability of the firm for a particular kind of wrong done by a
partner, i.e., misapplication of money or property. The provision is as follows:
Liability of the firm for misapplication by partners - Where
(a) a partner acting within his apparent authority receives money or property from a third
party and misapplies it, or
(b) a firm in the course of its business receives money or property from a third party, and the
money or property is misapplied by any of the partners while it is in the custody of the firm,
the firm is liable to make good the loss.

In this section two kinds of cases of misapplication of money or property have been
mentioned
(a) When the money or property has been received by a partner and he misapplies the
same without accounting for it to the firm; and
(b) When the money or property has been received by the firm from third party and the
same is misapplied by any of the partners.
In either case the firm is liable to make good the loss to the third party.

DISSOLUTION OF A FIRM
Dissolution of partnership means coming to an end of the relation known as partnership,

between various partners. When one or more partners cease to be partners but others continue
the business in partnership, there is dissolution of partnership between the outgoing partners
on the one hand and remaining partners on the other. The remaining partners as between
themselves still continue as partners. For example, when the firm consists of A, B and C and
retires, there is dissolution of partnership between A and others but partnership as between B
and C is not dissolved. In such a case, there is dissolution of partnership between some of the
partners only, but there is no dissolution of the firm.
According to Section 39, when the dissolution of partnership between all the partners of the
firm occurs, this is called dissolution of the firm. For example, when in a firm consisting of
A, B, and C all of them cease to be partners with one another, it amounts to dissolution of the
firm.
MODES OF DISSOLUTION [Section 40 44]
A firm may be dissolved in the following ways:
(1) By agreement.
(2) Compulsory dissolution.
(3) On happening of certain contingencies.
(4) By notice.
(5) By the Court.
(1) Dissolution by agreement [ Section 40]
Dissolution by Agreement - A firm may be dissolved with the consent of all the partners or
in accordance with a contract between the partners.64
A firm may be dissolved in the following either
64
Section 40

(i) With the consent of all the partners, or
(ii) In accordance with a contract between the partners.
As partners can create partnership by making a contract as between them, they are also
similarly free to end this relationship and thereby dissolve the firm by their mutual consent.
When all the partners so agree, they may dissolve the firm at any time they like.
Sometimes there may have been a contract between the partners indicating as to when and
how a firm may be dissolved, a firm can be dissolved in accordance with such a contract. For
instance, if the contract between the partners provides that on a 6 months notice by a partner
the firm may be dissolved, then in accordance with this contract, a partner could give 6
months notice and get the firm dissolved.
(2) Compulsory dissolution [Section 41]
Section 41 mentions certain events on the happening of which there is compulsory and if the
partners want to continue in partnership by agreeing to the contrary they cannot possibly do
that. Section 41 is as under:
Compulsory dissolution of the firm - A firm is dissolved -
(a) by the adjudication of all the partners or of all the partners but one as insolvent, or
(b) by the happening of any event which makes it unlawful for the business of the firm to be
carried on or for the partners to carry it on in partnership : Provided that, where more than
one separate adventure or undertaking is carried on by the firm, the illegality of one or more
shall not of itself cause the dissolution of the firm in respect of its lawful adventures and
undertakings.
According to Section 41, therefore, compulsory dissolution occurs under the following
circumstances:
(i) When all the partners or all except one are adjudicated insolvent, the firm is
compulsorily dissolved. We have already noted that when a partner is adjudicated insolvent,
he ceases to be a partner. Therefore, when all the partners or all except one are adjudicated

insolvent, there is no question of persons remaining partners with one another and, therefore,
there has to be dissolution of the firm.
(ii) If the business of the firm though lawful when the firm came into existence,
subsequently becomes unlawful, there has to be dissolution of the firm. This provision is
based on the rules of the law of contract. For a valid contract the object and consideration
have to be lawful as defined in Section 23, Indian Contract Act. Section 56 of the Contract
Act further provides that when the contract to do an act becomes unlawful after making the
contract, such a contract becomes void. For example, a number of persons join together as
partners to sell liquor in a certain area. Subsequently, the Government imposes prohibition in
that area and the sale of liquor is banned. As soon as the sale of liquor in that area becomes
unlawful, the firm is dissolved.
If the firm was carrying on more than one advantages or undertakings, the illegality of one or
more of them shall not of itself result in the dissolution of the firm in respect of those
adventures or undertakings which are still lawful.
There is also a compulsory dissolution of the firm if some event happens because of which it
becomes unlawful for the partners to continue as partners with each other. For example, two
partners reside and carry on trade in two different countries. If war breaks out between these
two countries and further commercial intercourse between the two partners thereby becomes
against public policy and thus unlawful, there is compulsory dissolution of the firm.
(3) Dissolution on happening of certain contingencies [Section42]
Dissolution on happening of certain contingencies - Subject to contract between the

partners a firm is dissolved (a) if constituted for a fixed term, by the expiry of that term; (b) if
constituted to carry out one or more adventures or undertakings, by the completion thereof;
(c) by the death of a partner; and (d) by the adjudication of a partner as an insolvent.65
Section 42 mentions certain contingencies on the happening of which the firm is dissolved,
unless there is a contract to the contrary. Unlike the dissolution under Section 41, which is
compulsory, the dissolution contemplated under Section 42 is not compulsory. Even on the
happening of the contingencies mentioned in Section 42, partners may agree that the firm will
65
Section 42

not be dissolved, but the business of the firm will be continued as before. The contingencies
mentioned in this Section are:
(i) Expiration of the partnership term,
(ii) Completion of the adventure,
(iii) Death of a partner, and
(iv) Insolvency of a partner.
(i) Expiration of the partnership term when the Partnership had been constituted for a
fixed term, it continues obviously for the contemplated term and would be dissolved on
the expiry of such term. If the partners so like they may agree to the contrary and
continue the business even beyond that time. Such an agreement may be express or
implied. If a fresh term is not stipulated, then it will be considered to be a partnership at
will. Unless otherwise agreed, the same mutual rights and duties continue for the
extended period as they were there before the expiry of the term.
(ii) Completion of the adventure - Partnership created for some specific adventures or
undertakings come to an end on the completion of such adventures or undertakings.
Thus, when the partnership was created specifically for carrying out contract of
construction of a road and the road was completed on 24.07.1963 and the final bill
prepared on 18.02.1965, the partnership stood dissolved on 18.02.1965. The suit for
dissolution filed within 3 years of 18.02.1965 was held to be within time.66
There can, however, be an agreement by which the partnership may not be dissolved and
the business may be continued for some other adventures or undertakings after the
completion of the earlier ones. Unless otherwise agreed, the same mutual rights and
duties between the partners continue in respect of their relationship for the new
adventures and undertakings also.
(iii) Death of a partner Death of a partner results in the dissolution of the firm unless the
remaining partners agree to the contrary.
66
Dayalal v. Harjiwandas, AIR 1983 (N.O.C.) 20 (Guj.)

Section 42 of the Partnership Act, 1932 provides that a firm stands dissolved on the death
of a partner.
However, a firm would not stand dissolved if there is a contract to the contrary between
the partners. It is not necessary that such a contract must be express. The contract may be
implied and can also be spelt out from the conduct of the partner subsequent to the death
of a partner.
In Pawan Nandlal Agarwal v. Asian Dye Chemicals67, subsequent to the death of a

partner, the defendant firm entered into an agreement with another firm. A suit was filed
after the death of a partner, showing that the firm continued to exist and the other party to
the suit also considered it to be a partnership firm. The Bombay High Court held that the
firm would be held to exist on the date of institution of the suit. The Court said that in
view of Section 69 A inserted by the Maharashtra Act, 1984 in the Indian Partnership
Act , 1932, non - compliance of the provisions Section 63 of the Partnership Act, 1932,
did not have effect of cancellation of registration of the firm, it merely resulted in
imposition of penalty under Section 69 A.
The Court thus, ruled that where there is a contract to the contrary express or implied,
among the partners, a Firm would not stand dissolved automatically on the death of one
of one of its partners.
(iv) Insolvency of partner When a partner is adjudicated insolvent, he ceases to be a

partner. The firm is also dissolved unless there is an agreement between the remaining
partners to the contrary. This provision has to be read along with Section 41(a) which
states that when all or all except one partner becomes insolvent, there is compulsory
dissolution of the firm. If, therefore, there are only two partners and one of them is
adjudicated insolvent, there is compulsory dissolution under Section 41 and there is no
question of there being a contract to the contrary making the firm to continue.
(4) Dissolution by notice in Partnership at will [Section 43]
Dissolution by notice in Partnership at will - (1) 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) The firm is dissolved as from the date mentioned in the
67
AIR 2008 (NOC) 804 (Bom.)

notice as the date of dissolution or, if no date is so mentioned, as from the date of the
communication of the notice.
When the partnership is at will as defined in Section 7, the partners are not bound to remain
as partners or continue the partnership for any fixed period. According to Section 43, such a
firm may dissolved by any partner giving notice in writing to all the other partners of his
intention to dissolve the firm. The notice must clearly and in unambiguous terms indicate the
intention of the partner giving notice to dissolve the firm. Dissolution by a notice under this
section will be valid even though one of the partners to whom the notice is given is insane.
When the partnership was originally constituted for a fixed term, but the partners continue the
business even after the expiry of the term, unless otherwise agreed, the partnership is now
deemed to be a partnership at will and, therefore, it can now be dissolved by a notice as stated
in this section. A notice for dissolution once given cannot be withdrawn unless the other
partners agree to the same.68
The notice for dissolution is a statutory requirement, and therefore, the requirements of
Section 43 have to be satisfied. Therefore, if a partner writes a letter to his lawyer, who also
happens to be his arbitrator, indicating that the dispute relating to the dissolution is to be
referred to arbitration that will not result in the dissolution of the firm, as in such a case there
is no intention to dissolve the firm by notice to the other partners69.
If the partnership agreement stipulates the dissolution of the partnership in a manner as may
be mutually agreed between parties, it cannot be said to be partnership at will. Such a
partnership not being a partner at will cannot be dissolved unilaterally by one partner giving
notice to other partners, under Section 43 of the Partnership Act70.
Although a partnership at will can be dissolved by a notice, there is, however, nothing which
prevents the dissolution of such partnership under the other provisions of the Act. Thus, a
partnership at will could also be dissolved by mutual consent, insolvency or death of a
partner71.
68
Jenes v. Lloyd, 18 Eq. 265
69
Tilokram Ghosh v. Gita Rani, AIR 1989 Cal. 254
70
Mohd. Monirul Hasan v. Mohd. Iftikar Ahmed, AIR 2000 Gau. 108
71
Sri Kishan Gupta v. Ram Babu Gupta, AIR 1990 All. 171

In P. Venkatesarlu v. C. Lakshmi Narasimha Rao 72, the partnership was a partnership at will.
However, the partnership agreement contained a clause to the effect that any dispute which
might arise would be referred to arbitration.
The Andhra Pradesh High Court, referring to the provisions of Section 40 and 43 of the
Partnership Act, 1932, held that the partnerships could be dissolved with the consent of all the
partners or as per the terms of the agreement between the partners. The partnership, in
question, being at will, the petitioner had rightly exercised his right to dissolve the firm, in
accordance with the provisions of Section 43. When, once the firm was dissolved, the
question of placing reliance on arbitration clause by the other partners, did not arise the Court
ruled.
(5) Dissolution by the Court [Section 44]
Section 44 mentions certain grounds on which a suit can be filed for the dissolution of the
firm. A sit for the dissolution for the firm, may be filed, by the innocent partners and not by
the partner whose conduct, is the subject matter for the suit. The provision is as follows:
Dissolution by the Court - At the suit of a partner, the Court may dissolve a firm on any of
the following grounds, namely :-
(a) that a partner has become of unsound mind, in which case the suit may be brought as well
by the next friend of the partner who has become of unsound mind as by any other partner;
(b) that a partner, other than the partner suing, has become in any way permanently
incapable of performing his duties as partner;
(c) that a partner, other than the partner suing, is guilty of conduct which is likely to affect
prejudicially the carrying on of the business regard being had to the nature of the business;
(d) that a partner, other than the partner suing, wilfully or persistently commits breach of
agreements relating to the management of the affairs of the firm of the conduct of its
business; or otherwise so conducts himself in matters relating to the business that it is not
reasonably practicable for the other partners to carry on the business in partnership with
him;
(e) that a partner, other than the partner suing, has in any way transferred the whole of his
interest in the firm to a third party, or has allowed his share to be charged under the
provisions of rule 49 of Order XXI of the First Schedule to the Code of Civil Procedure,
72
AIR 2002 A.P. 62

1908, or has allowed it to be sold in the recovery of arrears of land revenue or of any dues
recoverable as arrears of land revenue due by the partner;
(f) that the business of the firm cannot be carried on save at a loss; or
(g) on any other ground which renders it just and equitable that the firm should be
dissolved.
The need for dissolution by the court arises when all the partners do not want the dissolution.
The partner or partners who want dissolution can file a suit and the other partners may contest
same. It may be noted that Section 44, which permits a partner to invoke the jurisdiction of
the Court for the dissolution of the firm, is not a subject to contract between the partners
permitted under section 11. Therefore, a partner can always file a suit for the dissolution of
the firm if his case is covered under section 44.
A suit for dissolution can be filed only when one or the other ground mentioned in Section 44
is there. Even when there is a valid ground for filing the suit for dissolution and a partner
accordingly files the suit, the court is not bound to decree dissolution as this section clearly
provides that At the suit of a partner, the Court may dissolve the firm.
The grounds which justify the filing of suit by a partner for the dissolution of the firm as
mentioned in Section 44 are as under:
(a) Unsoundness of mind When a partner becomes of unsound mind, a suit for the
dissolution of the firm can be filed. Such a suit may be filed either on behalf of the
partner who has become of unsound mind, or by any other partner.
(b) Permanent incapacity to perform duties When a partner becomes permanently
incapable of performing his duties as a partner that is a good ground for applying to
the court for dissolution of the firm. When the incapacity is not permanent, the Court
would not grant relief. In Whitwell v. Arthur, one partner filed for the dissolution of
the firm when the other suffered from the paralytic attack and was thereby
incapacitated from performing his duties as a partner. It was found from medical
evidence that the incapacity was not likely to be permanent as the defendants health
was improving. The Court did not grant the dissolution of the firm.
(c) Conduct injurious to partnership business When a partner is guilty of conduct
which is likely to affect prejudicially the carrying on the business of the firm, the
court may dissolve the firm on that ground. Misconduct need not be with regard to the
partnership business, but the conduct should be such as should prejudicially affect the
partnership business. The acts of adultery by a partner in a firm of bankers has been
considered to be no ground for seeking dissolution by the other partners but that may

be so if it is a firm of medical practitioners. Conviction for a breach of trust, or the

adultery by one partner, with another partners wife are grounds for the dissolution of
the firm.
(d) Persistent breach of partnership agreement When a partner wilfully and
persistently commits breach of agreements relating to the management of the affairs
of the firm, or so conducts himself in matters relating to the firms business that it is
not reasonably practicable for the other partners to carry on the business in
partnership with him, a suit for the dissolution of the firm may be filed. In Harrison
v. Tenant73, one of the partners in a firm of solicitors ignored the other two partners
and declined to settle disputes by mutual consultation. It was held that the conduct of
one of the partners being destructive of mutual confidence, which could not restored,
was a valid ground for the dissolution of the firm. Similarly, when due to frequent
quarrels, there is no hope of mutual cooperation, or a partner prepares false accounts
and enters in the account smaller sum of money than actually received from the
customers, or when a partner refuses to render accounts and takes away the books of
accounts of the firm, or a partner misuses partnership funds for paying personal debts,
the court may order dissolution.
(e) Transfer of the whole of a partners interest When a partner has transferred the
whole of his interest in the firm to a third party, it can be a ground on which the court
may dissolve the firm. Similar would be the position when a partner has allowed his
share to be charged under the provisions of the Civil Procedure Code, or has allowed
it to be sold in the recovery of the arrears of land revenue or any dues as arrears of
land revenue. It is necessary that the transfer must be of the whole of the partners
interest rather than merely a part of it. For dissolution in this case also the suit can be
filed only by a partner other than the one whose interest has been transferred.
(f) When the business can be carried on only at a loss - The object of every partnership
is to make profits. If it appears that the business of the firm cannot be carried on
except at a loss, any of the partners may apply to the court for the dissolution of the
firm
(g) When the dissolution is just and equitable The Court has been given very wide
power of dissolution. Apart from ordering the dissolution of the firm on the grounds
stated above, the court has been vested with the power of dissolving the firms on any
other ground which renders it just and equitable that the firm should be dissolved. In
73
(1856) 21 Beav. 482

Abbot v. Crump74, adultery by one partner with another partners wife was held to be a
good ground for the dissolution of the firm by the court. When the partnership deed
provides for appointment of arbitrator for referring disputes to him, such arbitrator has
also the power to decide as to whether a firm may be dissolved or not.
CONCLUSION
74
(1870) 5 Beng. L.R. 109

A partnership is an arrangement where parties agree to cooperate to advance their mutual

interests. Since humans are social beings, partnerships between individuals, businesses,
interest-based organizations, schools, governments, and varied combinations thereof, have
always been and remain common place. In the most frequently associated instance of the
term, a partnership is formed between one or more businesses in which partners (owners) co-
labour to achieve and share profits and losses. Partnerships are also common regardless of
and among sectors. Non-profit, religious, and political organizations, may partner together to
increase the likelihood of each achieving their mission and to amplify their reach. In what is
usually called an alliance, governments may partner to achieve their national interests,
sometimes against allied governments who hold contrary interests, such as occurred during
World War II and the Cold War. In education, accrediting agencies increasingly evaluate
schools by the level and quality of their partnerships with other schools and a variety of other
entities across societal sectors. Partnerships also occur at personal levels, such as when two or
more individuals agree to domicile together, while others are not only personal but private,
known only to the involved parties.
Partnerships present the involved parties with special challenges that must be navigated unto
agreement. Overarching goals, levels of give-and-take, areas of responsibility, lines of
authority and succession, how success is evaluated and distributed, and often a variety of
other factors must all be negotiated. Once agreement is reached, the partnership is typically
enforceable by civil law, especially if well documented. Partners who wish to make their
agreement affirmatively explicit and enforceable typically draw up Articles of Partnership.
While partnerships stand to amplify mutual interests and success, some are considered
ethically problematic. When a politician, for example, partners with a corporation to advance
the corporation's interest in exchange for some benefit, a conflict of interest results.
Outcomes for the public good may suffer.
Partnerships may enjoy special benefits in tax policies. Among developed countries, for
example, business partnerships are often favoured over corporations in taxation policy, since
dividend taxes only occur on profits before they are distributed to the partners. However,
depending on the partnership structure and the jurisdiction in which it operates, owners of a
partnership may be exposed to greater personal liability than they would as shareholders of a

corporation. In such countries, partnerships are often strongly regulated via anti-trust laws, so
as to inhibit monopolistic practices and foster free market competition. Governmentally
recognized domestic partnerships typically enjoy tax benefits, as well.
BIBLIOGRAPHY

Dr. Avatar Singh, Introduction to Law of Partnership, 8th edition, Lucknow, Eastern
Book Company, 2005.
Dr. R.K. Bangia, Contracts-II, Faridabad, Allahabad Law Agency, 2010.
Dr. S.K. Kapoor, Contracts-II, 10th edition, Allahabad, Central Law Agency, 2005.
M.R. Mallick, Goyles The Law of Partnership, 2nd edition, Kolkata, Eastern Law
House, 2006.

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CHANAKYA NATIONAL LAW UNIVERSITY, PATNA

Submitted To: Submitted By:

Mr. Ravi Ranjan Parijat

Teacher Associate IIIrd Semester

Parijat Singh, CHANAKYA NATIONAL LAW UNIVERSITY Page 2

Parijat Singh, CHANAKYA NATIONAL LAW UNIVERSITY Page 3

Parijat Singh, CHANAKYA NATIONAL LAW UNIVERSITY Page 4

Aims and Objectives

Parijat Singh, CHANAKYA NATIONAL LAW UNIVERSITY Page 5

Parijat Singh, CHANAKYA NATIONAL LAW UNIVERSITY Page 6

MEANING, DEFINITON AND NATURE OF

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(3) Sharing of Profits

Parijat Singh, CHANAKYA NATIONAL LAW UNIVERSITY Page 8

(4) Mutual Agency

(1) Agreement- According to Section 4, the first essential element of Partnership is

Parijat Singh, CHANAKYA NATIONAL LAW UNIVERSITY Page 9

(3) Sharing of Profits Another essential element of partnership is sharing of profits of

Parijat Singh, CHANAKYA NATIONAL LAW UNIVERSITY Page 10

sharing profits, it was considered to be decisive of constituting a partnership between them.

Parijat Singh, CHANAKYA NATIONAL LAW UNIVERSITY Page 11

Parijat Singh, CHANAKYA NATIONAL LAW UNIVERSITY Page 12

In certain respects, a partnership is a more suitable form of business organisation than a

Parijat Singh, CHANAKYA NATIONAL LAW UNIVERSITY Page 13

CREATION AND DETERMINATION OF PARTNERSHIP

Section 5 which lays emphasis upon this point is as follows:

But in HUF the rule of survivorship is attracted17.

Parijat Singh, CHANAKYA NATIONAL LAW UNIVERSITY Page 14

Parijat Singh, CHANAKYA NATIONAL LAW UNIVERSITY Page 15

Section 6 of the Indian Partnership Act provides:

Mode of determining existence of partnership - In determining whether a group of

Explanation II : The receipt by a person of a share of the profits of a business, or of a

(a) by a lender of money to persons engaged or about to engage in any business

(b) by a servant or agent as remuneration,

(c) by the widow or child of a deceased partner, as annuity, or

Parijat Singh, CHANAKYA NATIONAL LAW UNIVERSITY Page 16

Undoubtedly, it is not an easy task to determine whether a group of persons constitute a

Parijat Singh, CHANAKYA NATIONAL LAW UNIVERSITY Page 17

Parijat Singh, CHANAKYA NATIONAL LAW UNIVERSITY Page 18

RIGHTS AND DUTIES OF PARTNERS

RELATIONS OF PARTNERS INTER SE

(2) Agreements in restraint of trade Notwithstanding anything contained in Section 27 of

Parijat Singh, CHANAKYA NATIONAL LAW UNIVERSITY Page 19

Parijat Singh, CHANAKYA NATIONAL LAW UNIVERSITY Page 20

RIGHTS OF THE PARTNERS

1. Right to take part in the conduct of the business [Section 12(a)]:-

Parijat Singh, CHANAKYA NATIONAL LAW UNIVERSITY Page 21

2. Right to express opinion [Section 12(c)]:-

3. Right to have access to books of the firm [Section 12(d)]:-

Parijat Singh, CHANAKYA NATIONAL LAW UNIVERSITY Page 22

4. Right to share profits [Section 13(b)]:-

As per Section 13 (c), generally, no interest on capital subscribed by the partners is to be

Parijat Singh, CHANAKYA NATIONAL LAW UNIVERSITY Page 23

6. Right to Indemnity [Section 13 (e)]:-

(i) In the ordinary and proper conduct of the business, and

DUTIES OF THE PARTNERS

The duties as contained in this provision are:

Parijat Singh, CHANAKYA NATIONAL LAW UNIVERSITY Page 24

1. Duty to carry on the business to the greatest common advantage: -

2. Duty to be just and faithful to each other:-

3. Duty to render true accounts :-

Parijat Singh, CHANAKYA NATIONAL LAW UNIVERSITY Page 25

4. Duty to render full information of all things affecting the firm :-