Partnership Act 1932

When two or more people come together as partners, they can form a partnership
firm. This partnership firm is governed by the rules and regulations of the Indian
Partnership Act, 1932. The partnership is also governed by the Indian Contract Act
in areas where the Partnership Act, 1932 is silent. Partnership Act come into force
on 1st day of October 1932.

Definition of Partnership: Section 4 of the Indian Partnership Act defines a

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

Meaning of Partnership: In a partnership firm, two or more people come together

to carry out a business for the purpose of earning profits and sharing those profits.
The partners combine their capital resources and work jointly to carry on the
business.

According to Section 12 of the Indian Partnership Act, a partnership must be formed

for the purpose of carrying a business that is legal in nature. Co-ownership of a
property is not considered as a partnership.

Essentials of a Partnership:

1. There must be an agreement between the partners to carry on the business of

the partnership firm. Usha Gopirathnam V P.S. Ranganathan: person
means living person. It does not mean dead person. Heirs of the deceased
partner, the court ruled that heirs will not be automatically become partner.
• A minor or a person of unsound mind, who are not competent to
contract, cannot become partners. There is nothing which prevents a
person incompetent to contract from accepting any benefit and hence
the business organization permits a minor to be admitted to the benefits
of partnership. Such minor has a right to share of property and profits
as may be agreed upon. Such minor share is liable for the act of the
firm, but the minor is not personally liable for any such act.
• Both natural and artificial persons can be a partner.
a. Partnership firm as a partner

1
 b. Company as partner.
c. Family member can become partner.
• Section 5: expressly provides that “the relation of
partnership arises from contract and not from status”.

Mrulidhar V The Commissioner: Joint Hindu Family formed partnership not

registered under PA act for 1 year. HC: held that not constituted genuinely.

2. Carrying on Business: Business should be lawful. Every Trade Occupation

or Profession, Commercial Activity aimed at erring profits.
Coope V Eyre:
3. The aim of the formation of the partnership should be to earn profits and
share them among partners. The sharing of profit and losses can either be
according to the ratio of the capital contributed by each partner or be equally
among all the partners unless otherwise specified.
4. Carrying Business:
• Lawful object and every trade, occupation or profession,
commercial activity aimed at earning profits.
• The partnership agreement must state that the business will be
jointly carried on by all of them or some of them acting on
the behalf of all.
• According to Section 13 of the Partnership Act, 1932, the
mutual agency exists between the partners. Every partner in a
partnership acts as a principal as well as an agent for other
partners. The actions of a partner are binding on the actions
of all the other partners.
Unlimited Liability- The partners can be held liable jointly for any debts of
the firm. They have an unlimited liability that extends to their private assets
for the disposal of the firm’s debts.

Number of Partners in a Partnership:

• According to the Indian Partnership Act, there is no limit on the maximum

number of partners that can be there in partnership but there must be a
minimum of two partners.

2
 • However, according to Companies Act 2013, the maximum number of
partners must not exceed 100 in case of a partnership. If the number of
members in a partnership exceeds 100 then it is termed as an illegal
association as per Section 464 of the Companies Act, 2013.
• As per Section 11 of the Companies Act, the maximum number of partners
for banking purposes is 10 and for other purposes is 20.

Partnership Deed:

• The partnership agreement forms the basis of a partnership.

• It is the foundation that creates a legal relationship between the partners to
carry out the business of the partnership firm.
• A partnership agreement can either be written or oral but in the written format
it is known as the partnership deed. Some of the details mentioned in a
partnership deed are as follows.
a. Name and address of the partnership firm as well as that of the business
b. Name and address of all the partners
c. Rights, duties, and obligation of partners.
d. Profit and loss sharing Ratio
e. Capital contribution by each partner
f. Rate of interest on capital, loan, drawings
g. Settlement of accounts in the event of the dissolution of the firm
h. Mode of settlement in the event of disputes among partners
i. Salaries and commission payable to partners
j. Rules to be followed in the event of the admission of a new partner,
retirement and death of an existing partner
k. Any other provisions affecting the rights of the partners.

Sec 6: 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.

3
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;

Duration of Partnership:

• Partners are free to decide as to how long partnership between them shall
continue.
• It may be fixed term. Ex: 2years or 6 years.
• It may be until the completion of certain adventures, undertakings, until
production of a firm.
• Sometimes the agreement may stipulate about the determination of
partnership on the happening of certain events, e,g, if the business runs into
loss for consecutively five years.
• Partnership at will: when the partnership have not decided about the duration.

CLASSES OR TYPES OF PARTNERS:

Partners can be classified as shown below:
1 . Ac t i v e / Ac t u a l P a rt n e r :
• A partner who is actively engaged in the conduct of the business of the partnership
is known as ‘active partner’.
• When an active partner retires from the firm, he has to give a public notice.
Otherwise, he will be liable on the principle of ‘holding out’.
• He is liable for acts of firm

2. Sleeping or Dormant Partner:

• A ‘Sleeping partner’ is one who does not take any active part in the business.
• Such partner joins the firm by agreement and invests capital and shares in the
profit of the business like the other partners.
• A sleeping partner need not give public notice of his retirement fromthe firm.
• He is liable for acts of firm without giving any public notice.

3. Nominal Partner:
• A partner, who simply lends his name to the firm, without having any real interest
in it, is called a nominal partner.

4
 • He neither invests nor shares in the profits or takes part in the management
of the business.
• He, along with other partners, is liable to outsiders for all the debts ofthe
firm.

Difference between sleeping and nominal partner: A nominal partneris known to the
outside world as a partner of the firm but in reality does not share in the profit of the
firm. A dormant partner on the other land, even though not known as a partner to the
world at large but in fact shares in the profits of the business.

4 . P a r t n e r f o r p r o fi t s o nl y :
• Partners may agree that a particular partner shall get a share of the profits only but he
will not be called upon to contribute towards the losses. Such a partner is known
as ‘partner for profits only’.
• This is simply an, inter-se agreement binding the partners only.Hence,he continues
to be liable to third parties for all acts of the firm.

5. Sub-Partner:
• When a partner agrees to share his profits divided from the firm with athird
person, that third person is known as ‘sub-partner’. Such a sub-partner is in
no way connected with the firm.
• He cannot represent the firm and bind the firm by his acts. He has noright against
the firm nor is he liable for the acts of the firm.

6 . P a r t n e r b y H o l d i n g O u t o r b y Es t o p p e l s :
• To hold a person liable as a partner by holding out, it is necessary toestablish the fo
llowing:
1. He represented himself or knowingly permitted himself to berepresented as a
partner.2. Such representation occurred by words spoken or written or bycon
duct.3. The other party on the faith of that representation gave credit tothe
firm.
• Once he poses himself as a partner, though he is not a partner, he isestopped from
saying that he is not a partner in a firm.

Example:
X carried on business as RS. & Co. employed a person named RS. To act as manager of the
business. It was held that RS. is a partner by the principal of estoppels.

5
7 . I n c o m i n g P a r t n e r:
A person who is admitted as a partner into an already existing firm with the consent
of all the existing partners is called as “incoming partner”.
8 . O u t g o i n g P a r t n e r:
A partner who leaves a firm in which the rest of the partners continue to carryon
business is called an outgoing partner.

Rights of Partner: Section 12 to 17:

1. Right to take part in the conduct of the business sec 12(a): according to
sec 12 (a), every partner has a right to take part in the conduct of the business.
Since the business of partnership belongs to all the partners, every partner is
entitled to take part in the conduct of the business. The partners are free to
provide in their agreement that only some of them will take part in conduct of
the business and certain other partners will not.

2. Right to express opinion 12(c):

(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

3. Right to have access t books of the firm sec 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.
• A partner could exercise this right either personally or by engaging an
agent for the purpose.
4. Right to share profits sec 13(b):
• The partners are entitled to share equally in the profits earned, and shall
contribute equally to the losses sustained by the firm;
• Generally, the partners provide in their agreement as to what will be
the proportion in which they will share the profits. Ex: 2/4,1/4,1/4.
• Absence of any such agreement sec 13(b) will be applied.

6
“Actus Curiae Neminem Gravebit”.

This idea that no one should suffer as a result of a court’s error or a delay in the
proceedings has been deemed to be important to the system of justice and its
application to Indian law. The same has been incorporated by means of the legal
maxim ‘actus curiae neminem gravabit’.

Literal meaning
The maxim ‘actus curiae neminem gravabit’, means that the act of the Court shall
prejudice no one.

Interpretation of Actus curiae neminem gravabit

If the Court makes a mistake in providing the information, the litigant’s duty, while
not entirely gone, is at least shared by the Court. If the litigant acts on the basis of
the knowledge, the courts will not hold him liable for a mistake that he made. There
is no greater standard for guiding the Court than that no act of the Court should hurt
a litigant, and it is the Court’s bounden obligation to ensure that if a person is harmed
by a Court error, he is restored to the position he would have held but for the error.
The maxim Actus curiae neminem gravabit appropriately summarizes this.

Kalabharati Advertising v. Hemant Vimalnath Narichania & Ors (2010)

In the case of the issue surrounded the appellant, who managed an advertisement
hoarding firm in Bombay and had approached a society in 2001 to request
permission to install a 40’x20′ hoarding in the society’s yard.

“When a scenario is anticipated in which the Court is under a duty to remedy the
injustice done to a party by the Court’s act, the maxim ‘actus curiae neminem
gravabit’, which says that the Court’s conduct shall disadvantage no one, comes into
play. The above mentioned maxim is to be applied in a case where a party requesting
the Court’s jurisdiction has achieved an unearned or unfair advantage that has to be
negated.”

5. Right to interest on capital and advances sec13(c)and (d):

(c) Where a partner is entitled to interest on the capital subscribed by him such
interest shall be payable only out of profits;
(d) A partner making, for the purposes of the business, any payment or
advance beyond the amount of capital he has agreed to subscribe is entitled to
interest thereon at the rate of six per cent. Per annum;

6. Right to Indemnity Sec 13(e):

7
 (e) The firm shall indemnify a partner in respect of payments made and
liabilities incurred by him—
(i) In the ordinary and proper conduct of the business, and
(ii) in doing such act, in an emergency, for the purpose of protecting the firm
from loss, as would be done by a person of ordinary prudence, in his own
case, under similar circumstances;

Duties of Partners: sec 9 and 10:

Sec 9: General duties of 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.

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

• It is necessary that no partner should gain any personal advantage at the
cost of others.
• Bentley Vs Craven: Facts: there has a partnership in a sugar refining
company. One of the partners specializes in buying and selling sugar.
Therefore, he was entrusted with the task of buying and selling sugar.
However, the partner sold the sugar from his own stock and thereby
made a profit. When the partners discovered this fact, they took action
to recoup the profits the partner had earned. Judgement: The court held
that the partner could not make any secret profits and company is
entitled to recover the secret profits earned by that partner.
2. Duty to be just and faithful to each other:
• Persons enter into partnership with others on the basis of their mutual
confidence and trust.
• Ex: If a partner betrays confidence reposed in him and gains any
personal advantage at the cost of other partners. He is accountable for
the same.
• In case a partner is guilty of a conduct which destroys mutual
confidence, e,g., one partner commits adultery with another partners
wife, that can be a ground on which the court may order dissolution of
the firm.

8
3. Duty to render true accounts: According to this act, the partners are
committed to disclosing and providing complete information about matters
affecting the organization to any partner or his or her legal representatives.
The partner should not hide things from other co-partners regarding the
business of the company. Each and every partner can access the accounts of
the company.

4. Duty to render full information of all things affecting the firm sec 9:
• Sec 9 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.
• Thus, if a partner having full knowledge of material facts with regard to the
partnership assets purchases the share of a co-partner without making full
disclosure of the facts to the other, the contract is voidable.

5. Duty to indemnify for fraud: sec 10: If there is any loss in the business of
the company due to the action of the partner, he must pay compensation to his
partner for such loss. The reason for this duty is to make partners to deal with
costumers honestly and fairly. Conversely, the liability to indemnify for fraud
is not excluded by entering a contract. Because entering any such agreement
is against public policy. This provision is absolute. This is not subject to terms
of contract between partners. The provision in the partnership deed that
exempts a particular partner from liability for damages caused by his fraud is
invalid and will not be enforced.

6. Duty to not be negligent: A partner must be diligent in his duties. For mere
errors of judgment or acts done in good faith, a partner cannot be made liable.

7. Cragg v. Ford
There is a partnership between the plaintiff and the defendant. The defendant
is the managing director of the company and, therefore, the conduct of the
termination is left to him. Plaintiff advised the defendant to dispose of some
bales of cotton. However, the respondent said that the same would happen

9
 after the cancellation. Meanwhile, cotton prices fell and a much lower amount
was realized by selling cotton.
Action for indemnity may be brought only on behalf of the company or
partners. The partner cannot take an action for indemnity in his personal
capacity.

8. Duty to properly use the firm’s property: sec 14 and 15:

This act states that the property of the company should be owned and used by
the company only for the business of the company. If a partner does not use
the property for his personal benefit and does so, he is liable to all co-partners.
May make him liable for damages caused by such use. This duty can be
avoided by entering an agreement to the contrary.

9. Duty not to earn personal profits or to compete sec 16:

Personal profits earned by partners.—Subject to contract between the partners,—

(a) If a partner derives any profit for himself from any transaction of the firm, or
from the use of the property or business connection of the firm or the firm name, he
shall account for that profit and pay it to the firm;

(b) If a partner carries on any business of the same nature as and competing with that
of the firm, he shall account for and pay to the firm all profits made by him in that
business.

Gordon Vs Holland: a partner sold the land belonging to the firm to a bone-fide
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.

Nature and Extent of Liability of the firm for the Acts of a Partner.

A. Nature of Liability

B. The kind of acts.

10
The nature of Liability: sec 25: Liability of a 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.

• Partner act as agent. Firm is liable for acts of the agent.

• Every Partner jointly and severally liable for all acts of the firm done while he
is a partner.

• 3rd party may bring an action against single/severally/against 2/3of them

Jointly.

• Equal liability from all fellow partners.

• Liability for acts of firm: liability of the partners for contract and also for torts
is joint and several.

• Liability is unlimited: share responsibility according claiming contribution.

• Tax liability is also according to contribution/equal.

B. The kind of acts for which the partners are liable:

1. Acts done within the authority of a partner. Sec 18, 19, 20 and 22.

• With authority.

a. Express authority.

b. Implied authority: “A is authority to recover Rs 5000 from B, In this case A

has the implied authority to file a suit for the recovery of the amount.

• Grounds:

1. Usual way carries the business

2. Act should be done in relation to the partnership of business.

• Sec 22: mode of doing act to bind the firm: executed in Name,

1. Act/instrument, executed in firm name.

2. Intention to bind the firm. (Expressly).

11
Johnstone vs Jan Bibi: two partners signed a promissory note paper on which name
of the firm was printed, without indicating he was signing as a partner on behalf of
firm. Judgement: not liable.(Firm not liable).

Sec 19(1): Business in commodity carried by managing partner not mentioned in

partnership deed, then such partners cannot justify their action on the basis of
implied authority.

Sec 19(2): Restrictions:

• Submit a dispute, relating to the business of the firm, to arbitration

• Open a bank account in his name, on behalf of the firm

• Compromise or relinquish, full or part of a claim by the firm

• Withdraw a suit or proceedings filed on behalf of the firm

• Admit any liability in a suit or proceedings against the firm

• Acquire an immovable property on behalf of the firm

• Transfer an immovable property belonging to the firm

• Enter into a partnership on behalf of the firm

Sec 20: According to Section 20 of the Indian Partnership Act, 1932, the partners of
a firm can make a contract to extend or restrict the implied authority of a partner.

These restrictions or extensions apply to a third party only when the third party is
aware of the restrictions or does not know that he is dealing with a partner of the
firm.

2. Partner’s authority in an emergency: Sec 21: As per Section 21 of the Indian

Partnership Act, 1932, if there is an emergency, then every partner has the authority
to do all such acts that a person of ordinary prudence would do to protect the firm
from a loss. Such acts bind the firm.

3. Ratification of a Partner’s Act: when an agent does an act on behalf of a principal

but without the principal’s prior authority, the principal may grant subsequent to
12
such an act, i,e, ratify the same. If the principal ratifies the act, the same effects
follow as if th act had been performed with his prior authority.

4. Admission made by a partner Sec 23: An admission on 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.

5. Effect of notice to an acting partner sec 24: 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.

• Notice to an agent is deemed to be a notice to the principal.

• Notice to active partner is deemed to be a notice to firm.

• Notice binds only partner at that time.

• Outgoing partner ordinarily be not bound by a notice.

Notice conditions:

1. Notice to partner.

2. Notice relating to the affairs of the firm

3. Fraud should not have been committed.

6. liability for torts and wrongful acts Sec 26: 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 there for to the same extent as the partner.

• Liability of firm- torts, fraud, negligence or misapplication.

7. Liability for misapplication of money/property by a partner Sec 27:

(a) a partner acting within his apparent authority receives money or property from a
third party and misapplies it, or

13
(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.

Willett Vs Chambers: one of the partners of firm of solicitors and conveyancers

received money from a client for being invested on a mortgage and misapplied the
same. The other partner who was ignorant of this fraud was also held liable along
with the guilty partner.

Doctrine of Holding Out

Sec 28. Holding out

(1) Anyone who by words spoken or written or by conduct represents himself or

knowingly permits himself to be represented, to be a partner in a firm, is liable as a
partner in that firm to anyone who has on the faith of any such representation given
credit to the firm, whether the person representing himself or represented to be a
partner does or does not know that the representation has reached the person so
giving credit.

(2) Where after a partner’s death the business is continued in the old firm name,
the continued use of that name or of the deceased partner’s name as a part thereof
shall not of itself make his legal representative or his estate liable for any act of the
firm done after his death.

Essentials of the Doctrine of Holding Out — There are two essentials of this
doctrine, as under:

A. Representation – The person voluntary represents himself, either by words,

written or spoken, or by conduct, to be a partner of the firm, it is called partner by
estoppel. The holding out concept is applicable when a person knowingly permits
other to represent himself as a partner of the firm and does not repudiate it at the
relevant time. When other represents a person as partner of a firm and he allows the
same to be happened, he cannot deny the same afterwards. Therefore, either the
person himself represents or causes others to represent himself as a partner of the

14
firm, may be held liable for losses incurred by the third party who acted in good faith
on such representation.

For Example –

(i) Mr. A had given loan to a person establishing a cattle farm. He took such deep
interest in the business that he used his personal influence to obtain lease of premises
for the farm and was constantly present there receiving parties and their demands.
Mr. B supplied building material to the firm under the impression that Mr. A was a
partner. Mr. A is liable as a partner by holding out by way of his conduct and not by
his words.

(ii) Where A introduced B to C as his partner, when in fact he was not so and B
silently stood by, he was held liable by holding out.

B. Knowledge of Representation - The second requirement of liability for holding

out is that a person seeking to charge another with liability has to show that he had
knowledge of the representation and did act under the belief that the facts represented
were true. Where there is no representation to the plaintiff or, there is no
representation to his knowledge, his right to sue the person making such
representation does not arise.

In a case titled as Scarf vs. Jardine importance of notice of retirement of outgoing

partner was highlighted in dealing with the principle of holding out. The court, in
this case, stated that the retiring partner must give notice of his retirement from a
firm in the same manner as a notice of appointment is given, so that the people can
know about his status with regard to the firm. Or else, he might be treated as a
partner by holding out no matter how long back he retired from the firm without
notice. The court further stated that such notice can be given either by the retiring
partner or the existing partners of the firm. Unless such notice of retirement is given,
the liability of a retired partner to old creditors or customers subsists, and the firm
would also be liable for the acts of the retired partner.

A person who is not a partner of a firm, may be liable as such to third persons, upon
the ground that he has represents himself out to the world, or permits others to

15
represent, and is therefore estopped from denying the same, as against those who
have in good faith dealt with the firm.

Cases where doctrine of holding out not apply – The Doctrine of holding out is not
applicable under the following cases -

(a) Deceased Partner – The death itself constitutes sufficient notice to all, therefore,
doctrine of holding out is not applicable. It was held in Venkatasubbamma Vs. subba
Rao, A.I.R. 1964 AR 462, that death is a notice by itself hence the estate of a
deceased partner is not liable for any act of the firm done after his death even if the
business is continued by the surviving partners in the same style and place and even
if his name appears in the name and affairs of the firm.

(b) Insolvent Partner – A person ceases to be a partner from the date of his insolvency
and his estate is no more liable for any act of the firm done after his insolvency
whether notice has been given or not. However, insolvency of a partner is also
sufficient notice to all.

(c) Dormant Partner - A dormant or sleeping partner means a partner who has never
taken part in the conduct of business as partner and neither the customers nor the
clients know of his participation in the firm. So long as he remains a partner his
liability for the acts of the firm is the same as that of any acting, apparent or
ostensible partner. But when he retires, public notice is not necessary to terminate
his liability. It must, however, be noted that where his presence in the firm was
known to some customers, notice of his retirement must be given at least to them.

Minor sec 30
30. Minors admitted to the benefits of partnership.—

16
(1) A person who is a minor according to the law to which he is subject may not be
a partner in a firm, but, with the consent of all the partners for the time being, he
may be admitted to the benefits of partnership.

(2) Such minor has a right to such share of the property and of the profits of the firm
as may be agreed upon, and he may have access to and inspect and copy any of the
accounts of the firm.

(3) Such minor’s share is liable for the acts of the firm, but the minor is not
personally liable for any such act.

(4) Such minor may not sue the partners for an account or payment of his share of
the property or profits of the firm, save when severing his connection with the firm,
and in such case the amount of his share shall be determined by a valuation made as
far as possible in accordance with the rules contained in section 48.

(5) At any time within six months of his attaining majority, or of his obtaining
knowledge that he had been admitted to the benefits of partnership, whichever date
is later, such person may give public notice that he has elected to become or that he
has elected not to become a partner in the firm, and such notice shall determine his
position as regards the firm: Provided that, if he fails to give such notice, he shall
become a partner in the firm on the expiry of the said six months.

(6) Where any person has been admitted as a minor to the benefits of partnership in
a firm, the burden of proving the fact that such person had no knowledge of such
admission until a particular date after the expiry of six months of his attaining
majority shall lie on the persons asserting that fact.

(7) where such person becomes a partner,—

(a) his rights and liabilities as a minor continue up to the date on which he becomes
a partner, but he also becomes personally liable to third parties for all acts of the firm
done since he was admitted to the benefits of partnership, and

(b) his share in the property and profits of the firm shall be the share to which he was
entitled as a minor.

(8) Where such person elects not to become a partner,—

17
(a) his rights and liabilities shall continue to be those of a minor under this section
up to the date on which he gives public notice,

(b) his share shall not be liable for any acts of the firm done after the date of the
notice, and

(c) he shall be entitled to sue the partners for his share of the property and profits in
accordance with sub-section (4).

(9) Nothing in sub-sections (7) and (8) shall affect the provisions of section 28.

Rights of a Minor Partner

Once the minor is given the benefits in a partnership there are certain rights that he
enjoys. Let us take a look at the rights of a minor partner.

i. A minor partner will obviously have the right to his share of the profits of the
firm. But the minor partner is not liable for any losses beyond his interests in the
firm. So a minor partner’s personal assets cannot be liquidated to pay the firms
liabilities.

ii. He can also like any other partner inspect the books of accounts of the firm.
He can demand a copy of the books as well.

iii. If necessary he can sue any or all of the other partners for his share of the
profits or benefits.

iv. A minor partner on attaining majority has the right to become a partner of the
firm. He has six months from attaining majority to decide if he will execute this
right. Whether he decides to become a partner or not he must give public notice
about the same.

Liabilities of a Minor Partner

i. A minor cannot be held personally liable for the losses of the firm. And if the
firm declares insolvency the minor’s share is kept with the Official Receiver

ii. After turning 18 the minor partner can choose to become a partner of the firm.
But he may choose to not become a partner. In this case, the minor partner has to
give a public notice about this decision. And the notice has to be given within 6

18
months of gaining a majority. If such a notice is not given even after 6 months then
the minor partner will become liable for all acts done by the other partners till the
date of such notice.

iii. Should the minor partner choose to become a partner he will be liable to all
the third parties for the acts done by any and all partners since he was admitted to
the benefits of the partnership.

iv. If he becomes a full-time partner he will be treated as a normal partner and

have all the liabilities of one. His share in the profits and property of the firm will
remain the same as it was when he was a minor partner.

Incoming and outgoing partners.

Incoming partners:

Sec 31(1): 31. Introduction of a partner.—

(1) Subject to contract between the partners and to the provisions of section 30, no
person shall be introduced as a partner into a firm without the consent of all the
existing partners.

(2) Subject to the provisions of section 30, a person who is introduced as a partner
into a firm does not thereby become liable for any act of the firm done before he
became a partner.

Modes:

1. With the consent of all the existing partners.

2. In accordance with a contract between the outgoing partners.

3. In accordance with the provisions of the sec 30.

Outgoing Partners: sec 32, 33, 34, 35.

1. By Retirement sec 32(1):

19
a. With the consent of all the other partners or

b. In accordance with an express agreement by the partners or

c. Where the partnership is at will, by giving notice in writing to all the other
partners of his intention to retire.

Liability for acts done after retirement sec 32(3) and (4): (3) Notwithstanding the
retirement of a partner from a firm, he and the partners continue to be liable as
partners to third parties for any act done by any of them which would have been an
act of the firm if done before the retirement, until public notice is given of the
retirement: Provided that a retired partner is not liable to any third party who deals
with the firm without knowing that he was a partner.

(4) Notices under sub-section (3) may be given by the retired partner or by any
partner of the reconstituted firm.

2. By Expulsion.

3. By insolvency.

4. By death.

Rights of Outgoing Partners

36. Right of outgoing partner to carry on competing business.—

(1) An outgoing partner may carry on a business competing with that of the firm and
he may advertise such business, but, subject to contract to the contrary, he may
not,—

(a) Use the firm name,

(b) Represent himself as carrying on the business of the firm, or

20
(c) Solicit the custom of persons who were dealing with the firm before he ceased to
be a partner. Agreements in restraint of trade.—(2) A partner may make an
agreement with his partners that on ceasing to be a partner he will not carry on any
business similar to that of the firm within a specified period or within a specified
local limits; and, notwithstanding anything contained in section 27 of the Indian
Contract Act, 1872 (9 of 1872), such agreement shall be valid if the restrictions
imposed are reasonable.

Outgoing partners have certain rights that they are entitled to under Indian law.
These rights are designed to protect the interests of the outgoing partner and ensure
that they receive their fair share of the partnership’s assets and profits. Some of the
key rights of outgoing partners are:

• Right to Dissociate: Outgoing partners can dissociate from the partnership at

any time by giving notice to the other partners. This means that they can leave the
partnership without the consent of the other partners.

• Right to Share of Profits: Outgoing partners is entitled to receive their share

of the partnership’s profits up until the date of their dissociation. This means that
they are entitled to a portion of the partnership’s earnings during their time as a
partner.

• Right to Inspect Books: Outgoing partners have the right to inspect the
partnership’s books and records to ensure that their share of profits is accurately
calculated. This includes the right to examine financial statements, receipts, and
other records.

• Right to Claim for Breach of Partnership Agreement: Outgoing partners have

the right to claim for breach of the partnership agreement if the other partners fail to
fulfil their obligations under the agreement. This can include failure to pay the
outgoing partner their share of profits or failure to provide notice of a change in the
partnership’s business.

• Right to a Fair Valuation of Partnership Interest: Outgoing partners gets the

right to a fair valuation of their partnership interest if they wish to sell their share of

21
the partnership. This means that they are entitled to a fair price for their share of the
partnership’s assets and profits.

For the purpose of registration a statement in the prescribed form containing the
following details should be submitted –

a. The name of the firm;

b. The place of business of the firm;
c. The names of any other places where the firm carries on business;
d. The date when each partner joined the firm;
e. The names, in full, and permanent address of the partners; and
f. The duration of the firm.

Statement shall be prepared and duly signed by all partners, or by their agents having
authority.

22
 Dissolution of firm

A) Dissolution by agreement – Section 40

A firm may be dissolved with the consent of all partners or in accordance with a
contract between the parties.

B) Compulsory dissolution – Section 41

A firm is dissolved –

1) If all the partners or of all the partners but one as insolvent; or

2) By the happening of any event which makes the business unlawful.

C) Dissolution on the happenings of certain contingencies – Section 42

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.

D) Dissolution by notice of partnership at will – Section 43

• Where the partnership is at will, the firm may be dissolved by any partner
giving notice, in writing, to all the other partners, of his intention to dissolve the
firm.

23
• The firm is dissolved as from the date mentioned in the notice as the date of
dissolution or, if no date is mentioned, as from the date of the communication of
then notice.

1. Notice. 2. Notice should be in writing. 3. Intention to become partner.

E) Dissolution by the court – Section 44

Court may direct dissolution of a firm on the following grounds –

1. if a partner has become of unsound mind;

2. if a partner has become permanently incapable of performing his duties as

partner;

3. if a partner is guilty of conduct which is likely to affect prejudicially the

carrying on of business, regarding being had to the nature of business;

4. if a partner willfully or persistently commits breach of agreements relating to-

a) the management of the affairs of the firm; or

b) the conduct of its business; or

c) 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;

5. If a partner has in any way –

a) transferred the whole of his interest in the firm to a third party; or

b) has allowed his share to be charged; or

c) has allowed it to be sold in the recovery of the arrears of land revenue; or

d) of any dues recoverable as arrears of land revenue due by the partner;

6. the business of the firm cannot be carried on save at a loss; or

24
7. On any other ground which renders it just and equitable that the firm should
be dissolved.

Effects of Dissolution:

A) Continuing authority of partners –

1) Till wind up of Business. Authority of the partners continues even after

dissolution so long as is necessary to wind up the business:

2) Lien. Each partner has an equitable lien over the firm’s assets which he can
apply to pay the debts of the firm and to receive any amount due from partnership
firm.

B) Continuing liability of partners –

1) Public Notice: Liability of partners continues till the public notice of

dissolution is given.

2) Liability of partners continues for all things necessary for the winding up of
the business. The partners may complete unfinished transactions

C) Right to Return of Premium –

a) To buy entry into an existing firm, a new partner sometimes has to pay a
premium to the existing partners in addition to any investment of capital.

b) On dissolution, he is entitled to demand the return of a proportion of the

premium if the partnership was for a fixed term and was dissolved before the expiry
of that term

c) However, in the following 3 cases, partner will not get the premium return –

1) Where the partnership was dissolved by agreement; or

25
2) misconduct of the party seeking return of the premium; or

3) Death of a partner.

D) Settlement of Accounts on Dissolution (order of payment) –

a) Losses shall be paid first out of undistributed profits next out of capital, and
lastly, if necessary, by the partners individually in the profit sharing ratio.

b) The assets of the firm including the losses contributed by the partner as above
shall be applied in the following manner –

Effects of dissolution

1) in paying outside creditors; in repaying advances made by partners

2) in repaying capital to partners; and

3) If any amount is left then it shall be divided in PSR.

Registration of Partnership
As per the Partnership Act 1932, it is not compulsory to register a partnership firm.
The firm does not have a separate legal identity and registration will not alter this
fact. However, registration is the definite proof of the existence of the firm and its
legality.

Non-registration of a firm has some real-life legal consequences for the partners and
the firm itself. So it is always advisable to draw up a written partnership deed and
register the firm with the Registrar of Firms. The consequences of not doing so are
as follows,

26
• The firm cannot file legal proceedings against any third party for any situation.
For example, if the client has not paid his dues to the firm, the firm cannot sue him
if it is unregistered.

• An unregistered firm cannot fail a case against a partner for any reason (like
mismanagement, theft etc)

• A partner of an unregistered firm cannot file a suit against one of the other
partners either.

Procedure of Registration

According to the India Partnership Act 1932, there is no time limit as such for the
registration of a firm. The firm can be registered on the date when it is incorporated
or any such date after so. The requisite fees and fines must be paid. The procedure
for such a registration is as follows,

1] Application to the Registrar of Firms in the prescribed form (Form A). Nowadays
this facility is even available online. Such an application must contain certain basic
details about the firm such as,

• Name of the Partnership Firm

• Name and address of all partners

• Place of business (address of main and branch offices)

• Duration of the partnership

• Date of joining of partners

• Date of commencement of business

2] The duly signed copy of the Partnership Deed (which contains all the terms and
conditions) must be filled with the registrar

3] Deposit/pay the necessary fees and stamp duties

4] Once the registrar approves the application, the firm will be entered into the
records. And the registrar will also issue a certificate of incorporation.

27
And this is how the process of registration will be completed and the firm will attain
legal recognition.

Exceptions: Disabilities of Non_ Registration are not applicable to the

following:

1. Suit for dissolution, etc Sec 69(a):

Biharilal Shyamsunder Vs Union of India:

Facts: the plaintiffs claimed damages for non-delivery of a bale of cloth dispatched
from Ahmadabad to Muzaffarpur through railway. The said action was brought after
the dissolution of the firm which was unregistered. It was held by the Patna High
Court that the partners of the dissolved firm are entitled to bring the suit for
compensation from the railway for non-delivery of the consignment of cloth.

2. Suit on behalf of an insolvent partner sec 69(3)(b):

3. Suit where provisions relating to Registration of firms do not apply Sec

69(4)(a): firm is not in India.

4. When value of the suit does not exceed Rs.100 Sec 69(4) (b).

Suit filed in individual capacity:

Kishore Kumar Vs Navin Chandra:

It was held that if a suit has been filed in the individual capacity by a person who
had been a partner of the dissolved firm against another person who has also been a
partner of the dissolved firm, the bar under sec 69(2A) would not attracted.

28