336

duties are 17 of the

governed
Partnership Ac
by Secs. 9 to
Act. The relation of partners to each
mutual
and
otheri s based on absolute good faith,
trust and confidence.

the
Sec. 18 also reads - a partner is the agent of
mfor the purpose of the business of the firm.

R. RIGHTS OF PARTNERS:
participate in the conduct of the businesS:
1. Right to
[Sec. 12 (a)]
the conduct of the
Every partner can participate in agreement, tO
business of the firm in the absence of an
promote the interest of the frm.
partner has a
Sec. 12 (a) of the Act reads - everybusiness'. The
conduct of the
right to take part in the
principle is that partnership business is the
general
This principle has
common business of all the partners.
got two exceptions

If a partner neglects or refuses to perform his duties,

i. take part in the
then he can be denied of his right to
conduct of the business.
contribution or
ii. Similarly, if there is unequal capital
no capital contribution, then it can be a bar to the
business.
right to take part in the conduct of the

2. Right tobe consulted: (Sec. 12 (c)]

and heard
Every partner has a right to be consulted
n all the matters concerning the bu siness of the firm
 337
may be
Changes in the fundamental nature of busineSs
partners. For other
made only with the consent of all the
difference of opinion
matters, if the partners have
settled by a
regarding an ordinary matter, it may be
majority of the partners.
good faith
The majority of the partners must act in
expression.
and every partner must have the right of free
If the partners are equally divided, then the
decision for
changes will be negatied.

For the following mnatters, the consent of all the

partners is necessary:
a. Change in the nature of the business

b. Admission of a new partner

C. Transfer of a partner's share
d. Admission of a minor to the benefits of partnership
e. Change in the constitution of partnership

3. Right to share profits and losses: [Sec. 13(b)]

Sec. 13 (b) reads - the partners are entitled to
share equally in the profits earned and shall contribute
equally to the losses sustained by the firm.

4. Right to access to books: Sec. 12 (d)]

Every partner has free access to books, records
and accounts of the firm. He can also inspect and copy'
them. However he cannot carry them outside the
company's registered office.
 338
A partner may exercise this right by himself or
hrough agent. Apartner can have the accounts inspected
through an agent and he need not do it
personally.
Bevan Vs. Webb, (1900- 3) Al ER
Rep 206:
The Court held that whenasleeping partner
to sell his interest to other
wanted
partners and for this purpose
when he authorised
an expert valuer to inspect accounts
to ascertain the value of his interest, the
other partners
could not object to it.

5. Right to be indemnified: [Sec. 13 (e)]

Every partner has right to be indemnified by the
firm for the payments made and expenses/
liabilities
incurred by himn for the business of the firm under the
following two circumstances.
i. In the ordinary and proper conduct of the
business.
Here the partner is entitled to be indemnified for any
expenditure or liability incurred by him.
iü. In doing an act in an emergency for the
purpose of
protecting the firm from loss. Here the partner is
entitled to be indemnified for any expenditure or
liability incurred by himn, when he does an act in an
emergency to save the firm from loss. While acting an
emergency, the partner should have acted in the same
manner as a person of ordinary prudence would act in
his own case, under similar circumnstances. (Sec. 21)

TB Mody Vs. Sanghrajka, AIR 1987 Kant 268:

The Court held that proof of actual loss due o the
Conduct of a partner in emergency to save the company
 339
from loss is necessary and it shOuld not be merel.
imaginary or notional.

6. Right to interest on capital: [Sec. 13 (c)l

Generally, interest on capital is not payable to the
partners. However when such payment of interest for
capital is allowed by an express or an implied agreement
by among partners or by the custom of trade, then a
partner can charge interest on his capital amount
invested.

The interest is payable only out of the profits of the

business and also out of the assets of the firm.

7. Right to interest on advance: [Sec. 13 (a)]

A partner who makes an advance of money to the
firm beyond the amount of his capital for the purpose of
business is entitled to get an interest at the rate of 6
percernt per annum.

Here also the interest is payable out of the profits

of the business and also out of the assets of the firm.

8. Partnership property and right to use them:

(Sec. 14 &s 15)
The property of the firm includes all property
originally brought into the firm and subsequently acquired
by purchase or otherwise and it includes also the goodwill
of the business.

of the
Every partner is a joint and equal ownermust be
partnership property. Such property of the firm
 340
1sed by the partners exclusively for the
business purpose
of the 1Tm. No partner can treat /use it as his
property. If a individua
private
partner uses the property of the firm for his
purposes, then he is accountable for the profits
made by using such property of the
firm.
Arm Group Enterprises Ltd., Vs. Waldorf Restaurant,
AIR 2003 SC4106 (c):
The
Supreme Court observed that a particular
property was found to exclusively belong to a
proprietor and there was no agreement to show sole
property involved was of partnership's. Hence thethat the
held that the property would not Court
become the property of
partnership.
9. Right ofpartner as agent of the firm: (Sec. 18 & 19)
Every partner for the purposes of the
the firm is the agent of the firm. business of

The acts of a partner which are

the firm's business in the usual way
done to carry on
binds the firm.
10. No new partner to be introduced: [Sec. 31 (1)1
In the absence of a special
agreement to the
Contrary, no person can be 1ntroducEd as a partner
into a firm without the consent of all the
existing
partners.
11. No liability before joining the firm: (Sec. 31 (2)]
A partner does not have any liability for any act of
the firm done before he became a partner, unless there
S a contract to the contrary.
 341
12. Right to retire: (Sec. 32 (2)]
retire -
Every partner has the right to
a. with the consent of all the partners, or
b. according to an express agreement by the partners, or
c. where the partnership is at will, by giving a notice in
writing to all other partners of his intention to retire.
Syndicate Bank Vs. M/s. R.S.R. Engineering Works 2003
() scale 648:
The agreement for overdraft facility with bank was
jointly executed by the firm and its partners. The Supreme
Court held that if any partner would retire, then he would
not be made liable to repay the loan to the bank, unless
there was a subsequent contract between the bank and
the newly constituted firm.

13. Right not to be expelled: [Sec. 33 (1)]

A
partner has a right not to be expelled from the firm by
any majority of the partners. The other partners can do so only
if they are able to prove that the expulsion of the partner was
done in good faith of the powers conferred by contract them
and the expulsion was made by a majority of partners.
14. Right to remuneration: [Sec. 13 (a)]
Sec. 13 (a) reads -a partner is not entitled to receive
remuneration for taking part in the conduct of business.

Garwood's Trusts, Re, (1903) 1 Ch 236:

The Court held that a partnership agreement can
provide for the payment of remuneration to working partn
 D. DUTIES OF PARTNERS:
1. To observe utmost good faith: (Sec. 9)
Partnership is acontract of uberrimae fldei -
meaning that utmost good faith which is the basis of a
partnership. It also means that there must be mutual
trust and confidence among the partners.

Sec. 9 deals with the general duties of partners

and in discharging such duties, the partners are bound

a. To carry on the business of the firm to the greatest

common advantage.
b. To be just and faithful to each other and

C. To render true accounts and full information of all

things affecting the firm to any partner or his legal
representative.

2. To carry on business:
i. Every partner is bound to carry on the business of the
firm to the greatest common advantage.
ii. He is bound in all transactions affecting the partnershiP
to do his best in the common interest of the firm.
any benefit obtained
ii. He must share with other partners any
from other people.
 344
3.To indemnify for loss caused by fraud: (Sec. 1O)
Every partner must indemnify the firm for any losS
caused to it by his fraud in the conduct of the business of
the firm. This liability is absolute.

4. To attend diligently: [Sec. 12 (b)]

Every partner is under a duty to attend (carefully)
to the partnership business with diligence.

5. To share losses: (Sec. 13 (b)]

In the absence of any contract to the contrary, the
partners have to bear the losses equally.

6. To indemnify for wilful neglect: [Sec. 13 ())

Every partner is under a duty to indemnify the firm
for any loss caused to it by his wilful neglect and due to
acts not done in good faith in the conduct of the business
of the firm. The firm is, however, liable to third parties
for such wilful neglect of a partner.

7. To use property of the firm: (Sec. 15)

Every partner is liable to hold and use the property
of the firm exclusively for the purpose of the business
and not for personal use.

8. To account for personal profits: (Sec. 16 (al]

If a partner derives any profit for himself from
firm
d. any transaction of the
b. from the use of partnership property or
C. firm's name or
firm
a. business connection of the
 345
Then he must account for that profit and pay i.
back to the firm.

9. To account for profits of competing business;

(Sec. 16 (b))
A partner must not carry on any business of the
same nature, competing with that of the firm. If he does
he is liable to pay all profits made by him to the firm. But
he may carry on any personal work outside the scope of
the partnership business.

10. To act within authority: [Sec. 19 (1)]

Every partner is bound to act within the scope of
his actual or implied authority. If a partner exceeds the
authority, then the partner is liable to make good the
loss suffered by the firm.

11. To be liable jointly and severally: (Sec. 25)

Every partner is liable, jointly with all the other
partners and also severally (individual) for all the acts of
the firm done while he is a partner. A retired partner
continues to be liable for the debts of the firm incurred
till he gives public notice of his retirement.
Ashutosh Vs. State of Rajasthan 2005 (4)CTC 408:
The Madras High Court held that the will executed
by a partner regarding his partnership share would get
defeated when an execution proceedings of a decree were
taken against a firm.
12. Not to assign his interest: (Sec. 29)
A partner cannot assign his rights and interest
in the firm to an outsider so as to make the latter
 346
the partner of the firm. He can, however, assign his
share of the profits and his share in the assets of
.he firm. Even then, the tran sferee of the share of
the profit or assets is not entitled to interfere in
the conduct of the business or to check
accounts or
to inspect the books of the firm.

E. FIRMSLIABILITY TO THIRD PARTIES: (Sec. 26 &

27)
Sec. 26 reads Liability of the firm for wrongful
acts of a partner - by the wrongful act or onission of a
partner acting in the ordinary course of the business of a
firm, or with the authority of his partners, if any
loss or
injury is caused to any third party. or any penalty is
incurred, then the firm is liable to the same extent as
the partner.

Sec. 27 reads - Liability of firm for

by partners
misapplication
a. If a partner is acting within his apparent
authority
and receives money or property from a third party and
misapplies it, the firm is liable to make good the loss
to the third party.
b. Similarly if a firm in the course of its business receives
money or property fromn a third party and if the money
or property is misapplied by any of the partners while
it is in the custody of the firm, then the firm is liable
to make good the loss.