CONTRACT II

ASSIGNMENT SUBMITTED IN PARTIAL FULFILLMENT

FOR THE DEGREE OF S.Y L.L.B
(THROUGH UNIVERSITY OF MUMBAI)

SUBMITTED BY
HARSH RATHORE
(ROLL NO. 2222138)

SUBJECT TEACHER:
PROF. NEETA RAJANI

LALA LAJPATRAI COLLEGE OF LAW

MUMBAI
6th MAY 2023
 Introduction
 Nature of Business
 Essential requirements of a partnership
o Number of members
o Agreement
o Business (Section 12)
o Mutual agency (Section 13)
o Sharing of profit
o Liability of partnership
 Test of partnership
o Section 6
o Real criteria for determining partnership
 Kinds of partnership
o Partnership at will
o Partnership for a fixed period
o Particular Partnership (Section 8)
o General Partnership
 Scope of Partnership Act (Section 5)
o Partners
o Relation of partner with one another
 Section 27 of the Indian Contract Act,1872
o Rights of the Partners
o Relations of partners to third parties
o Duties of partners
o When do Rights and Duties change?
 Status of a minor
o Liabilities
 How is registration done?
o Non-registration of partnership firm
 Introduction or Admission of partner (Section 31)
o Modes of introduction
o Rights of incoming partner
o Liabilities of incoming partner
 Retirement of partner (Section 32)
o Liabilities of retired partner
 Expulsion of partner (Section 33)
 Insolvency of a partner (Section 34)
o Liability of estate of a deceased person (Section 35)
o Liability of outgoing partner (Section 36)
o Liabilities of outgoing partner to subsequent profits (Section 37)
 Dissolution of a firm
 Liability of partners in Different Situations
o Liabilities of partners after the dissolution of the partnership firm (Section
45)
o Wind up the Business Post-Dissolution (Section 46)
o Settlement of partnership account (Section 48)
o Paying Firm Debts and Separate Debts (Section 49)
o Personal Profit Earned After Dissolution of Firm (Section 50 and Section 53)
o Return of Premium on the Premature Dissolution of the firm (Section 51)
o Misconduct of partner paying a premium (Section 52)
o Contract Rescinded for Fraud or Misrepresentation
o Sale of Goodwill After Dissolution of Firm (Section 55)
 Conclusion
Introduction
Partnership results from a contract and is governed by the Partnership Act 1932.
The partnership is also governed by the general provision of the Indian Contract
Act on such matters where the Partnership Act is silent. It is expressly
mentioned that the provision of India Contract Act which is not repealed will be
applicable on Partnership until and unless such provision is in contrary to any
provision of Partnership Act, 1932. The rules of contract regarding the capacity
to contract, offer, acceptance etc will also be applicable to the partnership. But
the rules regarding the status of minor will be governed by the Partnership Act,
1932 since Section 30 of the Act talks about the position of the minor.

A partnership is a vital understanding or bond between two or extra individuals.

Doing great partnerships are routinely founded on conviction, decency, and
common comprehension and commitments. Partnerships can be severe, where
each gathering’s jobs and commitments are illuminated in a printed
understanding, or casual, where the jobs and commitments are comprehended or
consented to verbally. You might be proficient to pick your partner or, as is
again, and again the case, your partner might be transferred to you.

Partners are consistently required when running in an outside country, not

exclusively to intersection language hindrances, yet in addition to helping you
complete your work ingeniously without diminishing into the typical diverse
corners, one goes over in a remote setting.

Running with a partner is troubled with drawbacks. A partnership that has gone
unpleasant can cause severe emotions and ruin a business deal. It is significant
for the two parties to be open-minded and accepting of one another’s disparities.
There must be an ability to learn and adjust. The two accomplices must be
happy to trade their specialized information and to relate as equivalents in a
mutual future.

The assets of the organization are claimed in the interest of different partners,
and they are each by and by dependable, similarly and severally, for business
credit, evaluation, or muddled issue. For instance, if a business inability to pays
on pay to a leaser, the accomplices’ private property in question to addition and
bankruptcy to repay the creditor.

Nature of Business
It is a business organization where two or more persons agreed to join together
to carry out the business for the purpose of earning the profits. It is an extension
of a sole proprietorship. It is better than sole proprietorship because in sole
proprietorship the business is carried out by the individual with limited capital
and limited skill. Due to the limited resources of a single individual carrying a
sole proprietorship, a larger business requiring more resources and investment
than available to the sole proprietor cannot be thought of such business. On the
other hand in partnership, a number of partners join together with their capital to
form an agreement and carry out a business jointly.

Meaning

According to Section 4 of the Partnership Act,1932

“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”.

Essential requirements of a partnership

 It must be an association of two or more persons.
 There must exist an agreement between the partners.
 There must be a business undertaking or a commercial activity that is
lawful.
 The motive must be to earn the profit and share between the partners.
 The agreement must be to carry out the business jointly or by any of
them acting on the behalf of all i.e., there must be mutual agency.

Examples:

A and B buy 100 tons of oil which they agree to sell for their joint account. This
forms a partnership and A and B are considered as partners.

A and B buy 100 tons of oil and agreed to share it among them. It does not form
a partnership as they had no intention to carry out business.
Number of members

Any two or more persons may form a partnership. There is no limit imposed on
the minimum and the maximum number of partners under the Partnership
Act,1932. According to Companies Act 2013, the maximum number of 100
must not exceed in case of partnership and minimum is 2 partners.

If in any case, it exceeds the maximum limit then it will amount to the illegal
association under Section 464 of Companies Act,2013. According to Section
11 of Companies Act the maximum number of partner in case of:

 Banking purpose-10 persons

 Other purposes- 20 persons

Agreement

The partnership is an agreement in which two or more person has decided to

carry out business and share the profit and losses equally. To create a legal
relationship it is necessary to form a partnership agreement.

The partnership agreement becomes the foundation or the basis on which it is

based. It can be either written or oral. The written agreement is known as a
partnership deed. Partnership deed mainly consists of the following details:

 Name and address of its firm and business

 Name and address of its partner
 Capital contributed by each partner
 Profit and loss sharing ratio
 Rate of interest on capital, loan, drawings etc
 Rights, duties and obligation of partners
 Settlement of accounts on the dissolution of the firm
 Salaries, commission payable to partners
 Rules to be followed in case of admission, retirement and death of a
partner
 Mode of settlement on disputes among partner.
  Any other affecting the rights of the partners

Business (Section 12)

The partnership must be created for the purpose of carrying the business which
is legal in nature. Co-ownership of property does not amount to the
partnership. As per the definition given in Section 2(b), a business includes any
trade, occupation or profession. It is any kind of occupation that is not
something done just for pleasure. It is an operation conducted by a particular
method that is continuous, and from which income or profits can be derived.

Mutual agency (Section 13)

The business is to be carried by all of them or by any one of them on behalf of

all. It gives two assumptions

Each partner is entitled to carry out the business. The mutual agency exists
between the partners. Each partner is a principal as well as an agent for the other
partners.he is bound by the acts of other partners as well as can bind others by
his own act.

Sharing of profit

The agreement is to share profit and losses among the partners. The sharing of
profit and losses can be according to the ratio of the capital contributed or
equally.

It helps to distribute the burden among the partners in the case when the
partnership suffers losses.

Liability of partnership

All the partners are jointly liable for paying the debts of the firm. The liability is
unlimited which means that the partner’s private assets can be disposed of for
the purpose of paying the debts of the firm.
Test of partnership
Section 6
Section 6 of the Indian Partnership Act provides the mode of determining the
existence of a partnership. The following are the provisions in Section 6:

1. While determining whether an association of persons is a firm or if a

person is a partner to a firm, the real relation shown by relevant facts
between the parties must be examined.
2. Sharing profits from a property held by persons jointly does not
automatically qualify such persons as partners.
3. A person can hold a receipt of the share in profits or receipt of
payment that is contingent upon the profits, but that does not make him
a partner. The following are such persons:

 Servant or agent who receives remuneration or commission.

 Widow or child of a deceased partner who receives an annuity.
 Moneylender to the partnership business.
 The previous owner or part owner who has consideration for the sale
of the goodwill of the business or share of it.

Real criteria for determining partnership

It is clear from Section 6 that the sharing of profits is not the ultimate test for
determining whether a partnership exists. The existence of a partnership
depends on the actual intention of the parties and the contract drawn up by
them. In some cases, an alleged partner might have a share in the profits of the
business, but that does not by default make him a partner.

The earlier position was that the share of profits is the criteria for determining
partnership, as held in the case of Waugh v. Carver (1973). The House of Lords
overruled this decision in the case of Cox v. Hickman (1860). In this case, Lord
Crownworth held that the real test of partnership is mutual agency among the
members of the particular association. However, the factor of share of profits
cannot be eliminated. Share of profits is certainly an important piece of
evidence that helps to determine the existence of a partnership, but not the
ultimate test.
Kinds of partnership
The various types of partnership are based on two different criteria.

With regard to the duration of the term of partnership:

Partnership at will

when no fixed period is prescribed for the expiration of partnership then it is a

partnership at will. According to Section 7 two conditions need to be fulfilled:

 No agreement about the determination of the fixed period of

partnership
 No clause with respect to the determination of partnership.

Partnership for a fixed period

When the partners fixed the duration of the partnership firm then after the
expiration of the fixed period the partnership comes to an end. When the
partners decided to continue with the partnership even after the expiry of the
fixed period then it becomes a partnership at will.

On the basis of the extent of the business carried by a partnership

Particular Partnership (Section 8)

When the partnership is created for completing any project or undertaking.

When such an undertaking or project have been completed then partnership
comes to an end. The partners have a choice to continue with the firm.

General Partnership

when the partnership is created for the purpose of carrying out the business.
There is no particular task that has to be completed. The task is general in
nature.
Scope of Partnership Act (Section 5)

The partnership arises from the contract but not from the status. The intention of
partners is a question of the partnership. the partners may exercise any of its
power at time but must not exercise in the pursuance of illegal, fraudulent or
misconduct.

If any of the partners have made the contract without the consent of all other
partners then the question as to the validity of such contract arises. If all the
partners have accepted or ratified the contract then no question as to the validity
of such contract arise.

With the consent of all the partners, the partnership can become a member of
another firm.

Partners

The member of a partnership is called partners.it is not mandatory that all the
partners are the same or all the partners participate in the conduct of the
business or share the profit or losses equally. The partners are classified
depending on the nature of work, the extent of liability, etc. There are basically
six types of partner:

 Active/managing partner: The partner who takes participation in the

conduct of the business daily. This partner is also called an ostensible
partner.
 Sleeping/Dormant: He does not participate in the conduct of the
business but he is bound by the conduct of all the partners.
 Nominal partner: He is a partner to the firm only by his name. In
reality, he has no significant or real interest in the firm.
 Partner in profit only: The partner who agrees to share the profit but
does not suffer losses. He is not liable for any liabilities in case of
dealing with the third party.
  Minor partner: A minor cannot be a partner according to the Indian
Contract Act, but he can be admitted to get the benefit of all the
partners gives the consent. His will share the profit equally but his
liability will be limited in case of loss of the firm.
 Partner by estoppel: it means when the person is not a partner but he
has represented himself by conduct, or words to another person to be
the partner then he cannot deny afterwards. Even though he is not a
partner but he becomes the partner by holding out or by estoppel.

Relation of partner with one another

All the partners have a right to create their own terms and condition with regard
to the affairs of the business in the partnership deed. The Indian Partnership Act
has prescribed the provision to govern the relation of partners and this provision
is applicable in case when there is no deed. The various rights of the partners
are explained below:

 Right to determine the relationship by contract (Section 11)

The partnership deed determines the general administration of the partnership
like what will be the profit-sharing ratio, who will do what work etc. The
partnership contains the rights and duties of the partners.

Such a deed can be made either expressly or by necessary implication. For

example, if one partner looks into sales daily and other partners do not object to
it, his conduct will be presumed as the right of all the partners in the absence of
written agreement. So it can be concluded that all partners create a right for
their own.

Section 27 of the Indian Contract Act,1872

Agreement in restraint of trade is void

All the agreements which restrain the person from carrying any lawful
profession, trade or business are void.
But Section 11 of the Partnership Act states that the partners can restrain each
other from carrying a business other than the firm. but such restraint must
contain in the partnership deed.

Rights of the Partners

 Right to take part in the conduct of the firm’s business: Section

12(a) provides that every partner has the right to be involved in the
conduct of the firm’s business. All partners have the right to manage
the firm’s business.
 Right to express opinion: Section 12(c) provides that all partners can
freely express their opinion in matters concerning the firm’s business.
However, before a decision is made based on an opinion of a partner,
the consent of other partners must be obtained.
 Right to have access to books of the firm: Section 12(d) of the Act
provides that every partner has the right to look into the books of the
firm, whether the books concern the accounts of the firm or not.
 Right to profit: As per Section 13(b), all partners must equally share
profits earned through the business.
 Right to interest on capital: Section 13(c) provides that on an
agreement, the partners of a firm have the right to claim interest on the
firm’s profits from the capital.
 Right to interest on advances made by partner: In some cases the
firm may need extra money apart from the capital. In such cases, a
partner may make advances to the firm and he may also claim interest
on such advances.
 Right to indemnity: Section 13(e) of the Act provides that a partner
may make some payments and incur liabilities while acting on behalf
of the firm. The firm shall indemnify a partner in respect of such
payments and liabilities, whether it was made in ordinary course of
business or in emergency.
 Right to dissolve the partnership: Section 44 provides that a partner
has the right to file a suit to dissolve the partnership. The court may
dissolve firm on any of the grounds given below:

1. Unsoundness of mind of a partner, where the suit shall be brought by

another partner or the next friend of the unsound partner;
2. Permanent incapability of another partner to perform his duties;
 3. Another partner is guilty of conduct that prejudices the business of the
firm;
4. Committing breach of agreement by another partner by wilfully or
persistently;
5. Transfer of interest in firm by another partner to a third person;
6. Business of firm cannot be carried on due to losses;
7. Any other ground which makes it just and equitable to dissolve the
partnership.

 Section 46 provides that after dissolution, a partner has the right to

wind up the business of the firm. On dissolution, every partner or
his representative is entitled, as against all the other partners, to have
the firm’s property applied in payment of debts and liabilities of the
firm, and then have the surplus distributed among the partners or their
representatives.
 Right to not get expelled: Section 33 provides that all partners have
right to not get expelled except on certain grounds and they must be
given reasonable warning and opportunity of explanation before the
expulsion.
 Right to prevent introduction of new person: Section 31 provides
that every partner has the right to prevent the introduction of a new
partner without his consent to the firm, unless the agreement has
expressly provided that such introduction is permitted.
 Right to retire: Section 32 of the Act provides that a person has right
to retire with the consent of other partners, unless the requirement of
consent is waived by the agreement. The partners can retire by simply
providing a notice to other partners in partnerships at will.

Relations of partners to third parties

Section 18 to 22 of the Act talks about the relation of partners third parties

Section 18 prescribes that the partners are an agent of the firm for the purpose
of conducting the affairs of the business. The partners act as the principal and
agent as well. when he performs the act in his own interest he is the principal
and when he does in the interest of another partner then he is an agent. He is not
an agent for the dealings or the transactions between the partners themselves.

Section 19 states that any act which is performed by the partners in the usual
course of its business binds the firm itself. The authority to bind the firm is
implied authority

Section 20 states that partners can make a contract to restrict or expand the
implied authority of a partner.

Section 21 states that if any act is done by any partners in case of an emergency
which a prudent man would do, then such acts need to bind the firm.

Section 22 specifies that if any act is done by any partner then it must be done
in the name of the firm or in such manner which binds the firm.

Duties of partners

 Duty of greatest common advantage: As per Section 9 of the Act, it

is incumbent upon the partners to carry on their business for the
greatest common advantage of the firm. The partners must act so that
all the partners benefit and secure the maximum profits. No partner
should act for their personal gain.
 Duty of good faith: As per Section 9, the partners must act just to
each other. The relationship of partnership is on mutual trust and
hence, there must be good faith between them. A partnership is of
fiduciary nature and thus, at every stage of a partnership, the partners
must act just and faithful to one another.
 Duty to render true accounts: Partners of a firm have a duty to
render true accounts as per Section 9. A partner of a firm must keep
and render true and complete accounts of the partnership firm’s
business. He must make it available to other partners or their
representatives when required.
 Duty to render full information: As per Section 9, partners of a firm
have a duty to provide true and full information regarding the business.
Partners are agents of each other and hence, partners must
communicate all information regarding the running of the business in a
complete and truthful manner to each other.
 Duty to not carry another business: As per Section 11(2) of the Act,
a partner must not conduct a business other than that of the firm.
Partners can restrain one another from carrying on another business,
provided that such restraint is reasonable.
 Duty to act diligently: As per Section 12(b), a firm’s partner must act
diligently in the business.
 Duty to perform without remuneration: As per Section 13(a), every
partner must perform and attend to the firm’s business without
expecting remuneration. There is a presumption that all partners are to
work for the common advantage of the firm.
 Duty to share losses: As per Section 13(b) of the Act, partners must
share losses in the proportions as provided by the partnership
agreement. If the agreement does not provide it, it must be shared in
the proportion that they share the profits.
 Duty to indemnify for wilful neglect: As per Section 13(f), a partner
shall indemnify his firm for any of the losses caused to it due to his
wilful neglect during the course of the business. Wilful neglect refers
to an act that is deliberate and intentional.
 Duty to not assign his rights: No partner can assign his rights in a
partnership firm to a third person in order to make him a partner.
 Duty to act within authority: Every person has to act within the
authority that he has conferred upon him as per the partnership
agreement.
 Duty to account private profits: Section 16(a) provides that no
partner can use the partnership firm’s property for private use, or use
any profits derived from the partnership business for his own
advantage. If the property of profits of a firm is ever used for personal
advantage, it must be accounted for.
 Duty not to compete: Section 16(b) states that no partner of a firm
can carry on another business simultaneously, except with the consent
of other partners. On the failure of obtaining the consent, he must
account for all the profits he made as a result of that and must
compensate for the losses sustained by the firm if any.
 Duty to properly use the firm’s property: Sections 14 and 15 of the
Act provide that the property of the firm must be used solely for the
purpose of the firm’s business and not for private purposes. The term
‘property of the firm’ covers all properties and rights and interests in a
property originally acquired by the firm for the purpose of running the
business. The goodwill of the business is also a property of the firm.
When do Rights and Duties change?

The existing relationship between the partners come to an end when there is a
change in the constitution of the firms. Such changes in the constitution of the
firm may occur due to the following reasons (Section 17)

 Expiration of term of the firm.

 Carrying out the additional business other than agreed upon.
 Changes in the composition of members due to admission, retirement
or the death of a partner.
The duties and rights of partners remain the same until there is any change in
agreement but such right and duties may vary or modified by creating a fresh
agreement.

Status of a minor

Section 30 states the legal provision related to the minor according to Section
18 of the Indian Contract act 1872, no person below the age of 18 years can
enter into the contract which implies that no minor can enter into a contract.
But Section 30 states that the minor cannot be a partner in a partnership firm
but he can be admitted to benefit from the partnership firm. The minor will be
liable to get only the benefits from the partnership but is not liable for any
losses or liability. The minor can be admitted to the partnership only with the
consent of all the partners.

There are various rights that are granted to the minor.

Various rights are as follows:

 Right to inspect the books of account

 Rights to share the profits from the firm
 Rights to sue any partner or all for his share of benefit or profit
 He has a limited liability which means his personal assets may not be
disposed of to pay the firm debts
 A minor has a right to become a partner on attaining the age of 18
years.
Liabilities of a minor

 A minor has Limited liability. If minor is declared as insolvent his

share will be kept in the possession of official liquidator.
 If after attaining the age of 18 years he decided to become the partner
then he has to give public notice within 6 months of attaining the
majority. If notice not given then minor will become liable for all the
acts of others until the notice is given
 When a minor partner becomes the major he will be liable for the acts
of all partners to the third parties.
 If he decided to become a full-time partner then he will be considered
as a normal partner and will take part in the conduct of the business.

Liabilities

 Liability of partners for the acts of the firm (Section 25): All the
partners is jointly and severally liable for the acts of the firms. He is
liable only for those acts which are done at the time he is a partner.
 Liability of a firm for the wrongful act of partner (Section
26): When any wrongful act or omission is done by any of its partners
in the ordinary course of its business or with the consent of others
partners then the firm is liable to the same extent as a partner.
 Liability of a firm for the misapplications by partner (Section 27):
when any partner acting as an agent receives the money from the third
party and misapplies it or the firm receives the money and money are
misappropriated by any of its partners then the firm is liable to pay for
the loss suffered.
How is registration done?
Section 58 explains the procedure of the registration of a partnership firm.

 Making an application to Registrar: Any of its partners can send an

application along with the prescribed fee and copy of partnership deed
o the registrar of the area in which any place of business is proposed to
be situated or is situated. Such a statement shall be signed by all of its
partners. Such a statement should contain:

 Name of the firm

 Principal place of business
 Any other place where the business is carried on
 Duration of partnership firm
 Name and address of all partners of a firm
 The date on which each partner joined the firm

 Verification: Each partner who has signed the statements needs to be

verified.
 The name of the firm shall not contain any name resembling the name
of Crown, Emperor, king, Royal, Emperors’, or any other words
implying or expressing the sanction of the government.

Section 59 states that when the Registrar is satisfied that the conditions
of Section 58 are complied with then he shall record an entry of the statement in
a register called the Register of Firms, and shall file the statement.

Non-registration of partnership firm

In India, it is not compulsory to register the partnership and no penalty is being

imposed for non-registration but if we talk about English law it is compulsory to
register partnership firm and if it is not registered then the penalty is imposed.
Non-registration leads to a certain disability in accordance with Section 69 of
the Act.
Effect of non-registration (Section 69)

 No suit can be initiated in civil court by the firm or other co-partners

against the third party
 In case of breach of contract by the third party; the suit cannot be
brought in any civil suit. The suit must be filed by the one whose name
is registered as a partner in a register of the firm.
 No partners can claim a relief of set-off.
 Any action which is brought out by the third party against the firm
having a value of Rs 100 cannot be set off by the firm or any of its
partners.
 An aggrieved person cannot sue against firms or other partners
Generally, no action can be brought against the firm or the partners but there is
an exception to it. In a case when the firm is dissolved it can bring a suit for the
realization of his share in the firm’s property.

Non-registrations do not affect the following rights

 A third party can bring a suit against the firm

 Right of the partners or firm to claim a relief of set off the claim for the
value which does not exceed Rs 100
 Power of official liquidator, official assignees to release the property of
insolvent partners and brings a legal action
 Partner right to claim for the realization of his share in case of
dissolution of the firm
Introduction or Admission of partner (Section 31)
As per Section 31, no person can be introduced as a new partner to the firm
without the consent of other partners. This is, however, subject to the provisions
in the agreement of partnership and Section 30, which deals with minor
partners.

Modes of introduction

The following are the modes of introduction of a partner:

1. With the consent of all partners

2. Introduction as per the contract between partners
3. A minor admitted to the benefit of the partnership becoming a partner

Rights of incoming partner

1. Right to manage partnership business

2. Right to access books of firm
3. Right to capital, profit and loss
4. Right to dissolve partnership
5. Right to indemnification of losses

Liabilities of incoming partner

A partner’s liabilities are only with respect to transactions subsequent to

becoming a partner. The same is provided under Section 30(2). However, the
incoming partner and co-partners can enter into an agreement where it provides
that the incoming partner can be held liable for obligations of the firm prior to
his arrival.
Retirement of partner (Section 32)
Section 32 of Act talks about the retirement of partners. When the partner
withdraws from the partnership by dissolving it then it is dissolution but not a
retirement.

Any partner may retire:

 When there is a partnership at will, by serving a notice to all the

existing partners
 When there is an express agreement among the partners
 When the consent of all the partners is given

Liabilities of retired partner

A retired partner continues to be liable for the acts of firms and other partners
till he or any other partners give public notice about his retirement. When the
third party does not know that he was a partner and deals with the firm; then in
such case a retired partner is not liable. if it is a partnership at will then there is
no requirement to give public notice about his retirement.

The outgoing partner may enter into an agreement to not carry similar business
or activities within a specified period of time.

Expulsion of partner (Section 33)

A partner can be expelled only when below three conditions are satisfied:

 Expulsion of the partner is necessary for the interest of the partnership

 Notice is served to the expelled partner
 An opportunity of being heard is given to the expelled partner
If the above three conditions are not fulfilled then such expulsion will be
considered as null and void.
Insolvency of a partner (Section 34)
When a partner is declared as insolvent by the court, it leads to the following
consequences:

 He ceases to be the partner of a partnership firm from the date of

adjudication
 His estate which is in possession of official liquidator ceases to be
liable for any acts of the firm whether the partnership subsequently
dissolves or not
 Partnership ceases to be liable for any act of insolvency partner

Liability of estate of a deceased person (Section 35)

Generally, the partnership comes to end on the death of a partner but if there is a
contract between partners to continue with the partnership on the death of a
partner then surviving partner continues with the business after clearing the
deceased partner estate from any liability for the future acts of the firms.

Liability of outgoing partner (Section 36)

The outgoing partner is restricted to perform acts like:

 Using the name of the firm

 Representing himself as a partner
 Make the customer of the firm in which he was a partner as its own.
The outgoing partner may enter into an agreement not to carry similar business
or activities within a specified period of time. After the specified period, the
outgoing partner is allowed to carry on a similar business or advertise it.

Liabilities of outgoing partner to subsequent profits (Section 37)

When the any of the partners ceases to be a partner or dies and remaining
partner continues with the business without settling the accounts then the
outgoing partner is liable to get a share from the profit earned by the firm since
the date he ceases to be a partner.

The share may be attributable to the use of a share of his property or 6% interest
per annum on the amount of share in his property.

The surviving partner has the option to purchase the share of the deceased
partner and if they purchase it then the deceased partner has no right to get the
profit derived from such property.

Dissolution of a firm
Section 39 to 44 deals with the Dissolution of a firm.

Sometimes circumstances arise when the firm gets dissolved. Sometimes a firm
is dissolved voluntary or by the order from the court. There are various modes
prescribed under Section 39 to 44 for the dissolution of a partnership firm. Even
when the partnership is dissolved then it gives certain rights and liabilities to the
partners.

Dissolution of a firm ( Section 39 to Section 44)

Liability of partners in Different Situations

Liabilities of partners after the dissolution of the partnership firm (Section

45)

The partners are liable for the acts of the firm to the third party until public
notice is given. A partner who is declared as insolvent, or who is retired, the
estate of a person who dies, or who was not known as a partner at the time of
dealing with the third party will not be liable for the act.

Wind up the Business Post-Dissolution (Section 46)

When the firm is dissolved every partner has a right to apply for the firm’s
property in the payment of debts and liabilities. If there is any surplus it needs to
be distributed among the partners.
The partners have mutual obligations and rights until the affairs of the firm is
wound up.

Settlement of partnership account (Section 48)

When the partnership has dissolved the accounts of the partners needs to be
settled under the usual course of business. Various modes can be used for the
settlement of accounts.

If there is a deficiency in capital or loss is incurred when it is paid out of profit.

If profit is not sufficient or no profit is earned then it is paid out by the capital
and by the partners if necessary. The partners contribute to the proportion of the
profit sharing ratio.

The asset of the firm and the capital contributed by the partners to meet up the
deficiency in the capital is applied in the following order:

 Repayment to third parties

 The amount which is due to him from the capital
 The amount which is due to him on account of capital
 And if any amount is left then it is distributed among all the partners in
their profit sharing ratio.

Paying Firm Debts and Separate Debts (Section 49)

In a case when there are joint debts from the firm and the separate debts from
the partner then joint debts from the firm is given priority and if any surplus is
left then separate debts from the partner is to be paid off.

The property of the individual partners is applied firstly for the payment of
separate debts.
Personal Profit Earned After Dissolution of Firm (Section 50 and Section

53)

When the firm is dissolved by the death of the partner and business is carried
out by the existing partners or his legal heirs then they have to account for the
personal benefit earned before winding up the partnership.

Section 53 states that if there is no contract the partner can restrain other
partners from carrying similar activities, or using the firm’s name or firm’s
property for their own benefit until the winding up process is complete.

Return of Premium on the Premature Dissolution of the firm (Section 51)

When the firm is dissolved before the expiry of a fixed period, then a partner
paying a premium can receive a return of a reasonable part of the premium.
Such rules are not applicable in a case when the partnership is dissolved by:

Misconduct of partner paying a premium (Section 52)

Post an agreement in which there is no clause for return of premium.

Contract Rescinded for Fraud or Misrepresentation

When the partnership arising from the contract is rescinded due to fraud and
misrepresentation then the party who has rescinded the contract will be liable
as:

After the debt of the firm is paid the lien on remaining assets. He will be treated
as a creditor for the payment of any debts made by him.

An indemnity from the partners guilty of misrepresentation or fraud against all

debts of firms.
Sale of Goodwill After Dissolution of Firm (Section 55)

The goodwill is treated as an asset. The goodwill is included in the assets while
settling the account after the dissolution of the firm. The goodwill may be sold
separately or with other assets. Once the firm is dissolved and goodwill is sold
then any partners can carry on a similar business or advertise a business
competing with the buyers of the goodwill. The partners are prohibited from
doing the following acts:

 To use the name of the firm

 To represent himself as carrying the business
 To solicit the customers of the firm dealing before dissolution.

Conclusion

Partnership is a very common type of business which is prevailing in the

country. It has many advantages for the company. This Act is a complete Act as
it covers all the aspect related to the partnership.

In my opinion, Partnership is very important because every day exercises, we go

into partnership understandings and by making partners enormous objectives
are accomplished with the assistance of a joint and progressively number of
individuals. The joint endeavors of all the parts bring about the fruitful
achievement of undertakings and that assignment or occupation can be
effortlessly managed. Division of work prompts increment ineffectiveness at
work among various partners.

At the point when some activity is finished by the assent of the considerable
number of individuals and on the off chance that some benefit is earned, at that
point it is shared among the various partners. Furthermore, comparable is the
situation when some misfortune happens then that is additionally facial hair
among all the individuals, and it isn’t so much that just one needs to assume
liability or give pay. So, in my view Partnership is a decent type of working
together than an organization that is claimed by a solitary individual.

The partnership is probably the most established type of business connections.

Although constrained obligation organizations have supplanted partnership
firms in complex organizations, partnerships are as yet favored by experts and
little exchanging and business ventures in India and abroad.

BIBLOGRAPHY
1. https://www.toppr.com/guides/business-laws/the-indian-partnership-act/
consequences-of-dissolution-of-a-firm/
2. https://www.advocatekhoj.com/library/bareacts/partnership/index.php?Title=Indian
%20Partnership%20Act,%201932
3. http://www.legalservicesindia.com/article/158/Indian-Partnership-Act,1932.html
4. https://www.lawnotes.in/Indian_Partnership_Act,_1932