‘RELATIONS OF PARTNERS TO ONE ANOTHER UNDER THE

INDIAN PARTNERSHIP ACT, 1932’

Submitted by: Pratik Purswani

INTRODUCTION:
Partnership is a form of business organization in which two or more people join
together for some form of business activity and share profits earned thereof.
Partnership is summation of two or more proprietors coming together to overcome
limitations of proprietorship like limited skill, limited resources and unlimited
liability. Moreover, expansion in business requires lot of capital and managerial skills
and therefore people come together and combine their proficiency, skill and
knowledge. Partnership essentially grew because of shortcomings of proprietorship.

Section 4 of the Indian Partnership Act, 19321 (hereinafter referred as ‘the Act’)
defines ‘partnership’ and other supplementary terms like ‘partner’, ‘firm’ and ‘firm
name’. The section reads as ‘Partnership’ is the relation between persons who have
agreed to share the profits of a business carried on by all or any of them acting for all.
Persons who have entered into partnership with one another are called individually,
‘partners’ and collectively ‘a firm’, and the name under which their business is carried
on is called the ‘firm-name’.

ANALYSIS:
To form a relationship between partners, it is imperative that there be a voluntary
contractual participation in partnership. The grounds of fair agreement will be in
reference to provisions of the Indian Contract Act.2 The genesis of such a partnership
is the ‘Partnership Agreement’ which gives effect to other ingredients defining the
partnership, nature of business, persons who will carry on the business, the shares in
profit, and several other considerations. Though there is a voluntary contractual
relationship between partners, it is upon this mutual confidence that partners engage
in this particular activity for joint advantage. Such advantage or gain or benefit is

1
Act IX of 1932. Enforcement of this Act repealed Chapter XI (Section 239 – 266) of the Indian
Contract Act, 1872
2
See section 11 – Competence to contract

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considered fiduciary and was also stated in Helmore v. Smith3 by Bacon V.C. as ‘the
relation between partners is, of course, fiduciary. Indeed, it has been said that a
stronger case of fiduciary relationship cannot be conceived than that which exists
between partners. Their mutual confidence is the life-blood of the concern. It is
because they trust one another that they are partners in the first instance; it is because
they continue to trust one another that the business goes on'
Though a mutual fiduciary relationship, but with an agreement in place, it gives rise
to mutual rights and duties of the partners which are articulately expressed in the Act
from Section 9 to 17.

SECTION 9: GENERAL DUTIES OF PARTNERS

Section 9 gives the general duties of partners and reads as ‘Partners are bound
(emphasis added) 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.
Thus this section demands uberrimae fidei or utmost good faith amongst the partners.

SECTION 10: DUTY TO INDEMNIFY FOR LOSS CAUSED BY FRAUD

Going by the verbatim of Section 10, it explicitly says ‘Every partner shall indemnify
the firm for any loss caused to it by his fraud in the conduct of the business of the
firm’. This means that this section is mandatory and there is no defence for fraud for a
partner to contract himself out of liability for fraud and this section is not subject to a
contract to the contrary.

SECTION 11: DETERMINATION OF RIGHTS AND DUTIES BETWEEN PARTNERS

Section 11 gives freedom to partners to agree to any terms and provide for their
mutual rights and duties, except in cases where this Act makes a mandatory provision.
Such a contract may be varied by consent of all the partners. Partners, in course of
partnership, can daily come to a new arrangement for purpose of business, provided
such additions are made with unanimous concurrence of all partners.4 It can be
inferred that the Act makes certain mandatory provisions, certain are subject to the
contract and certain are subject to the provisions of this Act.5

3
(1886) 35 Ch. D. 436 at 444
4
England v. Curling (1844) 8 Beav 129, 133
5
Sections 12 to 17, 20 and 42 are subject to the contract. Section 9 and 10 are not subject to the
contract and principles in Sections 11, 18 and 19 are subject to the provisions of this Act

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SECTION 12: CONDUCT OF BUSINESS
Section 12 talks about the conduct of the business and gives certain rights to partners
to establish a relationship.

SECTION 12(A): RIGHTS OF PARTNERS TO TAKE PART IN CONDUCT OF THE

BUSINESS:
The management powers of partners are coextensive and this right cannot be denied
to a lawful partner. In case of such a default, the court may grant an injunction,
restraining other partners from wrongfully depriving partner his rights; however it is
important to note that this provision will be applicable only if there is no contract to
the contrary. Section 12(a) read with Section 9 of this Act ensues that partners are
bound to carry them out for greatest common advantage by being just and faithful to
each other. It is well illustrated in Crag v. Ford6 where the question was whether the
defendant was to be charged with loss which had arisen from delaying the sale of
some cotton belonging to the partnership. Sir J. L. Knight Bruce observed that both
partners had equal rights and duties in the partnership firm. Crag could have sold the
cotton himself; after all, he was also responsible for running the business of the firm.

SECTION 12(B): DUE DILIGENCE

Every partner is under an obligation to attend diligently to his duties in conduct of
business but the degree of liability is not widely interpreted and extended. It was
claimed that the balance in current account was converted into fixed deposit till the
time of dissolution and settlement of accounts as a pragmatic and prudent step to
prevent loss of value and utility of firm’s property in accordance with Section 12(b)
of the Act.7

SECTION 12(C) AND 12(D):

These sub sections state that there is power of majority in case of difference of
opinion8 and every partner (active or dormant) has the right of access to books9
respectively.

6
(1862) 1 Y. & Coll. C. C. 280; also see, Blisset v. Daniel (1853) 10 Hare 493.
7
Manish Mittal and Ors. v. State and Ors. [Crl. M.C. No. 2683/2007 and 2136/2008]
8
Erin Estate v. C.I.T. Madras (AIR 1958 SC 779) Every partner has right to take part in regular course
of business and it is only in case of difference, the decision by majority arises and 12(c) would come
into play. Also note that no change in nature of business can be made without the consent of all the
partners
9
Bevan v. Webb (1901) 2 Ch 59, where a sleeping or dormant partner wanted to sell his interest to the
other partners and authorised an expert valuer to inspect accounts to ascertain the value of his interest,
it was held that the other partners could not object to it, unless they could show some reasonable
grounds for their objection. Held: Injunction granted

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 SECTION 13: MUTUAL RIGHTS AND LIABILITIES:
Section 13 enunciates mutual rights and liabilities of partners.

SECTION 13(A): RIGHT TO REMUNERATION:

No partner is entitled any remuneration in addition to his share in profits of the firm.
This clause makes an initial presumption that work done for the firm is gratuitous as
every partner including a managing partner is bound to attend diligently the business
of the firm.10 But, this presumption can be varied with an express agreement between
partners because under ordinary circumstances, as established in Thompson v.
Williamson11, the contract of partnership excludes any implied contract for payment
of services rendered; however, in case of an agreement to remuneration is invoked, it
must be regarded as portion of the profits being made over as a reward for the human
capital brought in.12

SECTION 13(B): EQUALITY OF SHARES:

This section lays down a presumption about equality of shares. In case of an
allegation of unequal shares, the burden of proof lies on the party who sets up a
contract to the contrary. Section 13 (b) has been interpreted with two presumptions by
the Supreme Court in M. Govindu & Co. v C.I.T. A.P.13 Firstly, if no specific contract
is proved, the shares must be presumed to be equal (profit or loss). Secondly, where
partners are to participate in profits in certain shares, they should also participate in
losses in similar shares.

SECTION 13 (C) AND (D): RIGHT TO INTEREST ON CAPITAL AND ADVANCES:

. As a general rule, interest on capital subscribed by partners is not allowed unless there
is an agreement or usage to that effect. The principle underlying this provision of law
is that with regards to the capital brought by a partner in the business, he is not a
creditor of the firm but an adventurer. And thus, such interest will be paid only if
there are profits. If, however, he advances moneys to the firm, he will be entitled at
interest at 6 percent from the firm whether they are profits or not.

SECTION 13(E): RIGHT TO INDEMNIFY:

. While acting on behalf of the firm, a partner, may sometimes incur some liabilities or

10
Sir Dinshah Fardunji Mulla & K. Kannan, The Sale of Goods Act and The Indian Partnership Act
(10th ed. 2012)
11
7 Bligh (N.S.) 432
12
Sachdeva Fancy Store v. Income – Tax Officer (1987) 21 ITD 288 Asr. Also see, S. Magnus v.
Income – Tax Commissioner (1958) 60 BOM LR 41
13
AIR 1975 SC 2284

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 make certain payments. These are emergency or salvage expenses incurred on behalf
of the firm in circumstances where such act by any partner was for the purpose of
protecting the firm from loss as would be done by a person of ordinary prudence.14
According to section 13(e), the firm shall indemnify the partner against such liabilities
and payments and such right is not lost by the dissolution of the firm and regardless if
the firm has made a profit or loss15

SECTION 13(F): INDEMNITY AGAINST WILLFUL NEGLECT:

. A partner shall indemnify the firm for any loss caused to it by his willful conduct;
however, as a part of Section 13, this is subject to contract between the partners. It
means that in case of wilful misconduct, partners may contract with each other that
they will not be liable to the firm for any loss. As per Section 10, fraud is no defence.
‘Wilful neglect’ was interpreted in Reg. v. Senior16 as ‘the act is done deliberately and
intentionally and not by accident or inadvertence, but so that the mind of the person
who does the act goes with it.’

SECTION 14: PROPERTY OF THE FIRM

. The next section talks about property of firm and it is very essential to adjudicate
beforehand what it means. Theoretically, firm is not a legal person and is joint
property of the partners. According to Section 14, property of a firm includes:

1. All property and rights and interests in property originally brought into the
stock of the firm or acquired, by purchase or otherwise or for purposes and in
the course of business;
2. The goodwill of the business.

Thus, only the property answering the description in Section 14 is partnership

property. Principles of co-ownership do not apply to partnership property. The whole
concept of partnership is to embark upon joint venture. Once that is done, whatever is
brought in (capital money or property) would cease to be exclusive property of that
person. It would be a trading asset in proportion to their shares.17 Goodwill is another
abstract term that may be easy to understand but difficult to define. Goodwill is
positive advantage such as carrying on commercial undertaking at a particular place

14
See Section 21
15
Arunachalam Chettiar v. The Commissioner Of Income-Tax [(1936) 38 BOMLR 660]
16
[1899] 1 QB 283
17
A. Narayanappa v. Bhaskar (AIR 1966 SC 1300)

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and in a particular name and also its business connection, its business prestige and
several intangible advantages that the business may acquire.18

SECTION 15: APPLICATION OF PROPERTY OF FIRM:

Section 15 says that such aforementioned ‘partnership property’ must be used
exclusively for partnership business and not for his own purposes.

SECTION 16: PERSONAL PROFITS:

Section 16 of the Act says that if a partner derives any profit for himself from
transactions or use of property or anything, he shall account for that profit and also if
he carries any other business of same nature, he shall account for it. This rule is a
consequence of the principle that a partner is an agent of the other partner.

SECTION 17: RIGHTS AND DUTIES AFTER A CHANGE IN FIRM:

Section 17 talks about rights and duties of partners after a change in the firm. 17(a)
says that mutual rights and duties remain the same as they were immediately before
the change and 17(b) says that where a firm continues to carry on business after
expiry of the term, mutual rights and duties of partners remain the same as they were
before expiry.

CONCLUSION:
According to the researcher, partnership is a very viable and realistic mode of doing
business. It is not only fusion of coherent and methodical work structure balanced on
good faith and utmost honesty, but also reduces liability. It is easy to form and with
the combined talent, skill and judgment it diffuses the risk and makes it more flexible.
There may be certain issues like division of authority against will, uncertainty and
even risk of implied authority; however, the various benefits overpower it and make it
a very feasible and achievable mode of doing business. All this is possible with
smooth and healthy relationship between partners with no animosity and rancour and
to ensure that, various provisions of the Act provide a safe haven and necessary
remedies to problems between partners.

18
New Gujarat Cotton Mills Ltd. v. Labour Appellate Tribunal (AIR 1957 Bom 111)

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 Bibliography
Mulla, S. D. (2012). The Sale of Goods Act and The Indian Partnership Act (10th
ed.). Nagpur: LexisNexis Butterworths.


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