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1. The Indian Partnership Act, 1932

Client/Matter: -None-
2. [s 1] Short title, extent and commencement.—
3. [s 2] Definitions.—
4. [s 3] Application of Provisions of Act 9 of 1872.—
5. [s 4] Definition of ‘partnership’, ‘partner’, ‘firm’ and ‘firm name’.—
6. [s 5] Partnership not created by status—.
7. [s 6] Mode of determining existence of partnership—.
8. [s 7] Partnership at will.—
9. [s 8] Particular partnership—.
10. Chapter 3 Relations of Partners to One Another
11. [s 9] General duties of partners.—
12. [s 10] Duty to indemnify for loss caused by fraud—.
13. [s 11] Determination of rights and duties of partners by contract between the partners.—
14. [s 12] The conduct of the business.—
15. [s 13] Mutual rights and liabilities.—
16. [s 14] The property of the firm.—
17. [s 15] Application of the property of the firm.—
18. [s 16] Personal profits earned by partners.—
19. [s 17] Right and duties of partners.—
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20. [s 18] Partner to be agent of the firm.—
21. [s 19] Implied authority of partner as agent of the firm.—
22. [s 20] Extension and restriction of partner’s implied authority—.
23. [s 21] Partner’s authority in an emergency—.
24. [s 22] Mode of doing act to bind firm.—
25. [s 23] Effect of admissions by a partner—.
26. [s 24] Effect of notice to acting partner—.
27. [s 25] Liability of a partner for acts of the firm.—
28. [s 26] Liability of the firm for wrongful acts of a partner—.
29. [s 27] Liability of firm for misapplication by partners.—
30. [s 28] Holding out.—
31. [s 29] Rights of transferee of a partner’s interest—.
32. [s 30] Minors admitted to the benefits of partnership—.
33. Chapter 5 Incoming and Outgoing Partners
34. [s 31] Introduction of a partner.—
35. [s 32] Retirement of a partner.—
36. [s 33] Expulsion of a partner.—
37. [s 34] Insolvency of a partner.—
38. [s 35] Liability of estate of deceased partner.—
39. [s 36] Rights of outgoing partner to carry on competing business.—
40. [s 37] Right of outgoing partner in certain cases to share subsequent profits.—
41. [s 38] Revocation of continuing guarantee by change in firm.—
42. Chapter 6 Dissolution of a Firm
43. [s 39] Dissolution of a firm.—
44. [s 40] Dissolution by agreement.—
45. [s 41] Compulsory dissolution.—
46. [s 42] Dissolution on the happening of certain contingencies.—
47. [s 43] Dissolution by notice of partnership at will.—
48. [s 44] Dissolution by the Court.—
49. [s 45] Liability for acts of partners done after dissolution.—
50. [s 46] Right of partners to have business wound up after dissolution.—
51. [s 47] Continuing authority of partners for purposes of winding up.—
52. [s 48] Mode of settlement of accounts between partners.—
53. [s 49] Payment of firm debts and of separate debts.—
54. [s 50] Personal profits earned after dissolution.—
55. [s 51] Return of premium on premature dissolution.—
56. [s 52] Rights where partnership contract is rescinded for fraud or misrepresentation.—
57. [s 53] Right to restrain from use of firm name or firm property.—
58. [s 54] Agreements in restraint of trade.—
59. [s 55] Sale of goodwill after dissolution.—
60. [s 56] Power to exempt from application of this Chapter.—
61. [s 57] Appointment of Registrars.—
62. [s 58] Application for registration.—
63. [s 59] Registration.—
64. [s 60] Recording of alterations in firm name and principal place of business.—
65. [s 61] Noting of closing and opening of branches.—
66. [s 62] Noting of changes in names and addresses of partners.—
67. [s 63] Recording of changes in and dissolution of a firm.—
68. [s 64] Rectification of mistakes.—
69. [s 65] Amendment of Register by order of court.—
70. [s 66] Inspection of Register and filed documents.—
71. [s 67] Grant of copies.—
72. [s 68] Rules of evidence.—
73. [s 69] Effect of non-registration.—
74. [s 70] Penalty for furnishing false particulars.—
75. [s 71] Power to make rules.—
76. [s 72] Mode of giving public notice.—
77. [s 73] Repeals.—
78. [s 74] Savings.—
79. SCHEDULE I
80. SCHEDULE II
81. APPENDIX I
82. APPENDIX II Report of the Select Committee
83. APPENDIX III Statement of Objects and Reasons
84. APPENDIX IV Repealed Provisions of Indian Contract Act, 1872
85. APPENDIX VI REPORT OF THE LAW COMMISSION ON THE PARTNERSHIP ACT
86. APPENDIX VII Relevant provisions of Code of Civil Procedure, 1908
87. APPENDIX VIII Relevant Provisions of the Supreme Court Rules, 2013
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The Indian Partnership Act, 1932

Pollock & Mulla: The Indian Partnership Act, 8th ed
Pollock & Mulla Devashish Bharuka
Pollock & Mulla: The Indian Partnership Act, 8th ed > Pollock & Mulla: The Indian Partnership
Act, 8th ed > The Indian Partnership Act, 1932

(Act 9 of 1932)a1
Passed by the Indian Legislature
Received the Assent of the Governor-General on 8th April 1932
An Act to define and amend the law relating to partnership
WHEREAS it is expedient to define and amend the law relating to partnership; it is hereby enacted as follows:
1. PREAMBLE—SCOPE AND PURPOSE
The preamble is an admissible aid to construction. It throws light on the intent and design of the legislature and
indicates the scope and purpose of the legislation itself.2 But it cannot be used to control or qualify precise and
unambiguous language of the enactment. It is only when there is a doubt as to the meaning of a provision, that
recourse may be had to the preamble to ascertain the reasons for the enactment and hence, the intention of
Parliament.3
2. “DEFINING AND AMENDING”
The Indian Partnership Act, 1932 (the Act), is one which defines the law of partnership as also amends it. It,
however, does not purport to completely codify it and the unrepealed provisions of the Indian Contract Act, 1872
(Indian Contract Act, 1872), in so far as they are not inconsistent with the Act, continue to apply to firms. The
provisions in the Act, thus, supplement the Indian Contract Act, 1872. This would also be clear from section 3 of the
Act. The Act provides only a voluntary framework for businessmen planning to use the medium of partnership and
contains contracting out provisions in sections 11(1) and 13, which make mutual rights and liabilities of the partners,
subject to a contract between them.4
1 For Statement of Objects and Reasons and for Report of Special Committee, see Gazette of India, 1931, Pt. V, p. 31
for Report of Select Committee, see Gazette of India, 1932, Pt. V, p. 7. The Act has been applied to Berar by the Berar
Laws Act, 1941 (4 of 1941). The Act has been extended to Dadra and Nagar Haveli by Reg. 6 of 1963, sec. 2 and Sch.
1, to Pondicherry by Reg. 7 of 1963, sec. 3 and Sch. I, to Goa, Daman and Diu by Reg. 11 of 1963, sec. 3 and, Sch.,
and to Laccadive Minicoy and Amindivi Islands by Reg. 8 of 1965, sec. 3 and Sch.
2 Poppatlal Shah v State of Madras, AIR 1953 SC 274.
3 Tribhuban Parkash Nayyar v UOI, (1969) 3 SCC 99.
4 PM Medappa v Kotera A Somanna, 2006 SCC OnLine Kar 864 (Held, the Act is meant to govern certain aspect of
partnership and permits deviations by way of contract.)
End of Document
[s 1] Short title, extent and commencement.—

Act, 8th ed > The Indian Partnership Act, 1932 > Chapter 1 Preliminary
CHAPTER 1 Preliminary
(1) This Act may be called Indian Partnership Act 1932.

1[(2) It extends to the whole of India, 2[except the State of Jammu and Kashmir].]
(3) It shall come into force on the 1st day of October, 1932, except section 69, which shall come into force
on the 1st day of October 1933.
[s 1.1] STATE AMENDMENTS
Dadra and Nagar Haveli
In sec. 1, for sub-section (3), substitute the following:
“(3) It shall come into force at once except section 69 which shall come into force on the 1st day of July 1966”.
[Vide Reg. 6 of 1963, as amended by Reg. 2 of 1965]
Goa, Daman and Diu
Same in Dadra and Nagar Haveli except for the date of enforcement of section 69 which is 1st day of January
1965.
[Vide Reg. 11 of 1963]
Laccadive, Minicoy and Amindivi Islands
In its applicable to Lakshadweep, in section 1, for sub-section (3), substitute the following:-
(3) It shall come into force at once except section 69, which shall come into force on the expiry of a period of
one year from the date of commencement of the rest of this Act.
[Ref. 8 of 1965, sec. 3 and Sch. 1]
Pondicherry
Same in Dadra and Nagar Haveli, except for the date of enforcement of section 69 which is 1st day of July
1964.
[Reg. 7 of 1963, sec. 3 and Sch. 1]
[s 1.2] LEGISLATIVE COMPETENCE

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Partnership is an aspect of right of association guaranteed under Article 19(1)(c) of the Constitution of India,
which right is always subject to reasonable restrictions imposed by the law from time to time. The rights and
obligations of a partnership firm which has no distinct legal existence but only a compendious name for the
partners are regulated by the provisions of the Indian Partnership Act.3
Legislative competence, under the Constitution of India, emanates from article 245. Various subjects under
which the Parliament or the State Legislature can legislate has been provided in Sch VII. It contains three
lists—Union List, State List and Concurrent List. Subjects enumerated in List III (the Concurrent List) can be
legislated upon by both the Parliament and the State Legislature subject to the restrictions provided in Article
246. The subject of partnership falls in Entry 7 of List III and reads: “Contracts, including partnership, agency,
contracts of carriage, and other special forms of contracts, but not including contracts relating to agricultural
land.”
The Act, though a pre-Constitutional enactment, continued to be in force in view of Article 372(1) of the
Constitution of India. However, both the Parliament and the state legislatures have the power to amend the Act
subject however to the provisions contained in chapter 1 of Pt XI of the Constitution. It is pursuant to this
amending power that the states have made amendments to the provisions of the Act.
[s 1.3] HISTORY OF PARTNERSHIP LAW
The task of consolidating the many Common Law rules largely formulated in the eighteenth and nineteenth
centuries was performed by Sir Frederick Pollock who first drafted the Partnership Bill in 1879 and having
amended it several times, saw it enacted as the Partnership Act, 1890 which has proved to be one of the most
successful pieces of legislation in English Law. The Indian Partnership Act, 1932 has drawn its luminosity from
the English Act by enacting similar substantive provisions.
The Law Commission of India in its Seventh Report on Partnership Act, 1932, Pt I traces the history of the
Indian Partnership Act, 1932 in the following words:
Prior to 1932, Chapter XI (sections 239 to 266)4 of the Indian Contract Act, 1872 (Act IX of 1872) contained the law
relating to partnership in India. As these provisions were not exhaustive, it was considered expedient and necessary to
separate the law relating to partnership and to embody it in a separate enactment; hence, the Indian Partnership Act,
1932 (Act IX of 1932). This Act is based mainly on the English Partnership Act, 18905 (53 and 54 Vict, C 39) which
codified the common law relating to partnership. The English Partnership Act 1890 has been the basis of the law of
partnership in all countries which have adopted the English common law as the basis of their law, for example, some of
the countries constituting the Commonwealth and the United States of America.
2. Before the enactment of the Indian Partnership Act, 1932, the whole subject was carefully examined by a Special
Committee which scrutinised the English Partnership Act and the judicial decisions in England and in India with a view
to adapting the English provisions to the needs and conditions of India. Apart from minor differences necessitated by
the peculiar conditions of India, the basic principles embodied in the Indian Partnership Act, 1932 are the same as
those contained in the English Partnership Act, 1890 and in the Uniform Partnership Act prepared by the United States
of America. The difficulties felt and the defects disclosed in the working of the English Partnership Act from 1890 to
1931 were considered by the Special Committee which drafted the Indian Partnership Bill and provisions were made in
the Act so as to avoid these difficulties and defects.
[s 1.4] TERRITORIAL EXTENT OF THE ACT—SUB-SECTION (2)
The Act is applicable throughout the territory of India. In view of Article 370 of the Constitution, the Act does not
apply to the State of Jammu & Kashmir. This is so because even though Jammu & Kashmir is a “State” under
the Constitution, yet, in view of Article 370, the laws applicable to the territory of India are not applicable to the
State of Jammu & Kashmir.
[s 1.5] COMMENCEMENT OF THE ACT—SUB-SECTION (3)
“Commencement”, used with reference to an Act or Regulation, means the day on which the Act comes into
force.6 Unless provided otherwise, a Central Act comes into operation on the day it receives the Presidential
assent and is construed as coming into operation immediately on the expiration of the day preceding its
commencement.7 A state Act, on the other hand, comes into force on the day when the assent of the Governor
or the President, as the case may be, is first published in the Official Gazette of the state. This depends upon
the provisions of the various State General Clauses Acts. Sometimes, the Act comes into operation on a
specified future date. Sometimes, the commencement of an Act is also left to the wisdom of the appropriate
government who, by notification in the Official Gazette, appoints a particular date to bring it into force. Provision
is also at times made for appointment of different dates for coming into force of different parts of the same Act.
Sub-section (3) provides for commencement of the Act and contains different commencement dates. Except
section 69, the provisions of the Act came into force on 1 October 1932. Section 69, which deals with the effect
of non-registration of firms, came into operation one year thereafter, ie, on 1 October 1933. The purpose of a
one-year delay in bringing in force section 69 was to give the firms some breathing time and a reasonable
chance to register before the provision began to operate against them.
The four amendments made in section 1 pertain to sub-section (3). It is worth noting that Dadra and Nagar
Haveli,8 Goa, Daman and Diu,9 Laccadive, Minicoy and Amindivi Islands and Pondicherry,10 pursuant to
different Constitutional amendments under Articles 1 and 2 of the Constitution of India, became a part of the
Indian territory and were declared as union territories. They were thus governed by the Presidential Regulations
passed under Article 240 of the Constitution. The amendments have been made to bring the provisions of the
Act into force in such newly-created union territories. Section 69 was enforced later in all the amendments to
give time to the firms to register themselves.
[s 1.6] LIMITED LIABILITY PARTNERSHIP ACT, 2008
The suggestion of a statutory framework of limited liability partnership was first mooted by the Iron, Steel and
Hardware Merchants’ Chamber of India before the Law Commission of India. However, the same was rejected
in the its Seventh Report (1957):
We have carefully considered this suggestion and have come to the conclusion that having regard to the conditions
prevailing in India, the inherent shortcomings of limited liability partnerships, and the fact that even in England,
notwithstanding legislation permitting such partnerships, not many such partnerships have been actually formed, it is
neither necessary nor expedient to make provision for limited liability partnerships in India. The suggestion, if accepted,
is also likely to result in rendering ineffective the provisions of the Indian Companies Act which have been recently
made stricter.
Subsequently, in view of the growth in the Indian economy, a need was felt for a new corporate form that would
provide an alternative to the traditional partnership, with unlimited personal liability on the one hand, and, the
statute-based governance structure of the limited liability company on the other, in order to enable professional
expertise and entrepreneurial initiative to combine, organise and operate in flexible, innovative and efficient
manner. Keeping in mind this object, the Government introduced the Limited Liability Partnership Bill, 2006 in
the Rajya Sabha on the 15 December 2006. The LLP Act was passed by the Lok Sabha on 12 October 2008
and Rajya Sabha on 24 October 2008 and received the assent of the President of India in 7 January 2009.
Section 411 of the LLP Act excludes the operation of the Partnership Act:
S 4. Non-applicability of the Indian Partnership Act, 1932.—Save as otherwise provided,12 the provisions of the Indian
Partnership Act, 1932 (9 of 1932) shall not apply to a limited liability partnership.13
1 Substituted by AO 1950 for the former sub-section.

2 Substituted by Act 3 of 1951, for words “except Part B States”.
3 Andhra Pradesh Co-operative Wool Spinning Mills Limited v G Mahanandi and Company Wool Merchants, AIR 2003
AP 418, para 13.
4 Report of the Select Committee on the Indian Contract Bill, dated 22 February 1870.
5 Report of the Select Committee on the Indian Contract Bill, dated 22 February 1870.
6 General Clauses Act, 1897, section 2(13).
7 General Clauses Act, 1897, section 5.
8 Constitution (Tenth Amendment) Act, 1961.
9 Constitution (Twelfth Amendment) Act, 1962. Pursuant to Goa, Daman and Diu Reorganisation Act, 1987, presently,
Goa is a state and Daman and Diu continue to be a union territory in Pt I and II of sch I of the Constitution respectively.
10 Constitution (Fourteenth Amendment) Act, 1962.
11 Hannah Career Excellence LLP v Commercial Tax Officer, 2017 SCC OnLine Ker 9757 : LNIND 2017 KER 3130.
12 See sections 2(k), proviso to section 58(1), clause 1(a) read with section 55, clause 4(a)(ii), proviso to cl 5 and clause
7(c) of the Second Schedule of the LLP Act, 2008.
13 Wind World (India) Limited v Enercon GmbH, 2016 SCC OnLine Bom 1404.
End of Document
[s 2] Definitions.—
In this Act, unless there is anything repugnant in the subject or context;
(a) an ‘act of a firm’ means any act or omission by all the partners, or by any partner or agent of the firm
which gives rise to a right enforceable by or against the firm;
(b) ‘business’ includes every trade, occupation and profession;
(c) ‘Prescribed’ means prescribed by rules made under this Act;
(d) ‘third party’ used in relation to a firm or to a partner therein means any person who is not a partner in
the firm; and
(e) expressions used but not defined in this Act and defined in the Indian Contract Act, 1872 (9 of 1872),
shall have the meanings assigned to them in that Act.
[s 2.1] STATE AMENDMENT
Maharashtra
In section 2, after clause (c), the following clause shall be inserted, namely:-
(c-1) “Registrar” means the Registrar of Firms appointed under sub- section (1) of section 57 and includes the Deputy
Registrar of Firms and Assistant Registrar of Firms appointed under sub-section (2) of that section;.
[Vide Maharashtra Act 29 of 1984, sec. 2 (w.e.f. 1-1-1985)]
[s 2.2] “DEFINITIONS”
It is common to find in a statute “definitions” of certain words and expressions used elsewhere in the body of
the statute. The object of such a definition is to avoid the necessity of frequent repetitions in describing all the
subject-matter to which the word or expression so defined is intended to apply. Section 2 provides for the
definition of “act of a firm”, “business”, “prescribed” and “third party”. While defining these words, the statute has
employed the words “means” and “includes”. Wherever any word has been defined to “mean” something, it is
restrictive and exhaustive.14 If the word defined is declared to “include” something, the definition is extensive.15
[s 2.3] “UNLESS THERE IS ANYTHING REPUGNANT IN THE SUBJECT OR CONTEXT”
When a word is defined in the “definition” clause of a statute, prima facie, such definition would govern
whenever that word is used in the body of the statute. An exception to this general rule is the use of the words
“unless there is anything repugnant in the subject or context” in the definition clause itself. Where the context
makes the definition given in the interpretation clause inapplicable, a defined word when used in the body of the
statute may have to be given a meaning different from that contained in the definition clause. Therefore, the
court has not only to look at the words but also to examine the context and collocation in the light of the object
of the Act and the purpose for which a particular provision was made by the legislature. Even where the
definition is exhaustive inasmuch as the word defined is said to mean a certain thing, it is possible for the word
to have a somewhat different meaning in different sections of the Act depending upon the subject or context.16
It may be noted that even in the absence of an express provision, the above qualification is always implied.17
[s 2.4] “ACT OF A FIRM”—CLAUSE (a)
Whether a particular act of partner is the act the firm depends upon the factual matrix of a given case. The
expression “act of a firm” came to be considered by the Supreme Court in Firm Mukundlal Veerkumar v
Prushottam Singh18 in the context of insolvency law. The court held that in order to support an adjudication
against a firm, there must be proof that each of the partners has committed some act of insolvency. If, however,
a joint act of insolvency is relied upon, it must be shown to be the act of the partners. An order for adjudication
can also be made against a firm if there was an act of insolvency by an agent of the firm, which was such as
must necessarily be imputed to the firm. It further held that the effect of section 2(a) of this Act read with the
explanation to section 6 of the Provincial Insolvency Act, 1920 appears to be the question whether an act of
insolvency of one or more partners can be regarded as an act of all the partners. This is a question of fact to be
determined on the facts and circumstances of each particular case. On facts, the Supreme Court held that the
property which Mukundlal, a partner of the firm, made a gift to his son Veerkumar was not partnership property
and there was no collective act of insolvency alleged on behalf of the firm and therefore, it could not be held
that the act of insolvency committed by Mukundlal should be attributed to the other partner Ram Surat Misra.
In a case before the Bombay High Court, where one of the partners in a firm consisting of two partners
departed from the usual place of business with intent to delay and defeat the creditors of the firm, it was held
that an adjudication order could not be made against the firm in such a case, unless the other partner also
departed with like intent.19
A similar view was taken by the Madras High Court. It held that it is a question of fact whether the act of one
partner in closing the business of the firm and thus committing an act of insolvency so far as he is concerned
was imputable to another partner, so as to entitle the creditors of the firm to get the other also adjudicated an
insolvent. In the circumstances of that particular case, it was held that the mere fact of closing the firm by one
partner, without more evidence to show that the other either expressly or impliedly authorised the same, was
insufficient to lead to such imputation.20 These two cases were approved by the Supreme Court in Mukundlal’s
case (above).
Following these cases, the Madras High Court has held that the settled position of law is that the act of one
partner can well be construed as an act on behalf of all the partners if the circumstances warrant such a
conclusion. If totality of circumstances goes to show that the expression contained in a letter written by one of
the partners stating that the firm was suspending or was going to suspend payments to all creditors, should be
taken as an act on behalf of all the partners, then the consequences that follow should have application to all
the partners.21
The failure to pay rent where the premises were taken on lease on behalf of the firm was held to be an act of
the firm by the Calcutta High Court.22
[s 2.5] “BUSINESS”—CLAUSE (b)
The definition of the expression “business” under section 45 of the English Act is retained in section 2(b). The
definition is not exhaustive.
[s 2.5.1] Business, Trade, Occupation, Profession
The fields of the above words may overlap but each has a content of its own distinct from others.23 While
dealing with Article 19(1)(g), which extends to practicing of any profession, or to carry on any occupation, trade
or business, the Supreme Court held as under:24
Profession’ means an occupation carried on by a person by virtue of his personal and specialised qualifications,
training or skill. The word “occupation” has a wide meaning such as any regular work, profession, job, principal activity,
employment, business or a calling in which an individual is engaged. “Trade” in its wider sense includes any bargain or
sale, any occupation or business carried on for subsistence of profit, it is an act of buying and selling of goods and
services. It may include any business carried on with a view to profit whether manual or mercantile. “Business” is a
very wide term and would include anything which occupies the time, attention and labour of a man for the purpose of
profit. It may include in its form trade, profession, industrial and commercial operations, purchase and sale of goods,
and would include everything which is an occupation as distinguished from pleasure.
[s 2.5.1.1] Business
The word “business” does not necessarily mean some undertaking of an industrial or commercial nature.
Business connotes organised course of activity or conduct with a set purpose for earning profit or to exploit
property purchased in order that one should get the highest amount.
The word “business” is one of wide import and it means an activity carried on continuously and systematically
by a person by the application of his labour or skill with a view to earning an income.25 Its perceptions differ
from private to public sector or from institutional financing to commercial banking.26
Thus, virtually any commercial activity or adventure amounts to a business for the purposes of the Act, but it is
not every occupation, which results in monetary gain that constitutes a business. A landowner does not carry
on a business, although the management of his estate and collection of his rents may be his only serious
occupation. The term business is restricted to what is regarded by businessmen as commercial or professional
business, ie, callings in which men hold themselves out as willing to sell goods or to provide skilled assistance
or other service.
Mere collection of rent of properties by co-owners does not amount to business being carried out in partnership.
In such a case, the proper suit that would lie was one for partition and accounts and not a suit for dissolution of
the firm and accounts.27
[s 2.5.1.2] Single Transaction, Whether Business
The word “business” has generally been understood not to include a single adventure or transaction.28 A single
snap act even if done by certain persons together unless it involves some continuity cannot be regarded as
business.29 However, under the Act, by virtue of section 8, one can enter into a partnership for a single
transaction or adventure. One may note that in earlier decisions, it has been held that “business” would include
a single commercial adventure.30 Thus, road building activity under a government contract even in a single
venture was found to be a business activity.31 It may however be clarified that partnership for a single adventure
is permitted under the Act not by virtue of the definition “business” in section 2(b) but due to the operation of
section 8.32 An isolated act of money lending on a joint security cannot be regarded as constituting a business
within the meaning of that definition.33
[s 2.5.1.3] “Trade”
Trade, in its primary meaning, is the exchanging of goods for goods or goods for money; in its secondary
meaning, it is repeated activity in the nature of business carried on with a profit motive, the activity being
manual or mercantile, as distinguished from the liberal arts or learned professions or agriculture.34
[s 2.5.1.4] “Occupation”
In TMA Pai Foundation v State of Karnataka, (2002) 8 SCC 481, the Supreme Court held that “occupation”
would be an activity of a person undertaken as a means of livelihood or a mission in life. In view of this, it
further held that even if there is any doubt whether education is a profession or not, it does appear that
education will fall within the meaning of the expression “occupation”. In view of this decision, partnership firms
can run educational institutions.
[s 2.5.1.5] Profession
The Supreme Court in Indian Medical Association v VP Shantha, (1995) 6 SCC 651, has held that occupations
which are regarded as professions have four characteristics viz: (a) the nature of the work which is skilled and
specialised and a substantial part is mental rather than manual; (b) commitment to moral principles which go
beyond the general duty of honesty and a wider duty to community which may transcend the duty to a particular
client or patient; (c) professional association which regulates admissions and seeks to uphold the standards of
the profession through professional codes on matters of conduct and ethics; and, (d) high status in the
community. Two medical men can form a partnership to treat patients.35 Similarly, two or more advocates can
form a partnership and run a law firm.36
[s 2.6] “PRESCRIBED”—CLAUSE (C)
The word “prescribed” means prescribed by rules made under the Act. The state government has been given
the power to make rules under section 71 of the Act. A “rule” made under the rule-making power of the Act is a
delegated legislation.
Delegated legislation is open to the scrutiny and may be declared invalid particularly on two grounds: (a)
violation of the constitution;37 (b) violation of the provisions of the enabling Act.38 The second ground includes
not only cases of violation of substantive provisions of the Act but also violation of mandatory procedure under
the Act.
[s 2.7] “THIRD PARTY”—CLAUSE (d)
The word “third party”, in the context of a firm or a partner, has been defined to mean any person who is not a
partner in the firm. The words “partner” and “firm” has been defined in section 4. This definition has relevance
for the provisions contained in ch IV of the Act which deals with relations of partners to third parties and other
provisions of the Act like sections 32, 38, 44 and 69.
[s 2.8] DEFINITIONS CONTAINED IN THE INDIAN CONTRACT ACT 1872—CLAUSE (e)
A definition section may borrow definitions from earlier statutes. Clause (e) provides for definitions by reference
to the Indian Contract Act. All such words used in the statute which have been left undefined in the Act itself but
have been so defined in the Contract Act, would have meaning as assigned in the Indian Contract Act. This is
precisely covered by the doctrine of incorporation by reference.39
For instance, the word “contract” has been used in section 5 which has not been defined in section 2. However,
it has been defined in section 2(h) of the Indian Contract Act. Therefore, by virtue of clause (e) of section 2, the
word “contract” in section 2 of the Act would have the same meaning as defined in section 2(h) of the Indian
Contract Act, which is, “an agreement enforceable by law is a contact”.
14 Vanguard Fire & General Insurance Co Ltd, Madras v Fraser & Ross, AIR 1960 SC 971, p 975; Commr of Trade Tax,
UP v Kajaria Ceramics Ltd, AIR 2005 SC 2968 : (2005)11 SCC 149.
15 State of Bombay v Hospital Mazdoor Sabha, AIR 1960 SC 610, p 614; Kasilingam v PS College of Technology, (1995)
Supp 2 SCC 348.
16 Pushpa Devi v Milkhi Ram, (1990) 2 SCC 134.
17 Indian City Properties Ltd v Municipal Corporation of Greater Bombay, (2005) 6 SCC 417, pp 420-421.
18 AIR 1968 SC 1182; Structee Mech India v Bharat Kumar Pahlajrai, AIR 1982 Mad 51, p 55.
19 Re Md Hasham & Co, 24 Bom LR 861 : AIR 1923 Bom 107.
20 Gopal Naidu v Mohanlal, ILR 49 Mad 189 : AIR 1926 Mad 206.
21 Structee Mech India v Bharat Kumar Pahlajrai, AIR 1982 Mad 51.
22 Jatindrakumar Dass v Dhirajlal Vrajlal Kanakia, AIR 1075 Cal 123.
23 Unni Krishnan, JP v State of AP, (1993) 1 SCC 645 : AIR 1993 SC 2178.
24 Sodan Singh v New Delhi Municipal Committee, (1989) 4 SCC 155 : AIR 1989 SC 1988.
25 CBI v VC Shukla, (1998) 3 SCC 410.
26 Mahesh Chandra v Regional Manager, UP Financial Corporation, (1993) 2 SCC 279.
27 Ibrahim Shah Mohamad v Noor Ahmed Noor Mohmed, AIR 1984 Guj 126, p 132 (DB).
28 Manipur Admn v M Nila Chandra Singh, AIR 1964 SC 1533 : (1964) 5 SCR 574.
29 Gipson v Lipton, 131 ER 626 : [1832] 9 Bing 297.
30 Re Abenheim, (1913) 109 LT 219.
31 K Jaggaiah v K Venkatasatganaragana, AIR 1984 AP 149; The Andhra Pradesh High Court in para 5 of its judgement
on p 150 approved the view expressed in the 4th edn of this book that the decision in Nathilal v Srimal, AIR 1940 All
230 that a single transaction or venture does not amount to business does not appear to be good law and dissented
from it as can be seen in section 8. Chimanram Motilal v Jagantilal Chaganlal, AIR 1939 Bom 410.
32 For details see the Indian Partnership Act, 1932, section 8.
33 Karam Din Nawad Din v Anant Ram Lala Hukumchand, AIR 1941 Pesh 6, p 7 (DB).
34 State of Punjab v Bajaj Electricals Ltd, AIR 1968 SC 739 : [1968] 2 SCR 536.
35 Edulji Meharbanj Boyce v Lala Shyam Sunder Lal, AIR 1943 All 192, p 193 (DB); Sunil Krishna Paul v CIT, WB, [1966]
59 ITR 457, p 462 : (1967) 1 ILR Cal 227 (DB).
36 See Bar Council of India Rules, Pt VI, ch III.
37 Narendra Kumar v UOI, AIR 1960 SC 430, p 433.
38 Additional District Magistrate v Shri Siri Ram, [2000] 5 SCR 451.
39 See Justice GP Singh, Principles of Statutory Interpretation, 10th Edn, 2006, p 294.
End of Document
[s 3] Application of Provisions of Act 9 of 1872.—

[s 3] Application of Provisions of Act 9 of 1872.—

The unrepealed provisions of the Indian Contract Act, 1872 (9 of 1872), save in so far as they are inconsistent
with the express provisions of this Act, shall continue to apply to firms.
The present Act repeals section 73 and supersedes chapter XI of the Indian Contract Act, 1872.40 Section 3,
however, applies the unrepealed provisions of the Indian Contract Act, 1872 to firms with an exception that they
are not to be inconsistent with the express provisions of the Act.
[s 3.1] “Express Provisions”
It must be remembered that the provision in the Act must be an “express” one. Such inconsistent provision can
neither be presumed nor implied.
The Supreme Court, in Needle Industries (India) Ltd v Needle Industries Newey (India) Holding Ltd, (1981) 3
SCC 333 : AIR 1981 SC 1298, held that to be an “express provision” with regard to something it is not
necessary that the thing should be specially mentioned; it is sufficient that it is directly covered by the language,
however broad the language may be which covers it, so long as the applicability arises directly from the
language used and not by inference therefrom. The necessary implication of a provision has the same effect
and relevance in law as an express provision has, unless the relevance of what is necessarily implied is
excluded by the use of clear words.
[s 3.2] “Inconsistent”
The expression “inconsistent” means lacking consistency; not compatible with.41 If two provisions relate to the
same subject-matter, to the same situation, and both substantially overlap and are coextensive and at the same
time so contrary and repugnant to their terms and impact that one must perish wholly if the other were to prevail
at all—then, only then, are they inconsistent.42
40 See the repealed provisions of the Indian Contract Act, 1872.

41 State of UP v Daulat Ram Gupta, (2002) 4 SCC 98.
42 Basti Sugar Mills Co Ltd v State of UP, (1979) 2 SCC 88 : AIR 1979 SC 262.
End of Document
[s 4] Definition of ‘partnership’, ‘partner’, ‘firm’ and ‘firm name’.—

Act, 8th ed > The Indian Partnership Act, 1932 > Chapter 2 The Nature of Partnership
CHAPTER 2 The Nature of Partnership

‘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’.
[s 4.1] PARTNERSHIP
[s 4.1.1] Historical Background
This clause contains the difficult definition of “partnership” and the simple ones of “partner”, “firm” and “firm
name”.1 Lindley2 gives nineteen definitions of partnership in four languages. Those in French, German and
Latin are consistent in defining partnership as a contract or agreement; but the definitions of the English and
American writers show the confusion in the use of the term which has been carried into the English Act.3 The
definitions given by the Indian Contract Act4 and by Pollock regard “partnership” as a relation between persons;
the New York Civil Code speaks of it as an association between two or more persons for a certain purpose;
Kent, Story and Watson see it as a contract between persons; Dixon regards it as a group of persons between
whom a certain relation exists; and Rutherfor’s view may be any or all of the others. For a proposed scheme of
statutory contract law, of which the present Bill is to form a part to be administered by courts of all grades of
experience, it is most desirable to have this confusion removed and to give to “firm” and “partnership” meanings
which will be distinct from each other, and can be consistently used throughout the statute. Unfortunately, the
confusion has already gone so far that this difficulty cannot be entirely avoided, for the word “partnership”,
which ought to have been restricted to its obvious meaning of a relationship, is both in legal writings and in
popular usage, employed sometimes to denote a group of persons. This difficulty, it is submitted, should be
faced and the words restored to their proper meanings. Throughout the Bill, therefore, the word “partnership” is
used in the defined sense of a relationship, and in no other. Where the partners are referred to collectively the
word “firm” is invariably used.
The definition of “partnership” in the Indian Contract Act, section 239, was based upon Kent’s definition. Pollock
proposes an improvement upon the present Indian definition in order to meet the criticisms of Jessel MR in
Pooley v Driver, 5 Ch D 472, who points out that certain elements in Kent’s definition are subsidiary and
superfluous. The form adopted in the Bill is that of Pollock, with one small change only. Pollock’s definition
speaks of the business as being “carried on by all or any of them on behalf of all”, whereas the definition
proposed by the Special Committee speaks of it as “carried on by all or any of them acting for all”. The
difference lies in the use of the phrase “acting for” instead of “on behalf of”. The intention is to bring out more
clearly the fundamental principle that the partners when carrying on the business of the firm are agents as well
as principals. Further, the use of the words “on behalf of” seems to give justification to the wrong view that a
person who merely shares the profits of the business is a partner, for inasmuch as such a person derives
benefit from the business it may be said to be carried on his behalf.
It is claimed that the definition includes all the essential elements contained in all the definitions quoted by
Lindley, the only exception being the element of the sharing of losses. This element may be regarded as
consequential upon the sharing of profits, as a firm may be created in which losses are not contemplated or
provided for by the sanguine partners. The Bill, therefore, does not seek to make agreement to share losses a
test of the existence of partnership, but takes the course of treating the sharing of losses as a legal
consequence arising out of the relation of partnership, which is established otherwise.
[s 4.1.2] Elements of “Partnership”
The definition of “partnership” contains three elements:5
(1) There must be an agreement entered into by all the persons concerned;6
(2) the agreement must be to share the profits of a business; and
(3) the business must be carried on by all or any of the persons concerned, acting for all.
All these elements must be present before a group of associates can be held to be partners. These three
elements may appear to overlap, but they are nevertheless distinct. The first element relates to the voluntary
contractual nature of partnership; the second gives the motive which leads to the formation of firms, ie, the
acquisition of gain; and the third shows that the persons of the group who conduct the business do so as
agents for all the persons in the group, and are therefore liable to account for all.7 The partnership deed can be
entered into only with an intent to carry on business.8 One of essential elements necessary for determining the
existence of partnership is that there must be an agreement to share the profits of business. The receipt by a
person of the share of the profits of a business is an important element and strong evidence of the existence of
partnership between him and the persons carrying on business.9
Elaborating the third essential element, the Supreme Court has held that the position of a partner qua the firm is
thus not that of a master and a servant or employer and employee which concept involves an element of
subordination, but that of equality. The status of a partner qua the firm is different from employees working
under the firm. It may be that a partner is being paid some remuneration for any special attention which he
devotes but that would not involve any change of status and bring him within the definition of employee.10
In KD Kamath & Co v CIT, (1971) 2 SCC 873, para 28 : [1971] 82 ITR 680 (SC), the Supreme Court has held
that the two essential conditions to be satisfied are that: (1) there should be an agreement to share the profits
as well as the losses of business; and (2) the business must be carried on by all or any of them acting for all,
within the meaning of the definition of “partnership” under section 4. The fact that the exclusive power and
control, by agreement of the parties, is vested in one partner or the further circumstance that only one partner
can operate the bank accounts or borrow on behalf of the firm are not destructive of the theory of partnership
provided the two essential conditions, mentioned earlier, are satisfied.
The Supreme Court in Pratibha Rani v Surajkumar, AIR 1985 SC 628 : (1985) 2 SCC 370; GS Dugal & Co v
CIT, [1978] 111 ITR 757, p 768 (Bom), while considering the question whether the custody or entrustment of
stridhan with the husband constituted partnership, held that a pure and simple entrustment of stridhan without
creating any rights in the husband except putting the articles in his possession would not constitute any co-
ownership or legal partnership as defined in section 4.
The definition of partnership and the illustrations were as follows in the Indian Contract Act, section 239:11
“Partnership” defined.—”Partnership” is the relation, which subsists between persons who have agreed to
combine their property, labour or skill in some business, and to share the profits thereof between them.
“Firm” defined.—Persons who have entered into partnership with one another are called collectively a “firm”.
Illustrations
(a) A and B buy 100 bales of cotton, which they agree to sell for their joint account. A and B are partners in
respect of such cotton.12
(b) A and B buy 100 bales of cotton, agreeing to share it between them. A and B are not partners.
(c) A agrees with B, a goldsmith, to buy and furnish gold to B, to be worked on by him and sold, and that
they shall share in the resulting profit or loss. A and B are partners.
(d) A and B agree to work together as carpenters, but that A shall receive all profits and shall pay wages to
B. A and B are not partners.
(e) A and B are joint owners of a ship. This circumstance does not make them partners.
The illustrations are elementary, and the abrogation of their legislative authority must not be supposed to cast
any doubt on their correctness. A and B enter into a purported partnership by an agreement which provides that
B is to have no share in either the profits or the losses of the business. In such a case, there is no partnership.13
Kent’s definition, which the framers of the Contract Act condensed as above, was as follows:
Partnership is a contract of two or more competent persons to place their money, effects, labour and skill, or some or
all of them, in lawful commerce or business, and to share the profit and bear the loss in certain proportions. (Comm iii
23.)
It seems to go back to a passage of Puffendorf’s, which may be seen among the definitions of various degrees
of merit and authority, collected in Lindley.14 The last clause is misleading, for specification of the shares in
which profits are to be divided is not necessary, except for purposes of section 26A of the Income Tax Act,
1961.15
All this, however, is not merely a matter of curiosity.
The definition which stands in the English Act, “The relation which subsists between persons carrying on a
business in common with a view of profit”, appears to be founded on the following dictum (certainly not intended
to be a formal definition) of the Privy Council in an Indian case decided on the analogy of English law: “To
constitute a partnership the parties must have agreed to carry on business and to share profits in some way in
common”.16 It will be observed that this definition does not mention sharing as distinguished from making
profits; and it has been suggested that in England, persons may be partners in an undertaking carried on by
them in concert without aiming at personal gain, or even on the express terms that none of them shall derive
any individual profit from it, and that the object of dividing profits, though almost always important in fact, “points
to the conclusion that it is rather an accident than of the essence of the partnership relation”.17 It is clear that
this opinion did not occur to Kent, or Story, or the framers of the Indian Contract Act, or Sir George Jessel, who
said that partnership is, at all events, a contract for the purpose of carrying on a business bringing profit, and
dividing the profit in some shape or other between the partners.18 Not only a common business, but also a
common interest in it is essential.19 This over-ingenious suggestion of the editors of Lindley on Partnership has
not been the subject of judicial comment and quite probably never will be; in any case, it is clearly excluded by
the present as well as the former Indian definition. As regards the external relations of partnership firms, the
most material element is the authority of every partner to act for the whole. One of the tests of partnership is
whether there was a binding contract of mutual agency between the partners.20 This means that the business
must be carried on or behalf of all partners. An arrangement between the partners by which management of the
firm is entrusted to one of the partners, embodies the element of mutuality and does not negate the existence of
partnership.
This authority is a necessary attribute of partnership; how far it can be modified by special terms in the
partnership, shall be seen later.
A similar authority might conceivably exist in an association for some special purpose of persons not being
partners. However, in any such case its existence would have to be distinctly proved, and one may guess that
strict proof would be required, whereas, if the fact of partnership is once established, this double capacity of
principal and agent is presumed in every member.
[s 4.2] PERSON
The word “person” in section 4 which has been replaced by section 239 of the Indian Contract Act, 1872
contemplates only natural or artificial, ie, legal persons and a firm is not a “person” and as such is not entitled to
enter into a partnership with another firm or Hindu undivided family or individual. Though section 3(42) of the
General Clauses Act, 1897 provides that “person shall include any company or association or body of
individuals whether incorporated or not”, the Supreme Court has held that to import the definition of the word
“person” occurring in section 3(42) of the General Clauses Act, 1897 into section 4 will be totally repugnant to
the subject of partnership law.21
Any person, generally competent to contract, may make a contract of partnership as well as any other kind of
contract, and there is no reason in law why a corporate body, such as a joint-stock company, should not be a
partner with either natural or corporate fellow-partners, provided that this is not forbidden by its own particular
constitution. The case of Hugh Stevenson & Sons v AG fur Cartonnagen-Industrie,22 where two incorporated
companies, one English and one German, carried on business in partnership before the outbreak of the First
World War, gives an illustration of such a partnership. This case has been distinguished and it has been held by
the Calcutta High Court that the regular concept of partnership under the Act cannot really be applied to say
that an incorporated company can enter into partnership with another incorporated company in the regular and
technical sense.23
English law allows a company to be a member of a partnership and a consortium is constituted by a partnership
between companies. Companies wishing to embark on a short-term project such as a property development
scheme may exploit this medium. It also enables the rules imposing maximum memberships for partnerships to
be circumvented. However, having regard to the principle that a corporation cannot lawfully employ its funds for
purposes not authorised by its constitution, it may be considered as prima facie, ultra vires for an incorporated
company to enter into partnership with other persons. In Newstead v Frost, [1980] 1 WLR 135, p 141, it was
held that the words “all kinds of financial or other operations” in the memorandum of association could be
construed as including a partnership business.
It is more usual, however, for companies to work together by means of joint boards or committees without any
formal combination. Railway companies in England have done this in the past on a large scale, and similar
arrangements are well-known in the banking business also. Partnership between a corporation and an
individual does not seem to be convenient as a business arrangement, nor does it often occur in practice.
[s 4.2.1] Number of Persons
Obviously, there must be at least “two or more principals” before there can be a partnership. There cannot be a
partnership with only one partner.24 A person cannot be a partner in his individual capacity as also in a
representative capacity. A person cannot be a partner with a wakf, as a wakf is not a persona.25 If several
persons on behalf of a single person run a business, there is no partnership.26 It was decided in Smith v
Anderson, (1880) 15 Ch D 247, by the Court of Appeal that beneficiaries of an investment trust cannot be said
to be carrying on a business; therefore they are not partners but the same cannot be said of the trustees of the
fund. If all the requisites of a partnership are present, the fact that one or some of the partners are to have the
sole control of the management and are empowered by the terms of the deed to determine that the partnership,
does not negative the idea of partnership.27
The number of persons who may form an ordinary partnership is limited, both in England (Companies Act,
1929, sections 357, 358) and in India (Companies Act, 1913, section 4 corresponding to section 11 of the
Companies Act, 1956) to 10 for banking or 20 for any other business. These provisions supersede the question,
speculative and antiquarian even in England, whether it is an offence to assume to act as corporation.28 Where
20 or more persons purport to form a partnership, such a partnership is illegal and the court cannot grant them
any relief.29
[s 4.3] PARTNERSHIP AGREEMENT—ORAL, WRITTEN OR BY CONDUCT
The Supreme Court has, construing the provisions of section 4, observed that a partnership agreement is the
source of a partnership, and it also gives expression to the other ingredients defining the partnership, specifying
the business agreed to be carried on, the persons who will actually carry on the business, the shares in which
the profits will be divided, and several other considerations which constitute such an organic relationship. A
partnership agreement, therefore, identifies the firm and each partnership agreement may constitute a distinct
and separate partnership, and therefore, distinct and separate firms. That is not to say that a firm is a corporate
entity or enjoys a juristic personality in that sense. However, each partnership is a distinct relationship. The
partners may be different and yet the nature of the business may be the same, the business may be different
and yet the partners may be the same. An agreement between the partners to carry on a business and share
its profits may be followed by a separate agreement between the same partners to carry on another business
and share the profits therein. The intention may be to constitute two separate partnerships and therefore, two
distinct firms, or to extend merely a partnership, originally constituted to carry on one business, to the carrying
on of another business. The intention of the partners will have to be decided with reference to the terms of the
agreement and all the surrounding circumstances, including evidence as to the interlacing or interlocking of
management, finance and, other incidents of the respective businesses.30
An agreement of partnership need not be express, but can be inferred from the course of conduct of the parties
to the agreement.31 The firm rule is that once the parties entering into the partnership are clearly described in
the instrument, there is no scope for further inquiry to find out by some process or casuistry, if any of the parties
has got an obligation to others for the purpose of inducting those others to whom any of the parties may be
accountable in law, into the arena of partnership and for treating them as partners under the law.32 If, the
parties to an agreement have not agreed on the date of the commencement of the partnership, it cannot be
said that they have become partners.33 It is open to the parties, however, to agree between them that the
partnership commenced on a day before its actual commencement, but that does not, however, entitle the third
parties to raise a plea that the partnership must be deemed to have commenced on a date before it was
entered into.34 There is no partnership until the business is in existence. An agreement to carry on business in
partnership in the future does not create a partnership until the date of the commencement arrives.35 Where a
partner has died and one of his legal representatives has taken his place as a partner, the other legal
representatives are not partners, and cannot sue for dissolution or accounts.36 Whether a partnership exists or
not is a question of fact but may become a mixed question of law and fact if wrong principles are followed.37
The Supreme Court, in Tarsem Singh v Sukhminder Singh,38 has held that it is not necessary under the law that
every contract must be in writing. There can be an equally binding contract between the parties on the basis of
oral agreement, unless there is a law which requires the agreement to be in writing.
The relations inter se, among the promoters of a company, are not the same as the relations between
partners.39 Persons entering into contracts jointly as part of the process of setting up a limited company are not,
on the authority of Keith Spicer Ltd v Mansell, [1970] All ER 462 (CA), necessarily to be viewed as partners.
However, if they perform a large number of acts as part of the promotion, the court might come to a different
conclusion.
[s 4.3.1] Representative Capacity The Supreme Court has held:
A Benamidar can be a mere trustee of the real owner and has no beneficial interest in the property or the
business of the real owner. But in law, just as in the case of a trustee, he can also enter into a partnership with
others.
Qua the other partners, he has separate and real existence; he is governed by the terms of the partnership deed; his
rights and liabilities are governed by the terms of the contract and by the provisions of the Partnership Act; his liability
to third parties for the acts of the partnership is co-equal with that of the other partners; the other partners have no
concern with the real owner; they can only look to him for enforcing their rights or discharging their obligations under
the partnership deed. Any internal arrangement between him and another partner is not governed by the terms of the
partnership; that arrangement operates only on the profits accruing to the benamidar; it is outside the partnership
arrangement. If a benamidar possesses the legal character to enter into a partnership with another, the fact that he is
accountable for his profits to, and has the right to be indemnified for his losses by, a third party or even by one of the
partners does not disgorge him of the said character.
It is true that different considerations may arise, if the partnership is only between two persons of whom one is a
benamidar of the other. In that event the partnership may be bad not because the benamidar has no power to enter
into the partnership but because the partnership in law is the relationship between at least two persons and in the case
of a benamidar and the real owner in fact there is only one person. It may also be that in a case where a benamidar is
taken as a partner with the consent of the other partners, he will only be a “dummy”. We do not propose to express any
final opinion on the said two questions, as they do not arise in this appeal.40
Thus if A, B and C enter into a partnership and B later agrees with D to share his proportion of the profits and
liabilities, B may thereby become a member of two partnerships but the rights of A and C will remain unaffected
by such a parasitic partnership. In such cases, the maxim “Socii mei Socius meu Socius non est” (my partners’
partner is not necessarily my partner) applies.41
[s 4.3.2] Electronic Agreements

In the era of electronic commerce and infusion of information technology in day-to-day working of the
commercial world, electronic agreements have assumed a significant role. One can very well enter into a
partnership agreement through the electronic medium. The provisions of the Information Technology Act, 2000,
particularly sections 4, 5, 11, 12 and 13, provide legal sanctity to such electronic agreements.
[s 4.3.3] Joint Venture Agreements
It connotes a legal entity in the nature of a partnership engaged in the joint undertaking of a particular
transaction for mutual profit or an association of persons or companies jointly undertaking some commercial
enterprise wherein all contribute assets and share risks.42 Joint venture agreements entered into between
companies for a fixed duration have been found to be governed by the partnership law. They are covered by
section 8 since upon the completion of the adventure in question, the partnership is automatically dissolved.43
The joint venture can be time bound, can be work specific and it would involve partners’ contribution of
finances, knowledge, technical know-how, mutual control of management, expectation of profit, sharing of
profit.44
Two persons may come together only for the purpose of pooling their resources together but without any
intention to carry on a business jointly. Only a specific venture for profit is jointly sought. They act as principals
as also as agents vis-à-vis each other. Such ventures are not partnership.45 The joint venture agreement is not
akin to a partnership.46 There is no law or precedent that consortium of two or more companies (JV) formed for
a particular business amounts to strictly a partnership firm and is required to be registered under section 69 of
the Act.47
If the partnership is for a fixed duration and if, after the expiry of the fixed period, its business continues, it
ceases to be a partnership of fixed duration and acquires the attribute of a partnership at will. The Madras High
Court ruled in VPP Thangaraju v KV Perumal, AIR 1980 Mad 7, that stoppage of business ordinarily puts an
end, but by itself it does not terminate the legal relationship between the partnership.
[s 4.3.4] Construction of Partnership Agreements
It is settled canon of construction that a contract of partnership must be read as a whole and the intention of the
parties must be gathered from the language used in the contract by adopting harmonious construction of all the
clauses contained therein. The cardinal principle is to ascertain the intention of the parties to the contract
through the words they have used, which are key to open the mind of the makers. It is seldom that any
technical or pedantic rule of construction can be brought to bear on their construction. The guiding rule really is
to ascertain the natural and ordinary sensible meaning to the language through which the parties have
expressed themselves, unless the meaning leads to absurdity.48 A partnership deed must be construed
reasonably.49
[s 4.4] CO-OWNERSHIP AND PARTNERSHIP
There is no partnership without the intention to carry on a business, and therefore, the mere fact that persons
own something in common which produces returns and they divide those returns according to their respective
interests, does not make them partners.
Persons who have no mutual rights and obligations do not constitute an association because they happen to
have a common interest or several interests in something which is to be divided between them.50
No one ever suggested that co-owners of a house let to a tenant, for example, are partners, either as to the
house or as to the rent. Their shares are distinct, independent and separately alienable. If they used the house
as a hotel which they themselves or their agent managed for their common profit, they would be partners in the
business of the hotel.51 Property may even be acquired in common in order to make profit from it without
creating a partnership. If A, B and C agree to buy land on joint account, and for interests proportioned to their
contributions, and to form a company to take it over and use it for profit, this will not make them partners. A, B
and C have distinct shares in the property, uncontrolled, except by the specific agreement, and if the company
is formed and buys the land, each of them will be separately entitled to the price of his share.52 If they had
started the proposed business on the land on their own account instead of selling to the company, they would
have been partners, though the land would be partnership property only if they originally acquired it for the
purpose of the joint business, or expressly agreed to bring it into the partnership stock. An agreement which is
in effect one for the acquisition of property in shares, and leaves the parties to do severally what they please
with it, will not be made a partnership even by the use of that word.53 The use of the word “partner” in an
agreement which really constitutes a relation of debtor and creditor does not alter its effect.54 An agreement for
a so called loan which in effect gives the lender the position and powers of a partner may make him liable as a
partner to creditors of the business.55 Nor will the use of the word “partner” or “partnership” in an agreement,
which constitutes a relation of principal and agent.56 Where a society has registered under the Societies
Registration Act, 1860, but such registration is invalid, members do not become partners.57
As to ships in particular, it has long been settled that part-owners of a ship are not necessarily partners,58 but if
they employ the ship in trade or adventure on their joint account, they are partners as to that employment and
the profit thereby made.59
Where persons enter into an agreement constituting a partnership limited to a joint trading adventure, and
goods are purchased, ostensibly by an individual adventurer but really for the purpose of the joint adventure,
the adventurers are liable as partners to pay for the goods; but there is no such responsibility for goods
purchased before the partnership agreement upon the credit of an individual adventurer, though they are
brought into stock as his contribution to the joint adventure afterwards.60
Since the fact that several persons are co-owners of a ship does not make them partners, a suit by one co-
owner against another for his share of the sale proceeds of the ship and the profits earned by the ship before
sale is not such a winding-up suit as is contemplated in chapter VI of this Act.61 But cases may sometimes
occur in which a partnership exists between persons owning a ship, and the ship may be part of the assets of
the firm, but in such a case some contract of partnership exists between the parties, or some joint business is
carried on by them to which owning of ships is merely an accessory.62
Co-ownership does not imply a business or a partnership. The main differences between partnership and co-
ownership compared in Lindley on Partnership referred to by the Supreme Court in Champaran Cane Concern
v State of Bihar,63 are:
(1) co-ownership is not necessarily the result of an agreement, whereas partnership is;
(2) co-ownership does not necessarily involve community of profit or of loss, but partnership does;
(3) one co-owner can, without the consent of the other, transfer his interest etc, to a stranger, a partner
cannot do this; and lastly but prominently,
(4) while in a partnership each partner acts for all, in a co-ownership one co-owner is not as such the
agent, real or implied of the other.
The question before the Supreme Court was that when the cultivation of certain fields was jointly done on
behalf of the two co-owners by a common manager and the profits arising therefrom were distributed to them in
proportion of their respective shares in the fields, whether the arrangement could be described as a partnership
or a mere co-ownership. The High Court of Bihar held that this joint cultivation through a common manager and
distribution of profits in proportion to the respective shares of the two co-owners led to the inference of
existence of partnership. The Supreme Court did not agree with this conclusion of the high court and held that it
was a mere case of co-ownership.
The firm as such has no separate rights of its own in the partnership assets and when one talks of the firm’s
property or firm’s assets, all that is meant is property or assets in which all partners have a joint or common
interest. Therefore, the consequence of distribution, division or allotment of assets to the partners which flows
upon dissolution, after discharge of liabilities is nothing but a mutual adjustment of rights between the partners
and there is no question of extinguishment of the firms’ rights in the partnership assets amounting to a transfer
of assets.64
The English cases digested in Lindley on Partnership take a view that where the retiring partner assigns his
share and interest in the firm to his co-partners, and receives from them what is due to him from the firm, it
would constitute a sale for the purposes of stamp duty and any document evidencing such assignment will be
subject to ad-valorem duty on that basis.65
Where the terms of dissolution are that one or more of the partners’ shares will be purchased by the others
partners, then any deed or document effecting the dissolution will amount to conveyance or transfer on sale in
respect of such shares and stampable on that basis.66
A full bench of the Gujarat High Court, while holding that a deed of dissolution between partners was not a
deed or instrument of partition within the meaning of section 2(m) and was, therefore, chargeable with stamp
duty under art 47B only as a deed of dissolution, observed:
There is no concept of co-ownership amongst partners during the subsistence of the partnership. The partners as co-
owners do not hold the partnership properties. The property belongs to the firm and it merely vests in all the partners
because the firm has no legal entity. But such vesting does not mean that all the partners are the co-owners of the
property... The concept of partition of the concept of co-owners of the property dividing or agreeing to divide such
property in severalty can never apply to what happens when a firm is dissolved and one property or another is allotted
to a partner.67
The Gujarat High Court dissented from the decision of the full bench of the Madras High Court,68 in which it was
held that where an instrument makes a division of property by allotting the wholesale business to one partner
and retail business to the other partner, it operates both as a deed of dissolution of partnership as well as a
deed of partition and therefore, under section 6 of the Indian Stamp Act, 1899, the higher duty payable for a
deed of partition is payable on the instrument. It was held that the property consisting of the wholesale and
retail business has to be viewed as owned by the two partners at the time of the execution of the instrument as
co-owners and that there is no inherent incompatibility between the conception of co-ownership and the
position of partners. The full bench held:
While it may not be possible to predict that every instrument of dissolution of partnership will also involve a division or
partition of property, in specific instances dissolution may involve division of property or assets.
In an earlier decision of the Bombay High Court it was held that a deed of dissolution of partnership could also
amount to an instrument of partition.69
There may be cases in which co-owners are partners in the profits derived from their common property. If two
or more joint tenants or tenants in common of a farm, work their common property together as partners,
contributing to the expenses and sharing all profits and losses equally, there will certainly be partnership though
the land will belong to the partners as co-owners, just as if they were not partners at all.70 If co-owners of land
form a partnership and the land is merely an accessory to their trade, and is treated as part of the common
stock of the firm, the land will, in the absence of an indication that what is treated as common stock is an
interest in the land less than the co-owners’ full interest, be partnership property.71
[s 4.5] PROFITS
The profits contemplated by the Act and by the common law of partnership sometimes called “net profits”, are
the excess of returns over advances, the excess of what is obtained over the cost of obtaining it. It was formerly
common to speak of the total receipts or gross returns of a business as “gross profits”. This is objectionable,
and should be avoided.72 Obviously, there may be very large gross returns and yet little or no real profit.
Sharing gross returns will not create a partnership, as the English Act [section 2, sub-section (2)], affirming the
general law, has expressly declared. Where the owner of a theatre lets a travelling manager and his company
use the building, scenery, appliances, and permanent staff, in consideration of receiving half the money taken
from spectators, this does not make him answerable as a partner of the principal for anything done by the
manager which might be the subject of suits or penalties, such as infringement of dramatic copyright.73
Similarly, the author of a book receiving a royalty on copies sold is not a partner with the publisher; on the
position where the agreement is to divide profits, the publishers taking all the risk.74 If a deceased partner’s
executors are entitled under the articles to receive his share of profits during the rest of the partnership term if
he dies before its expiration, they are not thereby made partners.75 Ordinarily, where by a covenant binding
upon parties, the accounts are to be made at stated intervals, the right of a partner to payment of his share of
the profits does not arise until the contingency by which operation of law or under a covenant of the partnership
deed giving rise to that right has arisen. Profits arise on the day fixed for settlement of accounts.76
The Supreme Court discussed in Narayanappa v Bhaskara Krishnappa, AIR 1966 SC 1300, the interest of a
partner in an asset brought in by him to the firm.
The whole concept of partnership is to embark upon a joint venture and for that purpose to bring in capital
money or even property including immovable property. Once that is done, whatever is brought in would be the
trading asset of the partnership.
The person who brought it in would not be able to claim or exercise any exclusive right. The decision also held
that an agreement by which the rights over a hulling mill had been dealt with by the partners did not require
registration. The Supreme Court affirmed the decision of the full bench of the Andhra Pradesh High Court,77
and the decision of the Madras High Court in TN Samuvier v RN Rama Subbier, AIR 1931 Mad 580, was
overruled.78
A neat summary of the partnership and its salient features is given by Mishra J, in two decisions of the Madras
High Court in K Rama Naidu v SK Parthasarathy Naidu.79
There is a survey of the case laws on various aspects relating to the formation of partnership and the rights and
liabilities of the partners.
In the former, the partnership character of the property is discussed in the background of the principles laid
down by the Supreme Court in Addanki Narayanappa v Bhaskara Krishnappa, AIR 1966 SC 1300, the decision
of the Madras High Court80 and of the Mysore High Court,81 whether an act of insolvency committed by one
partner would land the firm itself in a difficult predicament was the question, which arose for consideration in a
later case, the ultimate conclusion was that:
Once it is found that a partner has acted under his express or implied authority on behalf of the firm, all partners except
the minor admitted to the benefits of the firm shall be bound and shall accordingly be liable to be judged as insolvent
even though they may not have themselves done any act of insolvency.
The decision referred to and discussed are in Shiva Gauda Ravji Patil v Chandra Kant Neelkanth Sadalge.82
[s 4.6] SHARING PROFITS
There must be an agreement to share profits.83 Creditors who supervise the conduct of their debtor’s trade, with
an agreement to pay themselves off out of the profits, do not thereby become his partners84 and the same
principle applies to trustees for debenture-holders; a receiver whom they have appointed under their powers is
not their servant, and does not become so, or make them liable for his contracts, even after he has ceased by
the winding up of the company to be its agent.85
[s 4.7] CLUBS
In an ordinary club, the committee has no authority to pledge the credit of the members at large, and the
members are not liable for debts incurred by the committee. As in such a case, no single element of the
contract of partnership is present, it is rather hard to see how the members can ever have been supposed to be
liable as partners; but it was once thought arguable, and even said to be the common opinion. A number of
nineteenth century cases decided and indeed it was confirmed by Lord Lindley in Wise v Perpetual Trustee Co,
[1903] AC 139, p 149 that members of a non-profit making club are not to be viewed as partners.86 The same is
for non-profit making associations such as a trade protection society.87 However, a partnership can arise
between the members of an association, which is set up with a view to the making of financial gain for its
members.88
[s 4.8] TRADE ASSOCIATIONS
An association of cloth dealers, getting quotas of cloth allotted to it, and then distributing the quotas to its
member firms, was held not to be a partnership, notwithstanding that the profits made by the association by re-
selling the cloth to members at a price higher than that charged to the association by the government, were
divided among the members. There was no mutual agency, and all the members dealt with the cloth received in
their own businesses.89
[s 4.9] TRUST
The law of trust is governed by the Indian Trusts Act, 1882. No trustee can form a partnership to manage trust
money apart from what is permitted under section 47 of the Indian Trusts Act, 1882 as it would amount to
delegating his office to a co-trustee or to a stranger.90
[s 4.10] CONSORTIUM OF BANKS
When two banks form a consortium to give a loan to a borrower on the strength of a guarantee document, it can
never be said that the two banks have entered into a partnership as contemplated under the Act.91
[s 4.11] PROPRIETORSHIP CONCERN
The Supreme Court, while dealing with O XXX rule 1 CPC, 1908, held that a partnership firm differs from a
proprietary concern owned by an individual. A partnership is governed by the provisions of the Indian
Partnership Act, 1932. Though a partnership is not a juristic person but O XXX rule 1 CPC, 1908, enables the
partners of a partnership firm to sue or to be sued in the name of the firm. A proprietary concern is only the
business name in which the proprietor of the business carries on the business. A suit by or against a proprietary
concern is by or against the proprietor of the business. In the event of the death of the proprietor of a
proprietary concern, it is the legal representatives of the proprietor who alone can sue or be sued in respect of
the dealings of the proprietary business.92 A partnership firm is different from sole proprietorship.93 Distinction
between partnership firm and a proprietary concern is well known. It is evident from O XXX rules 1 and 10 CPC,
1908.94
[s 4.12] PARTNERS AND FIRM
The second paragraph of section 4 is expanded from section 239 of the Indian Contract Act, 1872 by adding
that the parties are individually called partners and defining the term “firm name”. Doubtless, the purpose is to
call attention more distinctly to the regular terms, and to confine them if possible, to their proper usage. The use
of the term “partnership” to signify the relation between persons may result in confusion as to the meaning in
using it collectively instead of “firm”.
One member of the Special Committee would have liked to put the conception of the firm in the first place and
to define a partner as a member of a firm, incidentally relegating the relations between partners within the firm
to a schedule of model partnership articles (analogous to Table A of the Companies Act, 1956) subject to
variation by agreement; but he admitted in effect that such a radical innovation on established usage is not
practicable. Fully carried out, it would involve substituting “firm” for “partnership” as the main title and catchword
of the subject.
By the current usage, affairs of a firm are distinct from its members. They may have claims on the firm’s
property, but it is not theirs; it has separate accounts, and is their debtor and creditor. Quite possibly, some
person who is not a member of the firm may have authority to do certain things in its name which some or one
of the partners have not. In short, the firm is treated very much as if it were a corporation; it is an artificial or
“moral” person for business purposes, and in some systems of law this personality receives formal
acknowledgement. In Scotland, in particular, “a firm is a legal person distinct from the partners of whom it is
composed”,95 though the individual partners may be liable for its debts. But common law does not admit any
kind of legal existence between that of a formally constituted corporation and that of an individual human being;
and for English jurisprudence the firm is only a compendious name for certain persons who carry on business,
or have authorised one or more of their number to carry it on in such a way that they are jointly entitled to the
profits and jointly liable for the debts and losses of the undertaking. The Allahabad High Court has held that a
suit filed in the assumed name by the joint Hindu family is a nullity as such a name does not represent the
coparceners existing at the date of the suit.96 For the purpose of determining legal rights, “there is no such thing
as a firm known to the law”97 and this is so likewise in India,98 though the practical significance of the collective
term receives a new emphasis in the present Act. It is true that under the Code of Civil Procedure 1908, O XXX,
as under the English Rules of Court (now O XLVIIIA), and by statute in other jurisdictions, actions may be
brought by and against partners in the name of the firm, and even between firms and their members; but this is
only a matter of procedure.99
Partnership is a voluntary collaborative agreement between two or more parties in which all participants agree
to work together to achieve a common purpose or undertake a specific task and to share risks, responsibilities,
resources, competencies and benefits. Synergy is the power behind business partnerships. In a business
partnership, two parties leverage their assets (resources, capabilities, expertise, client base etc.) for the mutual
benefit of both.100
Partnership is not a species of joint tenancy and in the absence of some contrary agreements, there is no
survivorship as between partners, at least so far as it concerns their beneficial interests in the partnership
assets.101
A facilitator in the conduct of the business by the firm, does not ipso facto becomes its partner and gets bound
by the terms of the Partnership.102
[s 4.13] PARTNER IN A REPRESENTATIVE CAPACITY
If a partner dies, the surviving partners may carry on the business by forming another partnership. In such a
case, they will have to account for the share of the deceased partner to his legal representatives. But if a
partner dies, his legal representative may be admitted to a new partnership by the surviving partners. There can
be no legal bar to a personal representative of the deceased partner being admitted to the partnership by the
surviving partners. If the personal representative of the deceased is also one of the surviving partners, he can
agree to join the new partnership as a nominee of the legal heirs of the deceased partner.103
In CIT v A Abdul Rahim, AIR 1965 SC 1703 : [1965] 55 ITR 651 the Supreme Court held that a partnership
cannot be held to be not genuine or be denied registration merely because a partner has joined in a
representative capacity, or is a trustee or benamidar for an outsider or for another partner, or is otherwise not
beneficially entitled to the whole or part of his share of profits. In that case, the firm was held entitled to
registration although there was a private arrangement between two of the partners (to which the other partners
were not parties) that one will pass on his share of profits to the other.
A contract of partnership has no concern with the obligation of the partner to others in respect of their shares of
profit in the partnership. It only regulates the rights and liabilities of the partners. A partner may be the karta of a
joint Hindu family; he may be a trustee; he may enter into a sub-partnership with others; he may, under an
agreement, express or implied, be the representative of a group of persons; he may be a benamidar for
another. In all such cases he occupies a dual position. Qua the partnership, he functions in his personal
capacity; qua the third parties, in his representative capacity. The third parties whom one of the partners
represents, cannot enforce their rights against the other partners nor the other partners can do so against the
said third parties. Their right is only to a share in the profits of their partner-representative in accordance with
law or in accordance with the terms of agreement, as the case may be.104
A partnership has to be brought about by a contract. It has to be seen that there is a valid contract between two
persons. A person cannot contract with himself. But where a person has different capacities, he may have
power to contract in his representative capacity with himself as an individual, eg, as an executor, a trustee and
administrator or an agent.105 A person cannot however enter into a partnership with himself in his own capacity
and in the capacity of a karta of a joint Hindu family since the family as a unit does not become a partner.106
However, another partnership where the deed was signed by one of the partners in two capacities—as an
individual and as the karta of the HUF—along with nine other partners was found to be valid since it was a
contract between a person in two capacities and nine other persons.107 Two kartas of two Hindu undivided
families can form a partnership though that does not make the members of family ipso facto partners of the
firm.108
[s 4.14] WHETHER A PARTNERSHIP FIRM IS A LEGAL ENTITY
Partnership is a relation between persons who have agreed to share the profits of a business carried on by all
or any of them for the benefit of all. The section further makes it clear that a firm or partnership is not a legal
entity separate and distinct from the partners. Firm is only a compendious description of the individuals who
compose the firm.109 Partnership is nothing but a collective form of all its partners.110 Partnership firm is not an
independent legal entity,111 rather merely a convenient name to carry out business by partners.112
The law, English as well as Indian, has relaxed its rigid notions and extended a limited personality to a firm.
Nevertheless, the general concept of partnership, firmly established in both systems of law, still is that a firm is
not an entity or “person” in law but is merely an association of individual and a firm name is only a collective
name of those individuals who constitute the firm. In other words, a firm name is merely an expression, only a
compendious mode of designating the persons who have agreed to carry on business in partnership.113 For this
reason, the past experience of one of the partners can be counted towards experience of the firm. This gains
importance specially in matters pertaining to award of contract through tenders.114
A firm as such is not entitled to enter into partnership with another firm or individuals.115 As a firm is not a legal
entity, there cannot be a partnership of firms, but when two firms combine, the legal effect is that the individuals
in the two firms become partners.116
For purposes of income tax, a firm can be assessed as an entity distinct and separate from its members.117
Notwithstanding the fact that a firm like an association of persons is for the purpose of assessment treated as a
separate entity, it is not a legal person having a corporate character distinct from that of its members.118
When a firm becomes the tenant of a shop, its partners also become tenants since a firm is only a
compendious name of the partners. Therefore, when such shop is allotted to one of the partners on dissolution
of the firm there will be no sub-letting.119
Where a suit is filed in the name of a firm, it is still a suit by all the partners of the firm unless it is proved that all
the partners had not authorised the suit. A firm may not be a legal entity in the sense of a corporation or a
company incorporated under the Companies Act, 1956, but it is still an existing concern where business is done
by a number of persons in partnership.120
[s 4.15] PARTNERSHIP FIRM AS A TENDERER
Quite often for procurement of goods in service by the state and its instrumentalities, the eligibility criteria
require a minimum experience of the tenderers. Similar criterions are required to be satisfied for obtaining
privileges like licences, quotas, permits and the like. Questions have arisen as to whether past experience of
any of the partners can be taken as the experience of the firm making it eligible for participating in the tender.
The Supreme Court in New Horizons Ltd v UOI121 held that the requirement of experience of the tenderer is to
ensure the credentials of the tenderer from a commercial point of view which means that if the contract is given
to the firm, one would look into the background of the firm and the persons who are in control of the same and
their capacity to execute the work. One would not go by the name of the firm but the persons behind the firm. It
is possible that a person having past experience has entered into a partnership and the tender has been
submitted in the name of the partnership firm which may not have any past experience in its own name. That
does not mean, the court held, that the earlier experience of one of the partners of the firm cannot be taken into
consideration. Experience of a firm would include the experience of a partner in cases of government contracts,
tenders, etc.122 The balance sheet of the partnership firm can be used in a bid filed by one of the partners in his
own name as a tender eligibility condition as per the bid documents.123 A partner can make use of the income
tax returns of the firm in order to show its turnover, financial capacity and other requirements as prescribed by
the tender conditions.124 Similarly, a financial soundness certificate of any one of the partners comprising the
partnership would fulfill the requirement of ascertaining the financial capability to operate the mining
lease/contract.125
[s 4.16] STATUS OF PARTNERSHIP FIRM UNDER THE TAX LAWS
Although under partnership law, a firm is not a legal entity and only consists of the individual partners for the
time being, it was a legal entity for the purposes of the income tax law126 as well as the sales tax law.127 The
partners of the firm are distinct assessable entities, while the firm as such is a separate and distinct unit for
purposes of assessment.128What that implies is that for the purposes of assessment to tax, the income of the
partnership firm has to be assessed in the hands of the firm as a single unit, the firm itself being treated as an
assessable entity separate and distinct from the partners constituting it. The firm is an assessable unit separate
and distinct from the individual partners, who as individuals constitute assessable units separate and distinct
from the firm. It is on that basis that the provisions of the tax law are structured into a scheme providing for the
assessment of partnership income.129 A partnership firm is liable to file income tax returns independent of its
partners.130 However, section 188A of the Income Tax Act, 1961 also specifies that the partners are jointly and
severally liable for the tax payable by the firm.131 For the purpose of tax assessment, it is immaterial if the firm is
registered under this Act or not.132 Section 140, Customs Act, 1962 bestows an independent identity upon the
firm.133
[s 4.17] CENTRAL EXCISE LAW
For the purpose of income tax and sales tax assessments, “firms” are specifically recognised as distinct
assessable entities. Not so, under the central excise law. Therefore, the assessment of a partnership firm under
the excise law is, in fact and reality, an assessment of persons who constitute that firm and not an assessment
of the firm as distinct from the assessment of its partners in respect of the excisable goods manufactured by
them and removed from the factory in the firm name. In respect of partners manufacturing excisable goods in
their firm name, they all would themselves be assessed under their firm name, since their partnership firm is not
recognised as an assessable entity separate from the persons who are its partners. The assessment under the
Central Excise law in the name of partnership firm will virtually, for all purposes, be assessment of the partners
of such firm who will be jointly and severally liable for the duty liability that was incurred during the currency of
their partnership venture of manufacturing excisable goods.134
[s 4.18] PARTNERSHIP WITH A HINDU UNDIVIDED FAMILY
An HUF cannot be in a better position than a firm in the scheme of the Partnership Act. The principle that a firm
cannot join a partnership with another “individual” will apply with equal force to an HUF. In law, an HUF can
never be a partner of a partnership firm.135 Even if a person nominated by the HUF joins a partnership, the
partnership will be between the nominated person and the other partners of the firm. Having regard to the
definition of “partnership” and “partners”, it is not possible to hold that an HUF, being a fluctuating body of
individuals, can enter into a partnership with other individual partners. It cannot do indirectly what it cannot do
directly. If a karta or any other member of the HUF joins a partnership, he can do so only as an individual. His
rights and obligations vis-a-vis other partners are determined by the Partnership Act and not by Hindu law.
Though the treatment of that particular share in the family is governed by the rules of personal law applicable to
Hindu joint family property.136 However, whatever may be the relationship between an HUF and its nominee
partner, in a partnership, neither the HUF nor any member of the HUF can claim to be a partner or connected
with the partnership through a nominee. Where the karta of an HUF enters into a partnership agreement with a
stranger, the karta alone in the eye of law is the partner. If any payment by the firm to a partner is prohibited by
law, the karta cannot be heard to say that the payment was received by him not as a partner but in some other
capacity. Within the partnership, the karta is a partner like any other partner with whom he has entered into a
partnership agreement individually. It is essential to have an agreement between the partners to form a
partnership. An HUF not being a “person” cannot enter into an agreement of partnership. If the karta of an HUF
enters into partnership with a stranger, upon the death of the karta, the partnership will stand dissolved. In the
absence of a contract to the contrary, another member of the family cannot step into the shoes of the karta
claiming that the karta was merely representing the HUF and the real partner was the HUF. A karta who enters
into a contract of partnership with a stranger may be accountable to the other members of the HUF for the
profits received from the partnership business. But that is something between the karta and the HUF. But so far
as the partnership firm is concerned, the karta is a partner like any other partner. If a commission is paid to a
partner who happens to be a nominee of an HUF, the commission is not paid to the HUF. It is paid by the firm
to one of its individual partners. The partner may have to account for the monies received from the firm to
another person or another firm or an association of persons or an HUF. But that will not alter the fact that
commission was paid by the firm to one of its partners.137
It is settled law that when the manager of a joint family becomes a partner in a firm, the other members of the
family do not thereby become partners therein although they might have interest in his share in the partnership.
The reason is that there is no privity of contract between the other partners and the stranger.138 Just as the fact
of a karta becoming a partner does not introduce the members of the undivided family into the partnership, the
division of the family does not change the position of the partner vis-a-vis the other partner or partners.139 When
individual members of two undivided Hindu families enter into a partnership, it is a partnership between the
individual members and not between the two Hindu joint families. When two kartas of two undivided Hindu
families enter into a partnership agreement, it is one between the two kartas and the individual members do not
ipso facto become partners.140 The Indian Contract Act, 1872 imposes no disability upon coparceners from
entering into a relationship inter se or with strangers. This relationship, if it satisfies the requirements of section
4, a partnership would come into existence.141 A firm, being merely an artificial compendious name, cannot sue
for libel or slander.142 If a stranger can enter into a partnership, with reference to his own property, with a joint
Hindu family through its karta, a coparcener can do the same in respect of his separate and individual
property.143
A HUF cannot become a partner in a partnership firm and a member/karta of the HUF, entering into a
partnership with others, though representing HUF, would be doing so in his individual capacity, whose rights
and obligations as a partner, would be governed by the Partnership Act, 1932, and not Hindu Law. Such
member/karta of the HUF, distributing the earnings from the firm, amongst other family members, does not
result in the HUF, or member thereof, becoming a partner in the firm, though they have a claim against the
karta for treating the income/profit from the firm as joint family asset.144 If one of the partners was also karta of a
HUF, his death would not automatically make the new Karta of the HUF liable for execution. The deceased
partner was a partner not in his capacity as a karta of HUF but in his personal capacity.145
[s 4.19] SUITS AGAINST PARTNERSHIP FIRM
Order XXX of the Code of Civil Procedure 1908 permits suits to be brought against firms. The summons may
be issued against the firm or against persons who are alleged to be partners individually. The suit, however,
proceeds only against the firm. Any person who is summoned can appear, and prove that he is not a partner
and never was; but if he raises that defence, he cannot defend the firm. Persons who admit that they are
partners may defend the firm, take as many pleas as they like but cannot enter upon issues between
themselves. When the decree is passed, it is against the firm. Such a decree is capable of being executed
against the property of the partnership and also against two classes of persons individually. They are (1)
persons who appeared in answer to summons served on them as partners and either admitted that they were
partners or were found to be so, and (2) persons who were summoned as partners but stayed away. The
decree can also be executed against persons who were not summoned in the suit as partners, but rule 50(2) of
O XXI gives them an opportunity of showing cause and the plaintiff must prove their ability. The person
summoned cannot open the decree. He can only prove that he was not a partner, and in the proper case, that
the decree is the result of collusion, fraud or the like.146
[s 4.20] CONVERSION BY A PARTNER
In the United Kingdom, it has been held that where there has been fraudulent conversion by one partner of
partnership property and moneys have been paid to a third party, the other partners may sue the third party for
recovery of the moneys without making the fraudulent partner a party to the action. In such a case, the partners
are entitled to recover only their share or interest in the moneys.147 It is submitted that the law is the same in
India; and, as the action would lie in tort, section 69 would not be applicable, where a partner fraudulently
converts to his own use part of the property of the firm, and his fraud has not been ratified, the firm’s trustee in
bankruptcy may prove for the value of such property in competition with his separate creditors.148
[s 4.21] FIRM NAME
Under our law, there are no prescribed forms for the style of a firm, and the liberty of partners, to assume any
firm-name they please, is bound only by the general rules as to goodwill and trade names as can be seen in the
notes to section 14. A firm name shall not contain any of the words mentioned in section 58(3) or words
expressing or implying the sanction, approval or patronage of government save as provided therein. A firm-
name may be personal or impersonal, singular or plural, and need not contain the name of any existing partner.
“X & Co”, “X, Y & Z”, “The X Co”, “X & Son”, “X”s sons” (common in America), “X Brothers”, and other varieties,
are usual and lawful. There is no general rule to prevent a sole continuing member of a firm X & Co from
continuing to trade as X & Co nor indeed to prevent X or Z, who has never had a partner, from trading under
the style of X & Co, provided that he is not thereby doing wrong to an existing X & Co. Most commercial
countries who do not adhere to the Common Law, have precise regulations in these matters. The principle of
the Common Law, on the other hand, is to allow great latitude in the use of personal names so long as they are
not assumed or changed for purposes of deception. “Individuals may carry on business under any name and
style they may choose to adopt”.149
[s 4.21.1] Similar or Identical Name
In absence of a provision like section 20 of Companies Act, 1956 in the Partnership Act, a firm can be
registered with a name similar or identical to the name of a firm already registered. The Act neither provides
that partners cannot carry on a business in an identical or a similar firm name if some other persons are
carrying on business in that name, nor is there any provision enabling the Registrar to refuse registration on
such ground.150
The only limitation on their freedom in this respect is that they may not use a name or style tending to mislead
the public into confusing them with others already trading under the same or similar names; it cannot be said
that a man has a positive and universal right to employ his usual name. However, subject always to the
question of confusion, the mere fact that a rival’s name resembles his own is no reason for restraining a man
from dealing in the name he has always borne; the court will not interfere merely because the similarity may be
an occasion for careless people to make mistakes. Lord Justice Knight Bruce said in a celebrated judgment:
All the Queen’s subjects have a right, if they will, to manufacture and sell pickles and sauces, and not the less that their
fathers have done so before them. All the Queen’s subjects have a right to sell these articles in their own names, and
not the less so that they bear the same name as their fathers.151
However, a firm is not at liberty to mislead the public by using a name similar to the name of another firm or
comprising a name or description of goods which has become distinctive of, and indicates goods produced by
another firm so as to pass themselves for, or their goods as being the goods of, that other firm.152 Speaking
generally, the rights and liabilities of a firm cannot be affected by a change in its name unaccompanied by a
change amongst its members.153
Questions of this sort arise generally in “passing off” actions, where the substantial problem is whether the use
by defendant of a particular name or style is calculated to deceive the public or to create confusion between the
two businesses, and so to divert business from the defendant to the plaintiff. Where fraudulent intention is
shown, it is not a sufficient answer for the defendant to say that the name he is using in business is the name
he has adopted for all other purposes also; freedom of choice does not extend to choosing just that name which
will enable one to appropriate the reputation of another man’s goods.154 The same reasons apply to the use of
corporate names,155 and firm-names,156 and also to the use of distinctive trade names for goods (not to be
confused with registered trademarks); in this last case a name which, taken alone, is a literally true description
of the goods sold under it, may be rendered fraudulent by the manner and circumstance of its use.157
A statement which is literally true, but which is intended to convey a false impression, has something of a faulty
ring about it; it is not sterling coin; it has no right to genuine stamp and impress of truth.158
Even a true name, personal or other, is not a commodity to be sold and trafficked in without regard to the use
that may be made of it.159
The particular problem of the honest use by a defendant, of his own name causing confusion between his
business and that of the plaintiff, was fully discussed in the House of Lords in Parker-Knoll Ltd v Knoll Int Ltd,
(1962) RPC 265. The judgments in that case have made it clear, first, that an honest defendant can be
restrained from using his own name if such user leads to confusion and thus to the public buying the goods of
the defendant in the belief that they are those of the plaintiff, and, secondly, that no special burden of proof is
laid upon the plaintiff by the mere fact that the name which the defendant is honestly using is his own.
[s 4.21.2] Domain Name
The use of the same or similar domain name may lead to a diversion of users which could result from such
users mistakenly accessing one domain name instead of another. This may occur in e-commerce with its rapid
progress and instant accessibility to users and potential customers and particularly so in areas of specific
overlap. Ordinary users seeking to locate the functions available under one domain name may be confused if
they accidentally arrived at a different but similar website which offers no such services. Such users could well
conclude that the first domain-name owner had misrepresented its goods or services through its promotional
activities and the first domain-name owner would thereby lose its customers. It is apparent, therefore, that a
domain name may have all the characteristics of a trade mark and can find an action for passing off.160
[s 4.22] ILLEGAL PARTNERSHIP
Partnership is based upon an agreement. Section 23 of the Indian Contract Act, 1872 provides that every
agreement of which the object or consideration is unlawful is void and it lays down that the consideration of an
agreement is lawful unless, inter alia, it is opposed to public policy.161 Where a partnership is formed of persons
more than prohibited by section 11(2) of the Companies Act, such a partnership is illegal.162 A partnership is
presumed to be legal unless the object is proved to be illegal or the object necessarily involved something
illegal.163
The illegality of a partnership affords no reason why it should not be sued.164 It cannot indeed be effectually
sued by any person who, being aware of all facts, seeks to enforce a demand arising out of a transaction
tainted with the illegality which affects the firm; but the illegality of the firm does not per se afford any answer to
a demand against it, arising out of a transaction, legal in itself, to which it is a party. Unless the person dealing
with the firm is particeps criminis, there can be no turpis causa to bring him within the operation of the rule ex
turpi causa non oritur actio; and he, not being implicated in any illegal act himself, cannot be prejudiced by the
fact that the persons with whom he has been dealing are illegally associated in partnership.165
It has been, however, consistently held that no suit can be filed for recovery of the capital invested in an illegal
partnership and/or for the accounts of the partnership. An action will not lie for an account stated for money due
under an illegal contract.166 Cases dealing with the legality of partnership have arisen on a number of occasions
when a person holding a licence in his individual name has entered into a partnership for carrying on that
business with others. In all such cases, where, by the relevant law and/or rules, a partnership has been either
expressly or impliedly prohibited by reason of prohibition on transfer, subletting or assignment of the licence,
the courts have held the partnerships to be illegal as can be seen in the cases mentioned below.167 Where the
partnership is illegal or for an unlawful purpose, the court will not give any assistance to any plaintiff.168
However, if a person merely takes a loan from another without admitting such a person into the partnership but
agreeing to share with him, the profits and losses of the partnership in consideration of the loan advanced, then
such a transaction has been held not to amount to a transfer or assignment and/or sub-lease of the licence and,
therefore, not illegal.169 Similarly, where a plaintiff was only a sleeping partner to provide finances to the
partnership firm and the other partners managed the affairs, it was held that he was entitled to accounts, as he
was not pari delicto.170 In Gherumal Parikh v Mahadeodas, the court held that though under section 30 of the
Indian Contract Act, 1872 a wager is void and unenforceable, it is not forbidden by law and therefore, the object
of the collateral agreement is not unlawful under section 23 of the Act. A partnership being an agreement within
the meaning of section 23 of the Indian Contract Act, it was not unlawful though its object was to carry on
wagering transactions. The contention that wager being extra- commercium there cannot, in law, be a
partnership for wager, was not considered by the court as the same was not properly raised.171 The above case
has been distinguished by the Calcutta High Court where two persons entered into wagering contract and a
promissory note was executed in payment of that indebtedness, it was held not to be collateral or substituted
contract like a partnership. The note having been given for a gambling and illegal transaction, the suit failed.172
A partnership does not become illegal because a person is prohibited by a contract with the government from
assigning and/or transferring and/or subletting his rights.173 It such cases, the agreements of partnership have
been held not to violate public policy.174 However, where there is a specific prohibition to enter into a
partnership for the working of the privilege granted under a licence for retail sale of country spirit, any
partnership entered would be an illegal partnership175 and in such cases, agreements of partnership have been
held to be against public policy.176 An illegal partnership can be taxed. It is certainly bound to be taxed either as
an unregistered partnership firm or as an association of persons.177 Where, in the case of an illegal partnership,
the plaintiff filed a suit for the declaration that the partnership was illegal and, therefore, for cancellation of the
instrument, he was held entitled to receive the amounts paid under the said instrument.178
An important consequence of illegal partnership is that the members thereof have no remedy against each
other for contribution or apportionment in respect of the partnership dealings and transactions, and it is
competent to the defendant to plead illegality.179 However, if a person, by the fraudulent misrepresentations of
another, is induced to enter into an illegal contract while himself unaware of illegality, he may recover damages
from the person deceiving him.180
An illegal partnership can prosecute a person for theft of its property.181 Risk of criminal prosecution may be a
consequence of an illegal partnership. “Persons engaged in an illegal business, whether partners or not, and
whether incorporated or not, are liable to suffer the sanctions of the criminal law”.182
“A” obtained a liquor licence from the authorities. He then started a partnership business of liquor with “B”
where “A”, as his capital contribution, permitted the firm to use the liquor licence. It was held that such transfer
of liquor licence is impermissible under the law and therefore, the partnership agreement itself was hit by
section 23 of the Contract Act, 1872 making the partnership illegal.183
[s 4.23] SLEEPING PARTNER
Sleeping partner is bound by contracts made by the ostensible partners in the ordinary course of the
partnership business. Every partner in a trading firm is liable for a bill drawn by a partner in the name of the firm
and for transactions connected with its business.184 There are situations where the position of a partner is only
of a sleeping partner.185
A sleeping partner is nevertheless a partner, even when he only “sleeps”. Sometimes partners are absolutely
inactive or deliberately choose to be inactive, for instance, is some cases where a partner is a government
servant or person with similar status who is, by service rules, prohibited from engaging in any trade or business.
The violation of service rule may have impact on the legality of the firm. An army officer joining a firm as a
sleeping partner, generated a controversy regarding the very legality of the firm for income tax purposes.
Engaging in trade connotes a substantial involvement in the activities of the firm. A sleeping partner in a firm is
not substantially engaged in trade and therefore his presence in the firm will not render the firm illegal, as there
is no engagement in trade or business contrary to law (section 23 renders the contract in violation of law as an
illegal contract unenforceable in law). Such a view taken by the Income Tax Appellate Tribunal of Kerala was
approved by the Kerala High Court in CIT v Vettoor Bros.
In some of the decisions mentioned below, where some of the partners possessed the mandatory liquor trading
licences, the impact of such licensing provision has been discussed. Even then some confusion continues to
persist in this regard.
[s 4.24] PARTNERSHIP AND SUBLETTING UNDER RENT CONTROL ACT
In order to constitute subletting, out of two essential elements, one relates to parting of possession whereas the
other concerns the new relationship between the person inducted and the lessee.
Quite often, decisions are rendered, without giving the due and equal importance to the second requirement of
a sublease.
The provisions in the Abkari Act which require that the licencee shall have possession of the premises in which
liquor trade is carried on, does not ipso facto result in a parting of possession on the formation of a partnership.
Even assuming that he has parted with possession, that does not render the partnership an illegal partnership
as can be seen in cases mentioned.186
1 Statement of Objects and Reasons, (see Appendix III, p 355), which is a part of the Report of the Special Committee
appointed by the Government of India to examine and report on the provisions of the Bill which became this Act. The
Chairman of the Committee was Sir Brojendra Lal Mitra, and Sir Dinshah Mulla was a member. The report is printed in
Pollock & Mulla, Indian Partnership Act,1934 (the 1st Edn of this book), pp 167–80.
2 Lindley on Partnership, 9th Edn, pp 12-13.
3 UK Partnership Act, 1860 (see Appendix I, p 337)
4 Appendix IV, p 361.
5 Dulichand Laxminarayan v CIT, AIR 1956 SC 354, para 11; see also Pratibha Rani v Surajkumar, AIR 1985 SC 628 :
(1985) 2 SCC 370 and Sanjay Kanubhai Patel v Chief Controlling Revenue Authority, AIR 2005 Bom 57, para 8.
6 Rampratap v Durgaprasai AIR 1925 PC 293; Hemchandra Dev v Dhirendra Chandra Das, AIR 1960 Cal 691.
7 Raghunath Sahu v Trinath Das, AIR 1985 Ori 8, p 10.
8 Seemaben v Motibhai K Patel, 2015 SCC OnLine Bom 337 : (2015) 3 Bom CR 288 : (2015) 4 AIR Bom R 730.
9 Taralakshmi Maneklal Thanawalla v Shantilal Makanji Dave, 2015 SCC OnLine Bom 3967 : (2015) 5 Mah LJ 933 :
(2015) 6 AIR Bom R 789.
10 Regional Director, Employees’State Insurance Corporation v Ramanuja Match Industries, (1985) 1 SCC 218, paras 4
and 9. See also New Kruba Jeweller v Kanchana, 2016 SCC OnLine Mad 31644 : [2017] 139 SCL 264 (Madras).
11 The present section has the effect of widening the definition of “partnership”, as originally under section 239 of the
Indian Contract Act it was, inter alia, necessary to agree to combine property, labour and skill; Birdichand v
Harakchand, 190 IC 613 : AIR 1940 Ngp 211.
12 Birdichand v Harakchand, 190 IC 613 : AIR 1940 Ngp 211.
13 Nandu Mal v Ramji Lai AIR 1952 Punj 403.

14 Lindley on Partnership, 12th Edn, pp 16–18.
15 Delhi Beopar Mandal v CIT, AIR 1967 Punj 255; CIT, West Bengal v Juggilal Kamalapat, AIR 1967 SC 401.
16 Mollwo, March & Co v Court of Wards, (1872) LR 4 PC 419, p 436 : 10 BLR AP 312, p 320, on appeal from (1869) 3
BLRAC 238.
17 Lindley on Partnership, 12th Edn, p 15.
18 Pooley v Driver, (1876) 5 Ch D 458, pp 472, 473.
19 CP Ambadas v Kasabai, 89 IC 283 : AIR 1925 Ngp 436
20 Janki Nath v Dhokar Mal, 156 IC 200 : AIR 1935 Pat 376; Mutual Agency—Effect of borrowing of an amount by a
partner on behalf of the firm is binding on the firm as well as the members of the firm; Surjit Singh v Ram Ratan, AIR
1975 Gau 14; Manbharibai v Bajrang Rice Mill Warasheoni, AIR 1956 Ngp 226 (DB); KEM Md Ibrahim Marcan v
Perumal Padayachi, (1974) 1 Mad LJ 507 (DB); Babulal Piarey Lal v Kanhaiyalal, AIR 1953 VP 43, p 46; Mohd Musa
Sahib v NK Mohd Ghouse, AIR 1959 Mad 379, p 381; Chimanram Motilal v Jayantilal Chhaganlal, AIR 1939 Bom 410
(DB).
21 Dulichand Laxminarayan v CIT, AIR 1956 SC 354, para 16; see also Bhagwanji Morarji Goculdas v Alembic Chemical
Works Co Ltd, AIR 1948 PC 100; CIT v AW Figgis & Co, AIR 1953 SC 455; Agarwal & Co v CIT UP, AIR 1970 SC
1343; Amritlakshmi Machine Works v Commissioner of Customs, 2016 SCC OnLine Bom 66 : (2016) 2 Bom CR 481
(FB) : (2016) 335 ELT 225.
22 [1918] AC 230 , in this case, questions arose as to the disposal of profits made by the English company by its use of
the capital belonging to the German company after the dissolution of the partnership by operation of law, at the
outbreak of the war.
23 Ganga Metal Refining Co Pvt Ltd v CIT, AIR 1967 Cal 429.
24 Karumuthu Thiagarajan Cheetiar v EM Muthappa Chettiar, AIR 1961 SC 1225, p 1230.
25 Hossen Kasam v CIT, (1937) 2 Cal 160 : 41 Cal WN 629.
26 Re Fisher & Sons, [1912] KB 49 ; Holme v Hammond, (1872) LR 7 Ex 218.
27 Re Ambalal Sarabhai, (1923) 25 Bom LR 1225 : 77 IC 699 : AIR 1924 Bom 182.
28 Pollock on Partnership, 12th Edn, p 26.
29 Badri Prasad v Nagarma, AIR 1959 SC 559.
30 Deputy Commr of Sales Tax (Law) Board of Revenue (Taxes) v K Kelukutty, AIR 1985 SC 1143 : from (1978) 2 ILR Ker
82.
31 Haji Isa v Saru Bai, 177 IC 831 : AIR 1938 Ngp 324; Tajammul Hussain v Ahmad Ali,167 IC 839 : AIR 1937 Oudh 438;
Chhotalal v Rajmal, AIR 1951 Ngp 448.
32 CIT v Kedarmal Keshardeo, AIR 1968 A&N 68; Aruna Group of Estates, Bodinayakanur v State of Madras, (1962) 2
Mad LJ 294.
33 Sharadprasad Gokul Prashad v Nomanbhai Shamsuddin, 19 Ngp LJ 306 : 169 IC 95 : AIR 1937 Ngp 68.
34 Sharma & Cov CIT, AIR 1965 All 376; on the question of whether a partnership is formed forthwith or from a future
date, Stekel v Ellice, [1937] 1 All ER 465.
35 Sarna v Reuben, AIR 1946 Oudh 68; Sitaram Kalani v Manmal Gatani, AIR 1956 MB 60.
36 Puron Sahib v Jamaluddin, AIR 1958 AP 48.
37 Champaran Cane Concern v Stateof Bihar, AIR 1963 SC 1737; but see Keith Spicer Ltd v Mansell, [1970] 1 All ER 462.
Whether a partnership exists is a mixed question of fact and law; section Santokh Singh v Bhai Siri Ram Singh, AIR
1963 Punj 95; Murlidhar Kishan Gopal Firm v CIT, AIR 1964 MP 224; whether a partnership reconstituted after
dissolution, bare question of fact, MM Valliammai v Ramanathan, AIR 1969 Mad 257; Keith Spicer Ltd v Mansell, [1970]
1 All ER 462—mixed question of law and fact.
38 (1998) 3 SCC 471, para 13. See also, Bhagwan Singh v Amrik Singh, 2011 SCC OnLine Del 1120.
39 For a comparison between the position of a shareholder and a partner, Bacha F Gazdar v CIT, AIR 1955 SC 74 may be
referred to.
40 CIT v A Abdul Rahim & Co, AIR 1965 SC 1703.
42 New Horizons Ltd v UOI, (1995) 1 SCC 478; Cited in Gammon (I) Ltd v Commr of Customs, (2011) 12 SCC 499; Also
see DCIT, Circle-2(1) Guntur v Transstroy (India) Ltd Guntur, 2012 SCC OnLine ITAT 4232 : [2012] ITAT 4653. For a
general understanding of “joint venture”, see Faqir Chand Gulati v Uppal Agencies (P) Ltd, (2008) 10 SCC 345 : AIR
2009 SC (Supp) 575 : JT 2008 (7)SC 552; See also, Deepak Arora v Vijay Khanna, 2009 SCC OnLine HP 1040 : 2009
(2) ShimLC340.
43 Alka Builders Pvt Ltd v Cityscape Developers Pvt Ltd, AIR 2003 NOC 264 (Cal).
44 GVPREL-MEE (JV) v Government of Andhra Pradesh, AIR 2006 AP 169, para 8.
45 ITO Ward-1(3), Visakhapatnam v UAN Raju Constructions, Visakhapatnam, 2010 SCC OnLine ITAT 4267 : [2010]
ITAT 3266.
46 Cox and Kings India Ltd v Indian Railways Catering and Tourism Corporation Limited, (2012) 7 SCC 587 : AIR 2012 SC
3391 : 2012 (6) Scale 614, pr. 26. In Sesa International Limited v Avani Projects & Infrastructure Limited, 2017 SCC
OnLine Cal 13063 : (2018) 1 CHN 303, the Calcutta High Court has held that a joint development agreement is not a
partnership where the agreement itself states that the said agreement shall under no circumstance be taken as having
created a partnership between the parties.
47 TRG Industries P Ltd v Machinery Parts Corporation, 2015 SCC OnLine Del 14013 : 2016 IIAD (Delhi) 449.
48 MOH Uduman v MOH Aslum, (1991) 1 SCC 412, para 14.
49 CIT v Shah Jethaji Phulchand, [1965] 57 ITR 588; Parekh Wadilal Jivanbhai v CIT, AIR 1967 SC 448 : [1967] 63 ITR
485.
50 James LJ in Smith v Anderson, (1880) 15 Ch D 247, p 275; Govindan Nair v Nagabhusanammal, AIR 1948 Mad 343.
The fact that persons are brothers, and that one of them holds a licence for cloth for a business, does not raise a
presumption of partnership; YAIR 1950 MB 91; Rangaswami Goundar v Easwarmurthi Goundan, AIR 1967 Mad 437.
51 This needs no authority, but French v Styring, (1857) 2 CBNS 357 : 109 RR 716 may be referred to, per Willes J, p 336
and 109 RR 716, p 722. Similarly, joint moneylenders are partners; Mulchand v Tarachand,116 IC 646 : AIR 1929 Ngp
358 : 169 IC 855 : AIR 1937 Ngp 134. Co-ownership of land does not constitute a partnership between the co-owners
but the co-owners may work the land in partnership; Chettyar Firm v Chettyar Firm, 144 IC 1007 : AIR 1933 Rang 120.
52 London Financial Assn v Kelk, (1884) 26 Ch D 107, p 143.
53 Abdullah v Allah Diya, (1927) 8 Lah 310 : 100 IC 846 : AIR 1927 Lah 333 here not only a business carried on in
common, but even a common interest is wanting; Re Bai Sakinaboo, (1932) 34 Bom LR 100 : 137 IC 903 : AIR 1932
Bom 116.
54 Bhagga Lal v De Gruyther, (1881) 4 All 74; Raghunandan v Hormasjee, (1927) 51 Bom 342, pp 346-47; Mamooji v
Tayebali, AIR 1933 Sind 210 : 146 IC 730; Karnidan Sarda v Sailaja Kanta, (1940) 19 Pat 715 : 192 IC 187 : AIR 1940
Pat 683.
55 Polley v Driver, (1876) 5 Ch D 458; Fx p Delhasse, (1877–73) 7 Ch D 511; Steel Bros Ltd v CIT, AIR 1958 SC 315.
56 MP Davis v Commr of Agricultural Income Tax, AIR 1959 SC 719, the court found that there was no provision made to
show how the losses were to be divided.
57 Re State of Madras, AIR 1958 Mad 394.
58 Helme v Smith, (1831) 7 Bing 709, p 713.
59 Green v Briggs, (1847) 6 Ha 395 : 77 RR 156; Vanamati Sattiraju v Bollapragada Pallamraju, (1918) 41 Mad 939 : 47
IC 640.
60 Karmali v Vora Karimji,(1915) LR 42 IA 48 : 26 IC 915.
61 Hyder Ali v Flahee Bux, (1882) 8 Cal 1011.
62 Ibid, p 1013.
63 AIR 1963 SC 1737, pp 1740, 1741; Lindley on Partnership, 15th Edn, pp 79–81. See also, Kanaiyanand v Bindadevi
Hiranand Pandey, 2015 SCC OnLine Guj 1381 : (2015) 155 AIC (Sum 23) 10 : (2015) 3 GLH 560; Deepak Arora v
Vijay Khanna, 2009 SCC OnLine HP 1040 : 2009 (2) ShimLC 340.
64 Malabar Fisheries Co v CIT, Kerala, AIR 1980 SC 176, p 183.
66 Ibid, p 1088.
67 Chief Con Rev Authority v Chaturbhuj, 17 Guj LR 898, p 909 : AIR 1977 Guj 1, para 13.
68 Chief Controlling Rev Authority v M Abdulla, AIR 1970 Mad 2.
69 Choturam v Ganesh, (1901) 3 Bom LR 132.
70 Lindley on Partnership, 15th Edn, pp 507–09, cases discussed.

71 Essex v Essex,(1855) 20 Beav 442; Rye v Rye, [1962] AC 496; Steward v Blakeway, [1869] LR 4 Ch 603.
73 Lyon v Knowles,(1863) 3 B&S 556 : 5 B&S 751 : 129 RR 452, p 456.
74 Lindley on Partnership, 15th Edn, p 97; Pollock on Partnership, 15th Edn, 1952, p 16, and per Lord Brougham and Lord
Wensleydale in Cox v Hickman, (1860) 8 HLC at p 277 : 125 RR 153. No one acquainted with the literary business can
suppose that in fact the printer, binder, etc., give credit to anyone but the publisher. The relations between authors and
publishers or editors really form a distinct species of contract, about which there is less authority than might be
expected.
75 Holme v Hammond, (1877) LR 7 Ex 218.
76 CIT v Ashokbhai Chimmanbhai, AIR 1965 SC 1343.
77 A Narayanappa v B Krishnappa, AIR 1959 AP 380 (FB).
78 Kuruvalli Shivalingappa v YSM Basaiah, (1989) 2 Kant LJ 29.
79 (1993) 1 Mad LJ 63 and Lakshmana Sah & Bros represented by PK Kasisah v JN Sivaraj Chettiar, (1994) 1 Mad LJ 5.
80 CR Ramachandra Gowder v CP Nanjappa, AIR 1973 Mad 179.
81 JJ Rebello v Chief Controlling Revenue Authority, Mysore, AIR 1971 Mys 318.
82 AIR 1965 SC 212; Mukud Lal Veerkumara v Purushottam Singh, AIR 1968 SC 1182; Re Mohomed Hashon & Co, AIR
1923 Bom 107; Gopal Naidu v Mohanlal Kanyalal, AIR 1926 Mad 206.
83 Maliram Choudhury v Jagannath Modi, AIR 1972 Ori 17.
84 Cox v Hickman, LR 4 PC 19.
85 Gosling v Gaskell, [1897] AC 575; it would seem that after that date the receiver was personally liable on contracts
made by him, as having no principal who could be sued. Refer to notes to section 6 below.
86 Fleming v Hector, (1836) 2 M&W 172 : 46 RR 553; Re The St James’Club,(1836) 2 De GM & G 383.
87 Caldicott v Griffiths, (1853) 8 Ex 898 ; Re Lead Company’s Workmen’s Fund Society, [1904] 2 Ch 196.
88 Jennings v Hammand, [1882] 9 QBD 225; Re Padstow Total Loss & Collision Assurance Association, [1882] 20 Ch
137; Re Thomas [1884] 14 QBD 379.
89 Bhawanilal Lachchi Ram v Badri Lai AIR 1964 MP 153.
90 CIT v Swashraya, 2006 SCC OnLine Guj 361 : (2006) 286 ITR 265 : (2006) 205 CTR 290.
91 Tyagi Pipe Craft Pvt Ltd v Asset Care Enterprises Ltd, 2011 SCC OnLine Del 5123 : (2012) 186 DLT 311.
92 Ashok Transport Agency v Awadhesh Kumar, (1998) 5 SCC 567 : 1998 (5) Scale 7 30 : AIR 1999 SC 1484, pr. 6.
93 Sushant Agarwal v Commissioner of Customs, 2006 SCC OnLine CESTAT 1147 : (2006) 202 ELT 700 (CESTAT). See
also, Diljeet Titus v Alfred A Adebare, 2006 SCC OnLine Del 551 : (2006) 130 DLT 330 : (2006) 32 PTC 609.
94 Raghu Lakshminarayanan v Fine Tubes, (2007) 5 SCC 103 : AIR 2007 SC 1634 : 2007 (5) Scale 353; Vision Digital
Cable v Star Den Media Services Pvt Ltd, 2010 SCC OnLine TDSAT 36 : [2010] TDSAT 14; Gaurang Jatinbhai
Bosamiya v State of Gujarat, 2015 SCC OnLine Guj 5258; M Srinivasan v VP Krishnamurthy, 2017 SCC OnLine Mad
26945 : 2017-2-LW(Crl)715 : 2017 (4) Mad LJ (Cr) 600.
95 English Partnership Act, 1890, section 4, sub-section 2. “The Indian Partnership Act, 1932 goes further than the English
Partnership Act, 1890, in recognising that a firm may possess a personality distinct from the persons constituting it; the
law in India in that respect being more in accordance with the law of Scotland than with that of England. However, the
fact that a firm possesses a distinct personality does not involve that the personality continues unchanged so long as
the business of the firm continues. The Indian Act, like the English Act, avoids making a firm a corporate body enjoying
the right of perpetual succession”; Bhagwanji v Alembic Chemical Works Ltd, AIR 1948 PC 100; CIT, West Bengal v
AW Figgis & Co, AIR 1953 SC 455; Dulichand Laxminarayan v CIT, AIR 1956 SC 354, para 13; MT Construction
Company v PWD, 2017 SCC OnLine Ker 34601 : LNIND 2017 KER 29852.
96 National Building Material Supply v Jai Jai Ram Manohar Lal, AIR 1965 All 586.
97 James LJ, ex p Corbett, (1880) 14 Ch D 122, p 126.
98 Dulichand Laxminarayan v CIT, AIR 1956 SC 354, para 15; Seodayal Khemka v Joharmull Manmull, (1923) 50 Cal
549, p 558 : AIR 1924 Cal 74 : 75 IC 81 (amendment of title of suit); Brojo Lal Saha Banikya v Budh Nath Pyarilal & Co,
(1927) 55 Cal 551 : 105 IC 549 : AIR 1928 Cal 148; Kader Bux Omer Hyat v Bukt Behari, (1932) 36 Cal WN 489 : AIR
1932 Cal 768; Re Jai Dayal Madan Gopal, (1932) 54 All 846; Mahammad Abdul v Sheikh Ismail, AIR 1934 Mad 9 : 148
IC 1137.
99 It does not authorise the use of the firm name so as to make a partner in substance both plaintiff and defendant; Myer &
Cov Faber, [1923] 2 Ch 421 (CA); Shankar Housing Corpn v Mohan Devi, AIR 1978 Del 255, pp 259, 260, 262; Bharat
Sarvodaya Mills v Mohatta Bros, AIR 1969 Guj 178, p 184; on effect of notice to firm in insolvency proceedings, Ravi
Steelways v The Industrial Gases (Bihar) Ltd, AIR 1983 Pat 248, p 250.
100 Skyland Corporation v ACIT, 2009 SCC OnLine ITAT 263 : LNINDORD 2009 ITATND 2134.
101 Syndicate Bank v RSR Engineering Works, (2003) 6 SCC 265, para 10.
102 L Gopakumar Kizhakke Madom v Leela Menon, 2017 SCC OnLine NCDRC 1574.
103 CIT v Kandath Motors, (1997) 4 SCC 54, pp 8 and 9.
104 CIT v Bagyalakshmi and Co, AIR 1965 SC 1708 : [1965] 55 ITR 600; Cement Corporation of India Ltd v Raj Kishan and
Co, 2009 SCC OnLine Del 2681.
105 Halsbury’s Laws of England, 4th Edn, Vol 9, Contract, Article 204.
106 Rai Bahadur Lokenath Prasad Dhandhania v CIT, [1940] 8 ITR 369 (Pat).
107 CIT v Raghavji Anandji & Co, [1975] 100 ITR 246 (Bom).
108 Agarwal & Co v CIT, (1970) 2 SCC 48 : [1970] 77 ITR 10; CIT v Kalu Babu LalChand AIR, 1959 SC 1289 : [1959] 37
ITR 123.
109 Munshi Ram v Municipal Committee, (1979) 3 SCC 83, para 17; CIT v RM Chidambaram Pillai, (1977) 1 SCC 431,
para 5; SV Chandra Pandian v SV Sivalinga Nadar, (1993) 1 SCC 589, para 8; see also Dulichand Laxminarayan v
CIT, AIR 1956 SC 354, para 15; see also CIT v AW Figgis & Co, AIR 1953 SC 455; N Khadervali Saheb v N Gudu
Sahib, (2003) 3 SCC 229, para 3; Purushottam Umedbhai and Co v Manilal and Sons, AIR 1961 SC 325, para 8.
110 MVV Satyanarayana v Engineer-in-Chief (R&B), 2007 SCC OnLine AP 911 : (2008) 1 ALT 715.
111 Indian Oil Corporation Ltd v Shree Niwas Rammgopal, 2018 SCC OnLine Cal 4383 : (2018) 3 CALLT 128 (HC) [On
facts, during dispute of succession of share of a deceased partner and where partnership is operating, Indian Oil
Corporation could not have discontinued fuel supply.] See also, Sonba v Sunil, 2018 SCC OnLine Bom 613 : 2018 (3)
ABR 491 : 2018 (5) Bom CR 204 : 2018 (6) MhLJ 368.
112 Sanjay Suganchand Kasliwal v Jugalkishor Chhaganlal Tapadia, 2013 SCC OnLine Bom 1470 : (2014) 1 AIR Bom R
218 : (2014) 121 CLA 68.
113 Dulichand Laxminarayan v CIT, AIR 1956 SC 354, para 15; see also CIT v AW Figgis & Co, AIR 1953 SC 455; N
Khadervali Saheb v N Gudu Sahib, (2003) 3 SCC 229, para 3.
114 New Horizons Ltd v UOI, (1995) 1 SCC 478; Avula Constructions Pvt Ltd v Sr Div Electrical Engineer, Traction
Distribution, AIR 1999 AP 318; CK Asati v UOI, AIR 2004 MP 96.
115 Dulichand Laxminarayan v CIT, AIR 1956 SC 354, para 15; CIT v Jadavji Narsidas and Co, AIR 1963 SC 1497, para
12.
116 Malabar Fisheries Co v CIT, AIR 1980 SC 176, p 182.
117 CIT, West Bengal v AW Figgis & Co, AIR 1953 SC 453; Sharma & Co, Generalganj, Kanpur v CIT, AIR 1965 All 376;
Nandlal Sohanlal v CIT, AIR 1977 Punj 320, p 325.
118 Chidambaram v CIT, AIR 1970 Mad 497, pp 500, 501.
119 Kanahiya Lal v Labhu Ram, AIR 1971 Del 219, p 221.
120 Purushottam Umedbhai and Co v Manilal and Sons, AIR 1961 SC 325, para 8.
121 (1995) 1 SCC 478, para 23; Balaji Transport, Tadepalligudem v State of Andhra Pradesh, 2013 SCC OnLine AP 568 :
(2013) 6 ALD 758 : (2014) 1 ALT 475; Danial Masih Satprit Singh Bedi v State of Punjab, 2016 SCC OnLine P&H 3258
: LNIND 2016 PNH 6191.
122 Laxmi Construction Co v State of Chhattisgarh, 2011 SCC OnLine Chh 354 : AIR 2012 Chh 6.
123 MVV Satyanarayana v Engineer-in-Chief (ReSB), 2007 SCC OnLine AP 911 : (2008) 1 ALT 715; Vidya Investment and
Trading Co P Ltd v UOI, 2014 SCC OnLine Kar 12343 : (2014) 367 ITR 33 : (2015) 277 CTR 18.
124 PBR Select Infra Projects v Commissioner of Tenders, 2012 SCC OnLine AP 310 : (2013) 1 ALD 541 : (2013) 1 ALT
412.
125 Trio Stoney Mart v Jamal Ahmed, 2017 SCC OnLine Gau 1193 : (2018) 3 GLR 92.
126 CIT v PN Panjawani, 2012 SCC OnLine Kar 8856 : [2013] 356 ITR 676 (KAR); Bidari Ashwini Hospital (Dr) v Income
Tax Officer, 2010 SCC OnLine Kar 5455 : (2012) 254 CTR 290.
127 State of Punjab vjullundur Vegetable Syndicate, AIR 1966 SC 1295 : (1966) 17 STC 326.
128 CIT v AW Figgis & Co, AIR 1953 SC 455 approving, AIR 1952 Cal 677; Deputy Commissioner of Sales Tax, (Law)
Board of Revenue (Taxes), Ernakulum v K Kelukatty, (1985) 4 SCC 35.
129 Deputy Commr of Sales Tax (Law) Board of Revenue (Taxes) v K Kelukutty, (1985) 4 SCC 35, para 8.
130 Sasi Enterprises v ACIT, (2014) 5 SCC 139 : 2014 (4) SCJ 107 : JT 2014 (2) SC 355.
131 Ahura Holdings v CIT, 2015 SCC OnLine ITAT 2472.
132 Deoria Oxygen Company v CIT, 2006 SCC OnLine All 2172 : (2007) 210 CTR(All) 509.
133 Amritlakshmi Machine Works v Commissioner of Customs, 2016 SCC OnLine Bom 66 : (2016) 2 Bom CR 481 (FB) :
(2016) 335 ELT 225 : 2016 CrLJ (NOC 216) 87 (FB) : (2016) 38 GSTR 303 (FB).
134 Gopal Industries Ltd v Commissioner of C Ex, 2007 SCC OnLine CESTAT 1488 : (2007) 214 ELT 19.
135 Bidari Ashwini Hospital (Dr) v Income Tax Officer, 2010 SCC OnLine Kar 5455 : (2012) 254 CTR 290 [Held, HUF is not
a legal entity for the purposes of the Partnership Act. It cannot directly or indirectly become a partner in a firm. If a claim
is made by a partner in a firm as representing HUF or any other body of person, in law, it makes no difference. A
partner does not act in a representative capacity in the partnership. He functions in a personal capacity like any other
partner. The firm has nothing to do with such interest he represents.] See also, Rekha Kapoor v Dr Pawan Chandra,
2018 SCC OnLine Del 12545.
136 Rekha Kapoor v Dr Pawan Chandra, 2018 SCC OnLine Del 12545 : LNIND 2018 DEL 5322.
137 Rashiklal & Co v CIT, (1998) 2 SCC 49, para 12; Cement Corporation of India Ltd v Raj Kishan and Co, 2009 SCC
OnLine Del 2681.
138 Ramagya Prasad Gupta v Murli Prasad, (1973) 2 SCC 9, p 25.
139 Charandas Haridas v CIT, AIR 1960 SC 910, p 913.
140 Kshetra Mohan Sanyasi Charan Sadhukhan v Commr of EPT, West Bengal, AIR 1953 SC 516; Bhagat Ram Mohanlal
v EPT Commr, AIR 1956 SC 374; Tulsiram Sanganeria v Anni Bai, AIR 1963 Ori 11; CIT v Seth Govindram Sugar Mills,
AIR 1966 SC 24; Murlidhar Himatsinghka v CIT, AIR 1967 SC 383, pp 387–309; Addl CIT Gujarat, Ahmedabad v
Chandulal C Shah, (1977) Tax LR 10, p 15 (DB) (Guj); Shiv Narain Agarwal v CIT, (1983) All 139 : ITR 999 (All) (DB).
141 CIT v Hukumchand Mannalal & Co, AIR 1971 SC 383.
142 PK Oswal Hosiery Mills v Tilak Chand L Ghasita Ram Jain, AIR 1969 Punj 150.
143 Chandrakant Manilal Shah v CIT, [1992] 1 SCC 76 : [1992] 193 ITR 1; Lachhman Das v CIT, [1948] 16 ITR 35 (PC).
144 Shiv Sahni v Isherdas Sahni and Brothers, 2012 SCC OnLine Del 5562 : (2013) 196 DLT 431.
145 Shiva Trading Corporation v Ashok Agarwal, 2010 SCC OnLine Bom 1215 : (2010) 6 AIR Bom R (Noc 619) 173.
146 Gambhir Mal Pandiya v JK Jute Mills Co Ltd, AIR 1963 SC 243.
147 Baker v Barclays Bank Ltd, [1955] 2 All ER 571.
148 Read v Bailey, [1977] 3 AC 94 (HL).
149 Chief Justice Erle, Maughan v Sharpe, (1864) 17 CBNS 492; Levy v Walker, (1879) 10 Ch D 436, p 445.
150 Hiralal Agaraual v State of Bihar, AIR 1972 Pat 507, p 508.
151 Burgess v Burgess, (1853) 3 DM&G 896, p 903; see also the judgment of Turner LJ, at p 905 : 98 RR 350, pp 354, 355.
153 Ibid, p 42.
154 Pinet & Cie v Maison Louis Pinet, [1898] 1 Ch 179.
155 Saunders v Sun Life Assurance Co of Canada, [1894] 1 Ch 537.
156 Turton v Turton, (1889) 42 Ch D 128, really a very, plain case; see per Lord Macnaghten [1896] AC 220 .
157 Montgomery v Thompson, [1891] AC 217; Reddaway v Banham, [1896] AC 199.
158 Lord Macnaghten in [1896] AC 219 .
159 Fine Cotton Spinners’etc Assn v Harwood, Cash & Co, [1907] 2 Ch 184.
160 Satyam Infoway Ltd v Sifynet Solutions (P) Ltd, (2004) 6 SCC 145.
161 V Narasimharaju v V Gurumurthy Raju, AIR 1963 SC 107, para 8.
162 Badri Prasad v Nagarmal, AIR 1959 SC 559.
163 Vazmuni v Nathumuni, AIR 1930 Mad 361, p 363.
164 Brahamayya v Hamiah, (1920) 43 Mad 141 : 54 IC 45; for a recent consideration of the effects of illegality in the context
of a contract of employment.Coral Leisure Group v Barnet, (1981) ICR 503 and Newland v Simons & Willer
(Hairdressers) Ltd, (1981) ICR 521 can be referred to.
165 Lindley on Partnership, 15th Edn, p 167; Appa Dada v Ramkrishan Vassudeo, (1929) 53 Bom 652 : 121 IC 581 : AIR
1930 Bom 5, a case in which the alleged illegal partnership was carried on the Sangli State, to which the Companies
Act, 1956, was not applicable.
166 Law v Dearnley, [1950] 1 KB 400.
167 Desari Satyanarayana v Kanchupatla Appa Rao, AIR 1966 AP 209; AV Varadarajulu Naidu v KV Thavasi Nadar, AIR
1963 Mad 413; V Basavayya v N Kottayya, AIR 1964 AP 145; Brij Mohan v NV Vankhria, AIR 1965 Raj 172; Mohrilal v
Shri Ballabh, AIR 1967 Raj 280; K Viswanathan v Namakchand Gupta, AIR 1955 Mad 536; Mahapatra Bhandar v CIT,
AIR 1965 Ori 160; Kantamanini Rajgopala Prasad v Tatirini Venkata Subba Rao, (1970) 2 Andh WR 218; Budh Ram v
The Dhuri Co-op Society, AIR 1972 P&H 185, p 188; Muddi Narayana & Bros v Kanumuri Subbaraju, AIR 1957 AP 837
(DB).
168 Govindrao v Nathmal Civil Appeal no 309/1960; Supreme Court, decided on 11 April 1962 referred to in Basavayya v
Kottayya, AIR 1964 AP 145.
169 L Shivdayal L Melamal v Firm Bishandas Shankardas, AIR 1961 Punj 405.
170 Budh Ram v The Dhuri Co-op Society, AIR 1972 P&H 185, p 188; Muddi Narayana & Bros v Kanumuri Subbaraju, AIR
1957 AP 837 (DB).
171 Gherumal Parikh v Mahadeodas, AIR 1959 SC 781.
172 Badridas Kothari v Meghraj Kothari, AIR 1967 Cal 25.
173 Jer and Company v CIT, (1972) 4 SCC 77.
174 S Maikole Udayar v SP Periaswami Konar, AIR 1967 Mad 449; Manbharibai v Bajrang Rice Mill, Warasheoni, AIR 1956
Ngp 225. Licence not prohibiting partnership— partnership not illegal; Vasant Sheshrao v Deviprasad, (1970) 72 Punj
LR 333.
175 Biharilal Jaiswal v CIT, (1996) 1 SCC 443; see also Brij Mohan Singh & Co v CIT, (2001) 10 SCC 543.
176 Moti Lal Chunnilal (Tak) v CIT, (1998) 9 SCC 401 : [1998] 234 ITR 472.
177 Biharilal Jaiswal v CIT, (1996) 1 SCC 443; Mohd Abdul Kareem & Co v CIT, [1948] 16 ITR 412; VK Kumaraswami
Chettiar v Addtl CIT, [1957] 31 ITR 457; MV Ganesh v Commercial Tax Officer, (2005) 141 STC 236.
178 K Viswanathan v Namakchand Gupta, AIR 1955 Mad 536.
179 Foster v Driscoll, [1929] 1 KB 470; Sykes v Beadon, (1879) 11 Ch D 170.
180 Shelley v Paddock, [1980] QB 348 (CA).
181 R v Frankland, (1883) L&C 276.
183 Deputy CIT, Circle-2(1), Range-2 v Cochin Residency, 2010 SCC OnLine ITAT 8364 : [2010] ITAT 8404.
184 MM Abbas Bros v Chethandas Fathechand, AIR 1979 Mad 272.
185 Halsbury’s Laws of England, vol 35, 4th Edn, p 27.
186 [1962] Supp 1 SCR 933 : [1963] Supp 2 SCR 206 : [1974] 2 SCR 524 : [1974] 3 SCR 267; Madras Bangalore Transport
Co v Inder Singh, AIR 1986 SC 1564 : (1986) 3 SCC 62; Gidharbhai v Saiyed Mohmad Mirasaheb Kadri, AIR 1987 SC
1782; Pushpa Devi v Mukhi Ram Punj, AIR 1990 SC 808; Chimanram Motilal v Jayantilal Chhaganlal, AIR 1939 Bom
410; Nandu Mal v Ramji Lal, AIR 1952 Punj 403; Gundalapalli Rangamannar Chetty v Desu Rangiah, AIR 1954 Mad
182; Kundan Mal v Madan Gopal, AIR 1956 Hyd 27; Ram Gopal v Om Prakash, (1963) Punj LR 1112 : 1966 Guj LR
807; Kasturibhai Ramchand Panchal & Bros v Firm of Mohanlal Nathubhai, AIR 1969 Guj 110; Mehta Jagjivan Vane
Chand v Doshi Vane Chand Harakhanand, AIR 1972 Guj 6 : 1977 RLR 195 : (1982) 1 RLJ 242 : (1990) 1 RLR 445 :
(1992) 2 RLR 422.
End of Document
[s 5] Partnership not created by status—.


The relation of partnership arises from contract and not from status; and, in particular, the members of a Hindu
undivided family carrying on a family business as such, or a Burmese Buddhist husband and wife carrying on
business as such, are not partners in such business.
Goa, Daman and Diu
In section 5, for the words “Burmese Buddhist husband and wife carrying on business as such”, substitute the
words “a husband and wife under the regime of communion of property carrying on business as such”.
[Vide Goa, Daman and Diu Act 6 of 1966, section 2 (w.e.f. 22-8-1966)].
[s 5.2] PARTNERSHIP NOT CREATED BY STATUS
The explicit declaration of the law in this section is required, in the words of the select committee, “by the vast
extent of non-contractual quasi-partnership relations in India.” Such relations are founded on special rules of
personal law concerning the management of family property, and lack the decisive characteristic feature of real
partnership, the authority to act for the firm deemed to be conferred on every member of it by the partnership
agreement.
The Privy Council has held that a joint Hindu family, through the agency of its karta, can enter into contractual
relations either with a stranger or even with an individual coparcener in respect of his separate property and
also with a firm. A joint Hindu family has, in substance, been accorded a legal personality.187 There is nothing in
the Income-tax Act, 1961 to prohibit the members of a joint Hindu family from dividing some properties, while
electing to retain their joint status, and carrying on business as partners in respect of those properties treating
them as its capital.188 However, there can be no partnership amongst the members of HUF with strangers. The
Supreme Court has held that if members of a coparcenary are to be regarded as having become partners in a
firm with strangers, they would also become under the partnership law partners “inter se” and it would cut at the
very root of the notion of a joint undivided family to hold that with reference to coparcenary properties, the
members can, at the same time, be both coparceners and partners.189 In a case, where the only surviving
members of a joint Hindu family were the widow and her minor sons, the Madras High Court,190 disagreeing
with the Nagpur High Court,191 held that the widow cannot enter into a partnership with a stranger on behalf of
the joint family, she not being the karta.
The Supreme Court has held in Modern Hotel v Commissioner of Central Excise, (2016) 15 SCC 620, that the
relation of partnership arises from contract and not from status. Such contracts clearly cannot override
provisions in a statute or statutory rules. It is not generated or created or happened by natural relations like
blood relations or personal contacts, etc. An agreement is an integral part to create this relationship.192 The Act
excludes joint Hindu trading family from its operation. It governs only that relation of partnership which arises
from the contract and not from the status such as one obtaining amongst member of the joint Hindu family
trading partnership.193 A partnership firm does not become a HUF just because the business remains the same
after every reconstitution.194
[s 5.3] JOINT HINDU FAMILY BUSINESS
A Hindu undivided family is no doubt included in the expression “person” as defined in the Income-tax Act, 1961
as well as in the Excess Profits Tax Act, 1940 (Now repealed by the Direct-Tax Laws (Miscellaneous) Repeal
Act, 2000 (20 of 2000) but it is not a juristic person for all purposes.195 The case of joint ownership in a trading
business created through the operation of Hindu law between the members of an undivided Hindu family must
be distinguished from that of a true partnership arising out of contract.196 The term “Hindu joint undivided
firm”197 has a special meaning; it is a firm, which has come down to the family ancestrally, and does not need to
have a partnership agreement. The mere membership in a firm, of all or some of the coparceners in a joint
family, does not make it a Hindu joint undivided firm.198 A firm, by fiction of law, represents the names of its
numerous partners but a trade name of a joint family business would not stand for the coparceners who, at the
time of the institution of the suit, may constitute the joint Hindu family.199
A joint family trading partnership differs from ordinary partnership in two respects: (a) it is not dissolved by the
death of a member; (b) a member of the family becomes a coparcener by operation of law.200 Partnership deals
with a relation which subsists between persons, i.e., there must be more persons than one. A joint Hindu family
is a single person, and it cannot have a partnership by itself so long as it remains a joint Hindu family. A joint
Hindu family is a unit to which no outsider can be admitted by agreement, since it is a status which can only be
acquired by birth or adoption.201
It was suggested that the Act should be altered so as to make it applicable to a joint Hindu family business. This
question was considered by the Special Committee which drafted the Indian Partnership Bill and the Committee
rejected the suggestion on the ground that the question related to a purely domestic matter of Hindu law and
that it was unwise to complicate the provisions of the Partnership Act, 1932 by introducing therein rules of law
which appropriately constituted a branch of the personal law of the Hindus only. It is submitted that we entirely
agree with the conclusion reached by the Committee and the reasons given by it. The capacity of a karta of a
joint Hindu family to enter into a partnership with an individual or with the karta of another joint Hindu family has
been settled by judicial decisions, and does not require any special provisions.202
The rights and liabilities of the coparceners in a joint Hindu firm cannot be determined by exclusive reference to
this Act, but must be considered also with regard to the general rules of Hindu law which regulate the
transactions of united families.203 According to those rules, the death of one of the coparceners does not
dissolve the family partnership; nor, as a rule, can one of the coparceners, when severing his connection with
the business, ask for an account of past profits and losses.204 Further, the managing member of the family can
pledge the credit or property of the family for the ordinary purpose of that business;205 but the other coparceners
are liable to the extent of their interest in the family property only, unless the contract relied on, though
purporting to have been entered into by the manager only, is in reality one to which the other coparceners are
actual contracting parties or one which they have subsequently ratified.206 Moreover, though a trade, like other
property, is discernible amongst Hindus, it does not follow that a Hindu infant, who, by birth or inheritance,
becomes entitled to an interest in a joint family business, becomes at the same time a member of the trading
firm, so as to require him to join as a plaintiff in suits on dealings and transactions with the adult members of the
family carrying on the family business.207 The Supreme Court, in Nanchand Gangaram v MM Sadalge, AIR
1976 SC 835, p 842; Ramakrishna Transports v CIT, AIR 1968 AP 34, p 36 has brought out the distinction
between a joint Hindu family business and partnership business thus:
In a joint Hindu family business, no member of the family can say that he is the owner of one-half, one-third or one-
fourth. The essence of joint Hindu family property is unity of ownership and community of interest, and the shares of
the members are not defined. Similarly, the pattern of the accounts of a joint Hindu family business maintained by the
karta is different from those of a partnership. In the case of the former, the shares of the individual members in the
profits and losses are not worked out while they have to be worked out in the case of partnership accounts.
In the case, however, of a partnership composed of certain individual members of a joint Hindu family and
others who are strangers to the family, the relations of the parties are governed by the provisions of this Act,
and not by any rule governing a joint Hindu family.208 The Supreme Court has observed that a divided member
or some of the divided members of an erstwhile joint family can certainly enter into partnership with third parties
under some arrangement among members of the divided family. Their share in the partnership depends upon
the terms of the partnership. The share of the members of the divided family in the interest of their
representative in the partnership depends upon the terms of the partition deed. A contract of partnership has no
concern with the obligation of the partners to others in respect of their share of profit in the partnership.209
The fact that the manager of a joint Hindu family has entered into a contract of partnership does not make other
members of the family, members of the partnership.210 Under Hindu law, there is no presumption that a
business standing in the name of any member is a joint family business even if that member is a manager of
the family being the father of the coparceners.211 Two Hindu joint families cannot unite to constitute a
partnership, but their managing members may become partners, each having rights and duties with reference
to their respective families.212 A Hindu undivided family is a person within the meaning of the Income-tax Act,
1961; it is however not a juristic person for all purposes and cannot enter into an agreement of partnership, with
either another undivided family, or individual. It is open to the manager of a joint Hindu family as representing
the family to agree to become a partner with another person. By such partnership agreement, no member of the
family, except the manager, acquires a right or interest in the partnership. The junior members of the family
may make a claim against the manager for treating the income or profits received from the partnership as a
joint family asset but they cannot claim to exercise the rights of partners nor be liable as partners.213 Where the
heir of a deceased partner consisting of a major and minor members of the family, become partners, the
inference is that the major members are partners, and the minors are admitted to the benefit of the
partnership.214 Similarly the individual members of joint Hindu family may become partners with the individual
members of another joint Hindu family.215
The Special Committee was apparently pressed to include in this section details, which are really domestic
matters of Hindu family law, but refused. According to the Committee:
We have considered, whether some provision should be made for the rights and obligations of the members of a joint
Hindu family in cases where the karta of a joint family enters into partnership with a stranger, acting for the joint family
and employing its family assets. The decisions in India have uniformly held that in such a case the karta or the
manager alone must be taken to be the partner and that the stranger is entitled and bound to treat only with the karta...
We think that, since the Hindu law permits a karta to enter into partnership in this way, the members of the family who
are not parties to the contract should not be clothed with rights against the stranger partners.
This, they add, would in their opinion, lead to inextricable confusion. It can be observed that the karta’s
authority does not, in any case, extend, as regards minor members of the family, beyond ancestral business;
“the manager of a joint family has no power to impose upon a minor member of the family the risk and liability of
a new business started by him.” This is, of course, a perfectly general rule in no way confined to partnership
matters.216 The principle underlying section 45 can have no application to an acknowledgement made by the
karta of a joint Hindu trading family after its severance. Section 5 makes it clear that this Act governs only that
relationship of partnership which arises from contract and not from status such as one obtaining among the
members of a joint Hindu trading family.217 Where the severance of the joint family takes place by the filing of a
partition suit but the family business continues to be conducted as before, a contractual partnership based upon
an implied agreement, would be deemed to come into existence and in such a situation the bar under section
69 would come into play.218
A Hindu joint family business does not cease to be so, if in addition to the heirs of the deceased original owner
of the business, it is also owned by the daughter of the original owner married to a ghar-jamai and her sons and
also by other defendant members and relations who are de facto members of the family, provided that the
proceeds of such business, like the proceeds of all joint family property, are utilised and made available for the
maintenance and other legitimate expenses of the family.219
[s 5.4] ASSOCIATION OF PERSONS

Under section 2(1) of the English Act, which embodies the effect of a number of common law decisions it has
been provided:
Joint tenancy, tenancy in common, joint property, common property, or part ownership does not of itself create
a partnership as to anything so held or owned, whether tenants or owners do or do not share any profits made
by the use thereof.
Thus co-owners of an estate or even a chattel, eg, a ship are not partners, although they may endeavour to
develop the land and use the chattel for mutual profit unless they go further and carry on business with respect
to it.220 For the meaning of word “business” several cases may be referred to221.
This principle has been made more explicit in section 5 of the Act in the context of social status of families in
the Indian setting. An association of persons to carry out one deal such as a joint adventure for the purchase
and resale of potatoes on one occasion only, may constitute a business.222
187 Lachhman Das v CIT, AIR 1948 PC 8, p 11.

188 Sundar Singh Majithia v CIT, AIR 1942 PC 57.
189 Bhagat Ram Mohanlal v EPT Commr, AIR 1956 SC 374, p 377.
190 Radha Ammal v CIT, AIR 1950 Mad 538.
191 CIT v Lakshminarayana AIR 1949 Ngp 128.
192 Dr Ramji Singh Properties and Hotels Private Ltd v Debts Recovery Appellate Tribunal, 2013 SCC OnLine All 13873 :
(2013) 4 All LJ 303 : (2013) 101 ALR (SUM 34) 17.
193 Gopal Bhagwandas Ahuja v Jagdish Bhagwandas Ahuja, 2013 SCC OnLine Bom 1143 : (2013) 7 Bom CR 885.
194 Santosh Kumar Jain v Mehtab Singh Jain, 2018 SCC OnLine Del 8365 : LNIND 2018 DEL 1566.
195 Kshetra Mohan-Sannyasi Charan Sadhukhan v Commr of Excess Profits Tax, AIR 1953 SC 516.
196 No such joint family business is known to Mahommedan law: Solema Bibi v Hafez Md Hossain, (1927) 54 Cal 687 : 104
IC 833 : AIR 1927 Cal 836.
197 A firm has to have two or more partners whereas HUF cannot have more than one karta/manager. [Nergish Minoo
Pavri v Pramod Kishanchand Gupta, 2009 SCC OnLine Bom 1358 : 2010(1) Mh.L.J. 264].
198 Kantilal Chandulal Patwa v Chhotalal Shankarlal Trevedi, AIR 1964 Guj 29.
199 National Building Material Supply v Jai Ram Manoharlal, AIR 1965 All 586.
200 Kunj Bihari v Ganga Sahai Pande, 2013 SCC OnLine All 13489 : (2013) 99ALR 826 : (2014) 2 All LJ 89 : (2013) 120
RD 705.
201 Kunj Bihari v Ganga Sahai Pande, 2013 SCC OnLine All 13489 : (2013) 99 ALR 826 : (2014) 2 All LJ 89 : (2013) 120
RD 705.
202 Seventh Report on Partnership Act, 1932, Law Commission of India, 1957, para 22.
203 Chhedi Lal v CIT, (1942) 17 Luck 426 : 197 IC 478 : AIR 1942 Oudh 108; see also commentary at p 294.
204 Samalbhai v Someshwar, (1880) 5 Bom 38.
205 Bemola v Mohun, (1880) 5 Cal 792; Ramlal Thakursidas v Lakhmichand Muniram, (1861) 1 BHC app li. There is no
such implied power to pledge family property for embarking on an entirely new business as in Morrison v Verschoyle,
(1901) 6 Cal WN 429.
206 Chalamayya v Varadayya, (1898) 22 Mad 166; Bishambhar Nath v Sheo Narain, (1906) 29 All 166; Bishambhar Nath v
Fateh Lal, (1906) 29 All 176; Samalbhai v Someshvar, (1880) 5 Bom 38.
207 Latchmanen v Siva Prokasa, (1899) 26 Cal 349; Vadilal Lallubhai v Shah Khushal Dalpatram, (1903) 27 Bom 157;
Official Assignee of Madras v Palaniappaa Chetty, (1918) 41 Mad 824 : 49 IC 220.
208 Anant Ram v Channu Lal, (1903) 25 All 378; Pichappa Chettiar v Chockalingam Chettiar, (1934) 67 Mad LJ 366 : 36
Bom LR 976 : 150 IC 802 : AIR 1934 PC 192; Kanhaya Lal v Devi Dayal, AIR 1936 Lah 514.
209 CIT Madras v Bagyalakshmi & Co, Udamalpet, AIR 1965 SC 1708; Charandas Haridas v CIT Bombay, AIR 1960 SC
910.
210 Gangayya v Venkataramiah, (1918) 41 Mad 454 : 43 IC 9; Kharidhar Kapra Co Ltd v Daya Kishan, (1921) 43 All 116 :
58 IC 765; Harnamdas v Mayadas Lakhmichand, (1925) 87 IC 905 : AIR 1925 Sind 310; Mirza Mal v Rameshar, 1929
All LJ 641 : 118 IC 145 : AIR 1929 All 356; Ram Kumar v CIT, AIR 1953 All 150; see commentary at pp 292-293.
211 Chattanatha Karayalar v Ramachandra Iyer, AIR 1955 SC 799, para 7.
212 Udai Chand v Than Singh, (1935) 62 Cal 586 : 157 IC 937 : AIR 1935 Cal 537; Kshetra Mohan Sanyasi Charan
Sadhukhan v Commr of EPT, West Bengal, AIR 1953 SC 516. The liability of the members of the joint family arises by
reason of status and not contract of partnership; Bhagat Ram Mohan Lal v EPT Commr, AIR 1956 SC 374; Tulsi Ram
Sanganeria v Anni Bai, AIR 1963 Ori 11.
213 Ram Laxman Sugar Mills v CIT, Uttar Pradesh, [1967] 66 ITR 613 (SC); Charandas Haridas v CIT Bombay North,
Kutch and Saurashtra, Ahmedabad, AIR 1960 SC 910; CIT, Madhya Pradesh v Hukumchand Mannalal & Co, AIR 1971
SC 383, p 384; Chettiar v Chokalingam Pillai, AIR 1934 PC 192; Ashokbhai v CIT, 3 Guj LR 78, p 84 (DB).
214 Sughra v Babu, AIR 1952 All 506.
215 Kshetra Mohan v Commr EPT, AIR 1953 SC 516.
216 Benares Bank Ltd v Hari Narain, (1932) LR 59 IA 300, following Sanyasi Charan Mandal v Krishnadhan Banerji, (1922)
LR 49 IA 108.
217 Nanchand Gangaram v MM Sadalge, AIR 1976 SC 835, p 843.
218 Mahendra Prasad v Maujelal Mahto, AIR 1981 Pat 262; see notes under section 69.
219 Nibaran Chandra Shaha v Lalit Mohan Brindaban Shaha, AIR 1939 Cal 187; see also Virupakshappa Malleshappa v
Akkamahadevi, AIR 2003 Kar 83, para 11.
220 Underhill’s Principles of the Law of Partnership, 11th Edn, p 3; compare the definition of “business” under section 2(13)
of Income Tax Act, 1961—”Business includes every trade of commerce or manufacture or any adventure, or concern in
the nature of trade, or commerce or manufacture”.
221 Re A Debtor, [1927] 1 Ch 97; Inland Revenue Commrs v Korean Syndicate, [1921] 3 KB 258; Inland Revenue Commrs
v Marine Steam Turbine Co, [1920] 1 KB 193; Wheatley v Smithers, [1960] 2 KB 321 , p 322; same case on appeal,
[1907] 2 KB 684; Harris v Amery, (1865) LR 1 CP 155; Smith v Anderson, (1880) 15 Ch D 258 ; Rolls v Miller, (1884)
27 Ch D 71; Bramwell v Lacy, (1879) 10 Ch D 691; Bagettes v GPEstates, [1956] Ch 290 and other cases collected in
Stroud’sjudicial Dictionary.
222 Mann v D’Arcy, [1968] 2 All ER 172; J&J Cunningham v Lucas, (1957) 1 Lloyd’s Rep 416.
End of Document
[s 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 1.—The sharing of profits or of gross returns arising from property by persons holding a joint or
common interest in that property does not of itself make such persons partners.
Explanation 2.—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 of itself make him a
partner with the persons carrying on the business;
and in particular, the receipt of such share or payment—
(a) by a lender of money to persons engaged or about to engage in any business,

(b) by a servant or agent as remuneration,
(c) by the widow or child of a deceased partner, as annuity, or
(d) by a previous owner or part owner of the business, as consideration for the sale of the goodwill or
share thereof,
does not of itself make the receiver a partner with the persons carrying on the business.
[s 6.1] MODE OF DETERMINING EXISTENCE OF PARTNERSHIP
Section 6 deals with the mode of determining the existence of partnership. As per that section, 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 is to be
had to the real relation between the parties as shown by all relevant facts taken together.223
The note of the Special Committee says that clause 5, as this section was numbered in the draft, is a
comprehensive statement of the rule in Cox v Hickman, (1860) 8 HLC 268, and adds that it has not been
incorporated in the English Partnership Act. What Cox v Hickman did was to deny the erroneous but then
common opinion that sharing the profits of a business was not only evidence but conclusive evidence of
partnership, and thus to make the courts free to arrive at the real intention of the parties by considering all
relevant documents and facts, as they are bound to do in all cases where there is no special rule of evidence or
law compelling them to exclude matters which in themselves are relevant. Accordingly, section 2 of the English
Partnership Act denies, by way of example and to ensure greater certainly, repeating the substance of a rather
curious piece of legislation,224 sundry examples of the erroneous opinion, but does not tell the courts in terms
that the universal principles of decision in cases of disputed agreements are to be applied to partnership cases.
Nothing at all closely resembling the language of the principal paragraph occurs in the several opinions
delivered to and in the House of Lords in Cox v Hickman. However, in the opinion of the Privy Council in
Mollwo, March & Co v Court of Wards, (1872) LR 4 PC 419, p 435225 it is observed:
It appears to be now established that although a right to participate in the profits of trade is a strong test226 of
partnership and that227 there may be cases where, from such participation alone, it may, as presumption, not of law but
of fact, be inferred; yet that whether that relation does or does not exist must depend on the real intention and conduct
of the parties.
In that case there was a contract between a partnership firm and a third person whereby it was agreed that he
should receive, in consideration of advances, a commission on the net profits of the partnership business; and
large powers of control over the business were given to him for his protection, but he had no power to direct
transactions. This was decided to be a contract not of partnership, but of loan and security between a debtor
and a creditor. The same principle is applied to other kinds of transactions also. An agreement by A to pay Z, in
consideration of his guaranteeing A in his underwriting business, a certain proportion of A’s profits in that
business, does not make Z a partner with A.228
In Helper Girdharbhai v Saiyed Mohd Mirasaheb Kadri,229 the Supreme Court has laid down the parameters to
assess the existence of a partnership firm. It has been held that whether there was a partnership or not may in
certain cases be a mixed question of law and fact, in the sense that whether the ingredients of partnership as
embodied in the law of partnership were there or not in a particular case or not must be judged in the light of the
principles applicable to partnership. The following important elements must be there in order to establish
partnership: (1) there must be an agreement entered into by all parties concerned; (2) the agreement must be
to share profits230 of business; and (3) the business must be carried on by all or any of the persons concerned
acting for all.
In Santiranjan Das Gupta v Dasuram Murzamull, following factors weighed upon the Supreme Court to reach
the conclusion that there is no partnership between the parties:
(a) Parties have not retained any record of terms and conditions of partnership.
(b) Partnership business has maintained no accounts of its own, which would be open to inspection by
both parties
(c) No account of the partnership was opened with any bank
(d) No written intimation was conveyed to the Deputy Director of Procurement with respect to the newly
created partnership.
The court observed that whenever the parties try to conceal the real nature of an agreement of partnership
between them, they almost invariably, in their own self-interest, take good care to have in their respective
possession written records of their rights and liabilities as also of their partnership business dealings, and
further, try to keep full record of account of the business. It held than maintenance of separate accounts by the
parties tends to negative rather than support the plea of partnership.
There is no prohibition under the Act against a partner or partners of other firms combining together to form a
separate partnership to carry on a different business. The fact that such a partner or partners entered into a
sub-partnership with others in respect of their share does not detract from the validity of the partnership; nor the
manner in which the said partner deals with the share of his profits is of any relevance to the question of the
validity of the partnership.231
In all cases, the result depends on the real contract and intention of the parties as shown by all the facts. In all
these cases, the court will take into account all the circumstances of the case and the conduct of the parties
together with the important terms of the document.232 The agreement must, however, be construed as a whole
and the mere fact that the parties described themselves as partners is not conclusive.233 Partnership agreement
would have precedence over oral version of the partners in an inter se dispute.234 The question, whether a
concern is a partnership firm or not, is ordinarily a question of fact.235 It is settled or highly probable that certain
kinds of facts are not alone sufficient to constitute partnership. The question how much must be added to
produce that result is not capable of any general answer, save that modern courts may be expected, on the
whole, to treat men as partners when and so far as a sensible man of business would consider them so.
Contribution of capital by a partner is not sine qua non for the validity of partnership.236 Mere sharing of profit or
payment of contingent does not make a person partner of a firm.237
[s 6.2] PARTNERSHIP OR SUB-LETTING
There might be a situation of simple sub-letting of premises by one person to the other rather than existence of
a partnership.238 On the other hand, there could be a partnership even when the matter might seem like one of
simple sub-letting.239 Courts can tear the veil of partnership to see if there is any subletting of premises.240 The
Supreme Court has held that even where the agreement is purportedly made for a partnership, if the purpose of
such partnership is ostensible and the deed of partnership is so drawn to conceal the real transaction of
subletting, then the court can lift the veil of partnership to find out the real nature of transaction entered into by
the parties.241 Following principles have been deduced by the Apex Court to assess the real intention of the
parties:
(i) In order to prove mischief of sub-letting as a ground for eviction under rent control laws, two ingredients have to be
established, (one) parting with possession of tenancy or part of it by the tenant in favour of a third party with exclusive
right of possession, and (two) that such parting with possession has been done without the consent of the landlord and
in lieu of compensation or rent.
(ii) Inducting a partner or partners in the business or profession by a tenant by itself does not amount to sub-letting.
However, if the purpose of such partnership is ostensible and a deed of partnership is drawn to conceal the real
transaction of subletting, the court may tear the veil of partnership to find out the real nature of transaction entered into
by the tenant.
(iii) The existence of deed of partnership between the tenant and alleged subtenant or ostensible transaction in any
other form would not preclude the landlord from bringing on record material and circumstances, by adducing evidence
or by means of cross-examination, making out a case of sub-letting or parting with possession in tenancy premises by
the tenant in favour of a third person.
(iv) If the tenant is actively associated with the partnership business and retains the control over the tenancy premises
with him, may be along with partners, the tenant may not be said to have parted with possession.
(v) Initial burden of proving sub-letting is on the landlord but once he is able to establish that a third party is in exclusive
possession of the premises and that tenant has no legal possession of the tenanted premises, the onus shifts to the
tenant to prove the nature of occupation of such third party and that he (tenant) continues to hold legal possession in
tenancy premises.
(vi) In other words, initial burden lying on the landlord would stand discharged by adducing prima facie proof of the fact
that a party other than the tenant was in exclusive possession of the premises. A presumption of sub-letting may then
be raised and would amount to proof unless rebutted.
[s 6.3] PARTNERSHIP AND SERVICE
Sometimes it is not easy to draw the line between a partnership and a payment of salary by a share of profits. It
seems impossible to say that a salaried person is, or is not, a partner in the true sense of the term. He may or
may not be a partner depending on the facts. In Stekel v Ellice, Megarry J summarised the position thus:
It seems to me impossible to say that as a matter of law a salaried partner is or is not necessarily a partner in the true
sense. He may or may not be a partner, depending on the facts, what must be done, I think, is to look at the substance
of the relationship between the parties; and there is ample authority for saying that the question whether or not there is
a partnership depends on what the true relationship is, and not on any mere label attached to that relationship.242
The owner of a ship, who has been paying the master fixed wages, hands over the management of the ship to
the master on the terms of receiving a fixed share of profits from him. It is a question as to what status does this
provide to the master the owner’s servant, though a servant with large discretion, or make him a partner with
the owner in the venture. Probably it grants partner status but either opinion is plausible.243
A carries on in his own name the business of loading and unloading wagons for a limited company. A appoints
B to manage the business. It is agreed between them that B shall get a 12 annas share out of the net profits as
remuneration, and that A shall get a 4 annas share but shall not be liable for any loss. Upon these facts, it was
held by the High Court of Calcutta that the relation between A and B was not that of partners but of principal
and agent.244
It is even possible for Z both to receive a share of the profits of A’s business and to bear a share of losses, and
yet, by the special terms of their agreement, to be in the position of a servant as regards A and not entitled to
the remedies of a partner.245 A person in such a position could not escape liability as a partner to the creditors
of the business. Conversely, a receipt of a fixed salary in lieu of a share of profits is consistent with the parties
being really partners if their intention to be so is otherwise apparent.246 In Marsh v Stacey, (1963) 107 SJ 512, a
person, who was admittedly a junior partner, was entitled to be paid a fixed salary of GBP 1,200 as a first
charge on profits and where in one year, the profits were not sufficient to pay the stipulated amount the Court of
Appeal held that he was not entitled to have the deficiency made good by the other partner.247
In an interesting case pertaining to a law firm, the Delhi High Court held that the circumstances showed no
intention of the advocates working together to form a partnership. Rather, it was a proprietorship concern with
other lawyers being paid by the proprietor. There was no document of partnership, there were no accounts
being run in the name of partnership or being operated by the defendants, control and supervision was with one
person. It was found that the relationship between the parties was one of contract of service rather than
partnership.248
223 KD Kamath and Company v CIT, (1971) 2 SCC 873, p 882.

224 Curious because, five years after the decision in Cox v Hickman the extent of its effect was not fully understood even
by learned persons; Pollock, Digest of the Law of Partnership, 12th Edn, p 20.
225 (1872) LR 4 PC 419, p 435; Chimanram v Jayantilal, (1939) Bom 616 : 41 Bom LR 899 : 184 IC 397 : AIR 1939 Bom
410; Ross v Parkyns, (1875) LR 20 Eg 331, per Jessel MR, p 335; Hari Saov Gulab Chand, AIR 1940 Pat 116; Trower
& Sons Ltd v Ripstein, [1944] 2 All ER 274 (PC).
226 A right to participation in the profits of the trade is a strong test of partnership. [Hage Tera v Hage Appo, 2014 SCC
OnLine Gau 366 : (2014) 4 GLR 203 and AK Nithyanandham v Saraswthi Velusamy, 2015 SCC OnLine Mad 7135 :
2015 -4-L.W.263] An agreement to share profits between persons along with the element of agency, ought to be
present for it to be a valid partnership. It is a mixed question of law and fact. [Indian Oil Corporation Ltd v Shriji
Enterprises Erandol, 2014 SCC OnLine Bom 175 : 2014 (3) MhLJ 465].
227 [Sic.] This word is ungrammatical in the sentence, and seems to have crept in by mistake. For a transaction held to be
one of partnership and not merely one of moneylending, see Brijendra Singh Prithvi Singh v Gyani Chand Kustoor
Chand, AIR 1965 MP 100.
228 Ex p Tennant (1877) 6 Ch D 303.
229 (1987) 3 SCC 538. In Ganji Subbarayudu v K Sudharshana Rao, 2009 SCC OnLine AP 28 : (2009) 3 ALD 175, on
facts, it was held that there was no intention to create a partnership since there was no agreement to that effect.
230 A right to participation in the profits of the trade is a strong test of partnership. [Hage Tera v Hage Appo, 2014 SCC
OnLine Gau 366 : (2014) 4 GLR 203 and AK Nithyanandham v Saraswthi Velusamy, 2015 SCC OnLine Mad 7135 :
2015 -4-L.W.263] An agreement to share profits between persons along with the element of agency, ought to be
present for it to be a valid partnership. It is a mixed question of law and fact. [Indian Oil Corporation Ltd v Shriji
Enterprises Erandol, 2014 SCC OnLine Bom 175 : 2014 (3) Mh.L.J. 465].
231 CIT v Sivakasi Match Exporting Co, AIR 1964 SC 1813, p 1816.
232 MP Davis v Commr of Agricultural Income Tai AIR 1959 SC 719. When there was no written document, the Supreme
Court after considering the various circumstances held that there was no partnership. Santiranjan Das Gupta v
Dasuram Murzamull, AIR 1973 SC 48; Pooley v Driver, (1877) 5 Ch D 458, p 474; Badley v Consolidated Bank, (1888)
38 Cr D 238; Re Yound, Jones, [1896] 2 QB 484.
233 Newstead v Frost, [1980] 1 WLR 135 (HL); HE The Minister ofPublic Works of the Government of Kuwait v Sir Frederic
Snow & Partners, (1981) Com LR 103; Norton Warburg Holdings Ltd v Perera, (1982) 132 Ngp LJ 296; Lindley on
Partnership, 15th Edn, p 74.
234 Prakash Boolu Kundar v Shankar Aithu Poojari, 2006 SCC OnLine Bom 611 : 2006 (5) Mh.L.J. 453.
235 Champaran Cane Concern v State of Bihar, AIR 1963 SC 1737, p 1740.
236 United India Insurance Co Ltd v T Venkata Narsaiah, AIR 2003 NOC 119 (AP).
237 Leela Shashikant Purandare v Arvind Vishnu Govande, 2013 SCC OnLine Bom 1724 : LNINDU 2013 SC 36.
238 Sant Kumar v Ashok Kumar, 2007 SCC OnLine MP 192 : 2007 (2) M.P.Lj. 472.
239 Bhagwanti v Kanshi Ram, 2011 SCC OnLine Del 5534.
240 Young Friends & Co v Puri Investments, 2018 SCC OnLine Del 12334.
241 Celina Coelho Pereira v Ulhas Mahabaleshwar Kholakar, (2010) 1 SCC 217. Foll. in Vipin Dattaram Shetye v Subray
Shetty, 2018 SCC OnLine Bom 3565 : LNIND 2018 GOA 211 [On facts, found that it is a case of sub-letting.].
242 [1973] 1 WLR 191, p 199 : [1973] 1 All ER 465, p 473.
243 Steel v Lester (1878) 3 CPD 121, pp 127, 128, per Lindley J, “All that had to be decided in that case was that, one way
or another, the owner remained liable for the master’s negligence.”
244 Munshi Abdul Latiff v Gopeswar Chattoraj, (1932) 56 Cal LJ 172.
245 Walker v Hirsch, (1884) 27 Ch D 460. A salaried partner may very often lack proprietary interest in the partnership and
the court is not obliged to make an order to wind up at the instance of such a partner: Stekel v Ellice, [1973] All ER 465.
In the absence of a partnership agreement for sharing of profits and to share assets on dissolution, a person would not
be entitled to a share in the profits of the firm upon dissolution merely because he is entitled to a certain share of profits
by way of remuneration. It is for the person who alleges the partnership to plead and prove the partnership agreement
instead of pleading that no foundation had been laid down in the written statement, Murlidhar Haspuria v Bansidhar
Halwai, AIR 1973 Cal 193.
246 Ragunandan Nanu v Hormasjee Bezonjee, (1926) 51 Bom 342 : 100 IC 1025 : AIR 1927 Bom 187; but see Nandu Mal
v Ramji Lal, AIR 1952 Punj 403. Under a “memorandum of co-partnership agreement” the party who was to be “in
charge of the firm” was to receive a fixed salary and commission on net profits but “get no shares of profit of the firm”;
held that this meant no other share, and he was a partner: Raghumull Khandelwal v Official Assignee, (1923) 28 Cal
WN 34 : 81 IC 17; CIT v B Bajriwal & Co, AIR 1958 Pat 165.
247 Lindley on Partnership, 15th Edn, p 90. In MP Daves v Commr of Agricultural Income Tai AIR 1959 SC 719, p 721
remuneration was to be paid out of profits and none was payable if there was a loss. A gomasta (clerk) receiving a
specified share of profits, in lieu of salary is not partner, Ramdayal v Junmejoy, (1887) ILR 14 Cal 791; Bhimji Naik v
CIT, Bombay, AIR 1945 Bom 271 (DB).
248 Diljeet Titus v Alfred A Adebare, 2006 SCC OnLine Del 551 : (2006) 130 DLT 330 : (2006) 32 PTC 609.
End of Document
[s 7] Partnership at will.—
Where no provision is made by contract between the partners for the duration of their partnership, or for the
determination of their partnership, the partnership is “partnership at will”.249
[s 7.1] PARTNERSHIP AT WILL
The essence of a partnership at will is that it is open to either partner to dissolve the partnership by giving
notice.250 Section 7 contemplates two exceptions to a partnership at will. The first exception is where there is a
provision in the contract for the duration of the partnership; the second exception is where there is provision for
the determination of the partnership. In either of these cases, the partnership is not at will.251 In case the parties
have fixed the duration or mode of determination of the partnership, the same is not at will. Intention of the
parties have to be gathered from the various clauses of the partnership deed.252 Section 7 refers to a provision
for the duration of “their” partnership and not on “the” partnership. Therefore, the deed of partnership must
contain a provision for the duration of partnership consisting of all the partners concerned.253 When the
stipulation in the agreement is clear that the duration of the firm will be “At Will”, there is absolutely nothing
which can legally stop the partners from causing dissolution of the firm at their own Will, since the law is
absolutely clear in this point that when a partnership is constituted at Will, its existence will depend on the
intention of the partners and their volition to continue to function as a firm or otherwise.254
The duration of a partnership may be expressly provided for in the contract; but even where there is no express
provision, the partnership will not be at will if the duration can be implied. A term in the contract, that either
partner may withdraw from the partnership by relinquishing his right of management by the other partner, would
not make the partnership a partnership at will, for the essence of a partnership at will is that it is open to either
partner to dissolve the partnership by giving notice.255 The right of any partner, where the partnership is at will
to dissolve the firm by notice in writing to the other members, or member is declared by section 43, where the
requirement of writing appears to be new. In effect, the two sections taken together correspond to section 253,
sub-section (8) of the Indian Contract Act. [Contra the English Partnership Act, section 32(c)]. Before the
present Act, when notice of any kind was sufficient to determine a partnership at will, an intention to dissolve
the firm might be inferred from circumstances showing that a partner had, in fact, abandoned his interest. When
the intention has to be expressed in writing, the authorities, on that point, obviously become inapplicable, and it
is thought useless to refer to them, especially as it was a matter of evidence on which no definite rule could be
laid down. There is nothing in the notes of the Special Committee to throw light on the innovation, doubtless a
salutary one.
[s 7.2] FORMATION OF PARTNERSHIP
Partnership at will, though a seemingly simple expression, has given rise to many different approaches and
conclusions. The Supreme Court has given some guidelines in Karumuthu Thiagarajan Chettiar v EM Muthapa
Chettiar, AIR 1961 SC 1225. There are instances where despite a description that partnership is one at will, it
was held to the otherwise as in VM Nissar Ahmed (Minor by guardian and next friend VC Abdul Munaf Saheb) v
Rahima Bi, (1970) 1 Mad LJ 512.
Survivorship of trademark and goodwill to one partner. Provision in deed enabling retirement of a partner is not
a provision for determination as can be seen in Iqbalnath Premnath Anand v Rameshwarnath Premnath
Anand.256
A different approach is seen in Porbander Commercial Coop Bank Ltd v Bhanji Lavji, AIR 1978 NOC 28(Pat),
when managing partner was given vast powers to run the firm or to remove a partner, it was held that the
partnership was not one at will in R Ramakrishnan v VJ John. The court observed:
Merely because it is so stated in the partnership deed, it will not become a partnership at will. The circumstance and
the effect of various other clauses in the partnership deed’ have to be considered
A right in the partnership is a legal right.257 The clauses in the partnership deed were analysed by the Supreme
Court, to reach a conclusion that the partnership is not one at will. The provision that the partnership will
continue “till there are two partners”, indicates that the partnership is not one at will.258
A provision in the deed, which enables a partner to relinquish his interest, would not make the partnership one
at will.259
When there is a partnership of two partners, absence of one automatically gives room for determination of
partnership under section 7. Since the partnership of more than two partners can not automatically evaporate
by virtue of absence of any one, such partnership will have to be treated as partnership-at-will in absence of
any condition of duration or determination.260
[s 7.3] WHERE NO PROVISION IS MADE
In absence of any provision fixing the specific durations for the partnership concerned and also for
determination of the partnership, a partnership would be a partnership at will.261 A term in a partnership
agreement, “This agreement shall be terminated by mutual arrangement only” is an agreement to the
contrary.262 Similarly, an agreement to dissolve “in the manner mutually decided by the partners’ has been
found to be not a partnership at will.263 Where the partnership was to terminate on the expiry of a managing
agency agreement, a term in the contract of partnership that a partner might withdraw from the partnership by
relinquishing his rights to the other partners would not make the partnership one at will.264 What section 7
requires is that there should be no provision made by contract between the partners for the duration of their
partnership or for the determination of their partnership, ie, of all the partners and not partnership of any one of
them with the rest. A provision for retirement of a partner which has the effect of disrupting the partnership only
as between the retiring partner and the continuing partners and not as between all the partners inter se cannot,
therefore, be regarded as a provision for determination of their partnership within the meaning of this section.265
However, where stipulations contained in the partnership deed by which nominee or legal heir of the retiring or
deceased partner, were to be admitted as partners and partnership was to continue, it was held that the
statutory right of a partner to dissolve the partnership at will at his option was taken away.266It is submitted that
a provision in the partnership deed, that death of partner shall not dissolve the partnership, is not intended to
provide duration of the partnership or the determination of the partnership but is meant to contract out from the
statutory provision laying down in section 42(c) that subject to contract between the partners, a firm is dissolved
by the death of a partner. Such a stipulation is primarily intended to deal with the contingency of death of a
partner. The impact of section 42(c) can be very undesirable in most businesses, and ruinous in many cases
where a firm is well-established because its “goodwill” could vanish into thin air if the firm were dissolved by the
death of a partner. It is usual and desirable, therefore, to make provisions for continuing the firm
notwithstanding the death of one or more of the partners, by stating that the business is not to be wound up, but
that instead the surviving partners will carry it on.267
A statutory provision for determination of partnership like sections 40, 41 and 44 is not a provision made by
contract for determination of partnership within the meaning of section 7, merely because the parties choose to
incorporate it by reference in the deed of partnership. A provision for determining the partnership lays down the
manner in which the partnership can be terminated or dissolved. A provision regarding an event, which does
not terminate or dissolve the partnership can never be regarded as a provision for determining the
partnership.268
249 The difficulties which arise in English law on the question whether a partnership is a partnership at will or not can hardly
arise under Indian law, Moss v Elphick [1910] 1 KB 846; Abbott v Abbott, [1936] 3 All ER 823.
250 Karumuthi Thiagarajan Chettiar v EM Muthappa Chettiar, AIR 1961 SC 1225, p 1230.
252 Ramesh Kumar v Lata Devi, 2007 SCC OnLine MP 83 : AIR 2007 MP 153 : (2007) 4 AIR Kant R (NOC 526) 200 : 2007
AIHC (NOC 424) 151.
253 Kanagammal v Theatre Abirami Partnership Concern, 2009 SCC OnLine Mad 1124 : 2009-3 L.W. 900.
254 Justin CK v Sealand Timbers, 2017 SCC OnLine Ker 9454 : (2017) 3 KLJ 657.
255 Karumuthu Thiagarajan Chettiar v EM Muthappa Chettiar, AIR 1961 SC 1225; Keshavalal Lallubhai Patel v Patel
Bhailal Narandas, AIR 1968 Guj 157, p 159.
256 Iqbalnath Premnath Anand v Rameshwarnath Premnath Anand, AIR 1976 Bom 405; Kanagammal v Theatre Abirami
Partnership Concern, 2009 SCC OnLine Mad 1124: 2009-3-L.W. 900.
257 Ram Singh v Ram Chand, AIR 1924 PC 2 : 46 Mad LJ 158.
258 Uduman v Aslam, (1991) SCC 412.
259 Karumuthu Thyagarajan Chettiar v EM Mutthuppa Chettiar, [1961] 3 SCR 998 : AIR 1961 SC 1225 : 32 Comp Cas 153.
260 Rathindra Nath Dey v Dilip Kumar Dey, AIR 2001 Cal 172, para 18.
261 Kanagammal v Theatre Abirami Partnership Concern, 2009 SCC OnLine Mad 1124 : 2009-3-L.W. 900.
262 Moss v Flphick, [1910] 1 KB 846.
263 Mohd Monirul Hasan v Mohd Iftikar Ahmed, AIR 2000 Gau 108, paras 19 and 20.
264 Thiagarajan v Muthappa, AIR 1961 SC 1225. A provision (in the partnership deed) for retirement is not inconsistent with
a partnership, at will though firm constituted by only two partners (section 32), Talakchand Kanji Vora v
KeshavlalDullabajji Sheth, AIR 1973 Cal 729.
265 Keshavlal Lallubhai Patel v Patel Bhailal Barandas, AIR 1968 Guj 157; Iqbalnath Premnath Anand v Rameshwarnath
Premnath Anand, AIR 1976 Bom 405, pp 411, 412.
266 Sureshkumar Sanghi v Amritkumar Sanghi, AIR 1982 Del 131; Abbott v Abbott, [1936] 3 All ER 823 where, on
construction of clause 10 of the partnership deed it was found that the partnership at will was to continue unless
dissolved by the court or some other event, so long as two of the partners were still living and had not retired.
267 Underhill’s Principles of the Law of Partnership, 11th Edn, p 25.
268 Krishna Kumar Poddar v Ram Kumar Agrawal, AIR 1978 NOC 25 (Pat) (DB).
End of Document
[s 8] Particular partnership—.
A person may become a partner with another person in particular adventures or undertakings.
[s 8.1] PARTICULAR PARTNERS
The Special Committee noted on the draft of this section:
It is new matter and is inserted to meet cases which are probably much more frequent in India than in England. The
practice of establishing ‘particular partnership’ is much favoured by Indian firms with numerous branches, and the
practice should not be hampered by doubts regarding the extent of the liabilities of the ‘particular partner’.
The wording is rather curious; one would have expected “person or persons” and “a particular adventure or
undertaking”. It is just not possible that some captious pleader may argue that not more than two persons can
be partners together under this section. To an English mind, the only difficulty is to see why there should be any
objection or trouble about confining the scope of a partnership undertaking within whatever limits the parties
choose to determine. In Scotland, it is true that a joint adventure is recognised as distinct variety of partnership
“confined to a particular adventure, speculation, course of trade, or voyage”, with the addition that “the partners,
either latent or known, use no firm or social name”.269 The substantive incidents do not appear to differ from
those of ordinary partnership (note, however, that in Scotland, where the firm is formally recognised as a
person, the absence of a firm name may be regarded as a substantial difference). In England, there is no
technical distinction at all, and no one has ever suggested that it would be of any use.270 A partnership may be
limited to purchase and sale of a particular thing, the development of a parcel of land, or the sowing, cropping,
harvesting or sale of a particular crop.271 In all such cases the principles applicable to ordinary partnership
would apply.272 Subject to contract between the partners, a firm, if constituted to carry out one or more ventures
or undertakings, is dissolved by completion thereof.273
[s 8.2] ADVENTURE
The term “adventure”, has, over a period of time, acquired specific connotation. “Adventure in the nature of
trade” occurring in sections 2(4) and 6 of the Income Tax Act, 1922 may be referred to in this connection. That
term has received judicial interpretation right from the time of Rowlatt. Chief Justice MS Menon, speaking for
the Kerala High Court, neatly summed up the legal position thus:
The words in the ‘nature of trade’, have to be read as qualifying the ‘adventure’ as well. The collocation of the words
‘adventure in the nature of trade’ implies that an adventure has the characteristics of trade but not all of them and that
indeed is the distinguishing mark of an adventure.274
The court drew a distinction between “adventure in the nature of trade” and an “adventure in the nature of
perjury”, which the assessee in that case was found to have indulged in.
Adventures in an essentially agricultural society had affinity to operations like sowing, cropping, harvesting and
sale of different crops. As trade and commerce developed, adventures also assumed new dimensions and
acquired fascinating diversities. Trade flourished with the industrial revolution in which. England had a
pioneering role. Enterprising traders joined together to make their ventures economical and effective.
Partnership was a useful vehicle to push forward adventures.
Joint stock companies—including South Sea Bubbles—sprang up. These developments are, to some extent,
reflected in section 8 of the Act.
With globalisation phenomenon, adventures and undertakings are likely to be on the increase and have
assumed multiple varieties, which could not have been visualised earlier.
In the then prevailing situation in England, many of the adventures were connected with ships. This is reflected
in the litigation involving partnership law as well. Some aspects are already dealt with in the context of section
4. Some of the English cases connected with ships and the adventure are Henry v Smith, 33 RR 630 and
Plunkett v Lewis, 77 RR 15, p 18.
Two decisions of the Calcutta and Madras High Court relating to shipping ventures are given below.275
The topic of illegal partnership is dealt with in these pages. Any discussion on that topic has necessarily to be in
the background of sections 25 and 30 of Indian Contract Act.
[s 8.3] PARTICULAR ADVENTURE
Illustration of a firm constituted for carrying out a particular venture is furnished in case of Karimuthu
Thyagarajan Chettiar v Muthappa Chettiar, AIR 1961 SC 1225. A firm constituted for managing the agency of a
company would come to an end when the managing agency is terminated. Such a partnership will not be a
partnership at will. Another instance of a firm constituted for carrying out a particular adventure is Deoki Prasad
Rajgarhiah v Anari Dai Poddar, (1998) 3 BLTR 1836.
[s 8.4] JOINT VENTURE
See “Joint Venture Agreement” under section 4 supra.
269 Bell’s Principles, art 392.

270 It need hardly be stated that all the requisites of a partnership must be present before a partnership between two
persons limited to a single adventure is held to be a partnership: Suganmal v Umraobi, AIR 1938 Ngp 550; but see Asia
Foundations & Constn Ltd v Stateof Gujarat, AIR 1986 Guj 185, p 202, holding that courts do not treat a joint adventure
as identical with a partnership though it is so similar in nature.
271 Pangoti Mangarao v Chinnadi Kishan Rao, AIR 1965 AP 98; Ramdas v Mukutalhary, AIR 1952 VP 1; Birdichand v
Harakchand, (1941) ILR Ngp 644; Oppenheimer v Frazer & Wyatt, [1907] 2 KB 50; Walker WestDevelopments Ltd v
FJEmmett, (1979) EG 1171; George Hall & Son v Platt, (1954) R&IT 713.
272 Reid v Hollinshead, (1825) 4 B&C 867.
273 Indian Partnership Act, 1932, section 42(b), Gherulal v Mahadeodas, AIR 1959 SC 781; Karamali v Karimji, (1914) 39
Bom 261, p 274 (PC); J&J Cunningham v Lucas, (1957) 1 Lloyd’s Rep 416.
274 Md Meeran Khan v CIT, (1967) Ker LT 143.
275 (1982) ILR 8 Cal 1011 : (1918) 41 ILR Mad 939 : 26 IC 975.
End of Document
Chapter 3 Relations of Partners to One Another

Act, 8th ed > The Indian Partnership Act, 1932 > Chapter 3 Relations of Partners to One Another
CHAPTER 3 Relations of Partners to One Another

The Partnership Act, 1932 contains various provisions regulating the relationship between partners. The 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 account and true information of all things affecting the firm to any partner or his legal
representative. Every partner has a right to take part in the conduct of the business. Every partner is bound to
attend diligently to his duties in the conduct of the business. Any differences arising as to ordinary matters
connected with the business may be decided by majority of the partners and every partner shall have the right to
express his opinion before the matter is decided. No change can be made in the nature of the business without the
consent of all the partners. Every partner has a right to have access to and to inspect and copy any of the books of
the firm.1
1 Rashiklal & Co v CIT, (1998) 2 SCC 49, para 13.
End of Document
[s 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.
Maharashtra
In section 9, for the words “or his legal representative” the words “, his heir or legal representative” shall be
substituted.
[s 9.2] GENERAL DUTIES OF PARTNERS
The first portion of section is more didactic than legal. But it is the basis of claims arising from unfair dealings
between partners which are not provided for otherwise. This section is of vital importance and subsequent
sections dealing with relation to partners to one another are no more than amplifications and illustrations of
principles contained in section 9.2
This section is identical with section 257 of the Contract Act, save that “the firm” is substituted for “the
partnership” in accordance with the stricter use of terms in the present Act. Its opening general words come
from a time- honoured clause, which used to be a common form in English partnership articles, but do not
appear any more in the corresponding section 28 of the English Act. Presumably, the reason for dropping them
was that, considered as a legislative command, they have no definite operative effect. It would have done no
harm to keep them, and it is certainly better to do so in India; they place, in conspicuous view, the general
tradition of good faith and honour on which the whole law of partnership and the whole duty of partners are
founded.
The partners should carry business of the firm to the greatest common advantages and later, they should
render to any partner or his legal representatives full information of all things affecting the firm.3 Good faith and
utmost bona fides are required in the dealings between working and sleeping partners when matters relating to
accounts are concerned.4 The partners are bound to be just and faithful to each other, and to render true
accounts and full information of all things affecting the firm to any partner or his legal representative. The fact
that the partner could have visualised or foreseen a higher degree of profits in the ensuing year is not part of
that duty.5
In a transaction between partners for the sale and purchase of a share in the business, if one of them is better
acquainted with the accounts than the other, it is his duty to disclose all material facts; but the party entitled to
such disclosure may elect, at any stage, to waive his right to further information, even if he knows that there has
been some concealment of facts which he has since discovered, and believes that others are still concealed.
Where a partner later found that the partnership assets consisted of mortgages and other securities not
disclosed to him by the other partner who knew all about them, the Court of Appeal held that an order setting
aside the transaction would have been made, but for the fact that settlement of the claim had been made, and
the partner had elected to be bound by it.6 In other words, his election to affirm the contract, or to compromise
his claim if he does so elect, is as binding as in the case of any other voidable contract.
A partner, who is expressly entrusted with the conduct of a sale, was bound fully to disclose the real facts to
another partner and, not having done so, could not exclude him from his share of profits actually realised by the
sale.7 A partner must observe the utmost good faith in his dealings with the other partners. He is bound to
render accounts of the partnership assets in his hands. However, in the absence of special circumstances, he
cannot be regarded as a kind of trustee for the other partners or liable to render accounts to them in a fiduciary
capacity.8 A sleeping partner is entitled to seek accounts of the firm—whether dissolved or existing.9 The
obligation to perfect fairness and good faith is especially required to be observed when one partner is trying to
get rid of another or to buy him out.10 It was observed by Lord Eldon that:
A partner who complains that the other partners do not do their duty towards him, must be ready at all times
and offer himself to do his duty towards them.11
[s 9.2.1] Not a Fiduciary Relationship
The duties cast on the partners under section 9 is not “subject to contract between the partners”. Therefore, it is
absolute in its contents. It cannot be waived by the uninformed partner or subjected to a compromise. The non-
compliance with the duty cast, which is based on a public policy, must visit the legal consequences envisaged
under the domestic law. Honesty in the behaviour need not be co-related with the technical doctrine of
“entrustment of fiduciary capacity”.
Fiduciary means relation to or involving a confidence or trust. The fiduciary relation does not depend upon any
particular circumstances. It exists in almost every shape, for instance, in case of guardian and ward, of parent
and child, of solicitor and client.12 Partnership, however, itself does not create a fiduciary relation between the
partners or make one of them a trustee for the other or for his representatives. The relation may, however, arise
on the death of one of them or created by other special circumstances.13 This statement of law has been held
by the Supreme Court to be consistent with the provisions of the Act and the Indian Trust Act, 1882. A partner
must observe the utmost good faith in the dealings with the other partners. He is bound to render accounts of
the partnership assets in his hands. But in the absence of special circumstances, he cannot be regarded as a
kind of trustee for the other partners or be liable to render accounts to them in a fiduciary capacity. As such, he
cannot be detained under section 51(e) of the Code of Civil Procedure in execution of a money decree by
detention in prison for withdrawal of excess amount.14
Similarly, every partner has a dominion over the partnership property by reason of the fact that he is a partner.
This is a kind of dominion which every owner of property has over his property. But it is not dominion of this
kind which satisfies the requirements of section 405 of Indian Penal Code. A partner has undefined ownership
along with the other partners over all the assets of the partnership. If he chooses to use any of them for his own
purposes, he may be accountable civilly to the other partners. But he does not thereby commit any
misappropriation.15
[s 9.2.2] Duty to Render Account
The word “account” is a comprehensive word which includes within its scope and ambit, books of accounts.
Account cannot exist in the abstract. It must be recorded somewhere either in the books of accounts or other
document relating to accounts or loose sheets of paper. The books of the trust would, therefore, be included
within the connotation of the word “account”.16
All the partners are bound to render accounts to each other but where some of the accounts are kept by one of
them, prima facie he would be the proper person to explain and give full information about them.17 The duty to
render account to others partners cannot be assigned.18 Not only the partners, but the personal representatives
of the deceased also are entitled to an account from the surviving partners. Therefore, the moment the legal
representatives are brought on record, they are clothed with legal right to demand accounts from the partner
who may ultimately be held to be the accounting partner.19 So also a sleeping partner even if the partnership be
void.20
2 AIR 1941 Sindh 73, p 75 (DB); Navin Chandrajethabhai v Moolchand Sadaram, AIR 1966 Bom 111 (DB).
3 RN Oswal Hosiery v CIT, AIR 1969 Pun 8; CIT v G Parathasarthy Naidu, AIR 1980 AP 158 (FB) : AIR 1952 Pat 33, p
36 (DB).
4 AIR 1930 Mad 141, p 143.
5 Vibha Mehta v Hotel Marina, 2014 SCC OnLine Del 1333 : (2014) 142 DRJ 528.
6 Law v Law, [1905] 1 Ch 140 (CA). The settlement held by the court to be final was the compromise of an action for
damages for misrepresentation.
7 Dunne v English, (1874) 18 Eq 524; Carter v Horne, (1728) Eq Ab 7; Parker v Mckenna, [1874] 10 Ch App 96.
8 Prem Ballabh v Mathura Datt, AIR 1967 SC 1342, p 1343; Velji Raghavji Patel v State of Maharashtra, AIR 1965 SC
1433; Piddocke v Burt, [1894] 1 Ch 343.
9 Budh Ram Balak Ram v The Dhuri Co-operative etc Society, AIR 1972 Punj 185, pp 188–189.
10 Blisset v Daniel, (1853) 10 Hare 493; Hogar Estate Ltd (in Trust) v Shebron Holding Ltd, (1980) 23 OR (2d) 543 (a
Canadian case); Maddeford v Austwick, (1826) 1 Sim 89.
11 Const v Harris, (1824) Turn & R 524; Abbot v Treasury Solicitor, (1969) 1 WLR 1575.
12 See Indian Contract Act, 1872, section 16.
13 Halsbury’s Laws of England, 3rd Edn, vol 38, p 820.
14 Prem Ballabh Khulbe v Mathura Dutt Bhatt, AIR 1967 SC 1342, para 3.
15 Velji Raghavji Patel v State of Maharashtra, AIR 1965 SC 1433, approving Bhuban Mohan Rana v Surendra Mohan
Das, AIR 1951 Cal 69 (FB).
16 Reziuddin v Mohammad Amin, 1968 Guj LR 93, p 99.
17 Sukh Dayal v Sukha Nand, AIR 1934 Lah 312, p 313.
18 Ghisulal-Ganeshilal v Gumbhirmull-Pandya, AIR 1938 Cal 377, p 381.
19 Banarasi Dass v Raj Kumar, (1968) 70 Punj LR 797.
20 Dhuri Coop-cum-Marketing-cum-Processing Society v Budh Ram, AIR 1971 Punj 134.
End of Document
[s 10] Duty to indemnify for loss caused by fraud—.


Every partner shall indemnify the firm for any loss caused to it by his fraud in the conduct of the business of the
firm.
[s 10.1] FRAUD OF PARTNER
This section is novel in form. It was added by the Special Committee, as can be seen in their note on clause 14
of the Bill. The point of it is as follows:
A partner can, by contract between the partners, be exempted from liability to the firm for loss caused by his neglect,
even if wilful, in the conduct of the business. Generally, he is liable for such loss, but this is expressly subject to
contract between the partners as can be seen in section 13(f) below. However, he cannot contract himself out of
liability for fraud. It has been judged expedient to declare this in a conspicuous and emphatic form, though, it is
submitted, the law was already clear enough. Fraud in all shapes and under all disguises, with or without any special
relation of confidence between the parties, is unconditionally condemned, not only by our law, but also by all civilised
systems of justice. There is no case where a man is allowed to contract himself out of liability for deceit. It is true that,
for the purpose of preserving and extending their beneficent jurisdiction and remedies, English courts of equity did at
one time, say that various failures in duty, especially in duties of a fiduciary kind, were “fraud in the eyes of this court”
or “constructive fraud”. Such cases, with which we now deal in a more straightforward manner, are no real exception;
they did not, as a rule, involve dishonesty, and indeed the Court of Chancery, in its zeal for beneficial owners, at one
time required a more astute vigilance of trustees and a more consummate prudence than are within the compass of an
ordinary reasonable man’s ability, so that Parliament had to come to the rescue. This caution may be necessary for
readers not accustomed to the language current in English (and also American) books of equity jurisprudence down to
the middle of the nineteenth century.
Long ago, in Sir F Pollock’s Tagore Lectures,21 some remarks were made on this matter of “constructive fraud”,
to which it may now be added that the old Court of Chancery could not make use of the simpler and broader
concept of implied contract because it could not openly trespass on the jurisdiction of the courts of Common
Law. Its artificial devices, long obsolete in England, have nothing to do with Indian practice.
The partner, committing fraud in the conduct of the business of the firm, must make good the loss sustained by
the firm by his misconduct and the amount so brought in the partnership should be divided between the
partners.22 An act of a partner imputable to the firm or the principles of agency, which is a fraud on his co-
partners, entitles the co-partners, as between themselves, to throw the whole of the consequences upon him.23
21 The Law of Fraud, Misrepresentation and Mistake in British India, pp 39–42.

22 Navinchandra Jethabhai v Moolchand Sadaram Gindodiya, AIR 1966 Bom 111, p 113.
23 Robertson v Southgate, (1848) 6 Hare 536; Campbell v Campbell, (1839) 7 Cl & Fin 166; Bury v Allen, (1845) 1 Coll
589, p 604; Thomas v Atherton, (1878) 10 Ch D 185.
End of Document
[s 11] Determination of rights and duties of partners by contract between

the partners.—
[s 11] Determination of rights and duties of partners by contract between the

partners.—
(1) Subject to the provisions of this Act, the mutual rights and duties of the partners of a firm may be
determined by contract between the partners, and such contract may be expressed or may be implied
by a course of dealing.
Such contract may be varied by consent of all the partners, and such consent may be expressed
or may be implied by a course of dealing.
(2) Agreements in restraint of trade.—Notwithstanding anything contained in section 27 of the Indian

Contract Act, 1872, such contracts may provide that a partner shall not carry on any business other
than that of the firm while he is a partner.
Section 11(1) provides that, subject to the provisions of the Act, the mutual rights and duties of the partners of a
firm may be determined by contract between the partners and such contract may be expressed or may be
implied by a course of dealing. It further provides that such contract may be varied by consent of all the
partners and such consent may be expressed or may be implied by a course of dealing. Sub-section (2) clearly
provides that, notwithstanding anything contained in section 27 of the Indian Contract Act, the contract between
the partners may provide that a partner shall not carry on any business other than that of the firm while he is a
partner.24
[s 11.1] SUB-SECTION 1: DETERMINATION OF RIGHTS AND DUTIES OF PARTNERS
The first sub-section states, in a more direct and positive form, the elementary principle already implied in
sections 252 and 253 of the Contract Act. Partnership is a relation eminently depending on the consent of the
parties, not only for its existence, but for the terms of the agreement in all things consistent with its essential
nature and purpose; and an agreement to become partners in the first instance, or to vary the terms at any
time, need not be manifested in any particular form.
It is really needless to cite authorities, but reference may be made to Const v Harris,25 where Lord Eldon laid
down that a majority of partners can regulate matters of detail but substantial terms of their agreement can be
amended only by the consent of all. A judicial statement made 20 years later showed that the law was by that
time well settled, and expresses it in a clear and positive manner, too often wanting in Lord Ledon’s judgment:
With respect to a partnership agreement, it is to be observed, that all parties being competent to act as they please,
they may put an end to or vary it at any moment; a partnership agreement is therefore open to variation from day to
day, and the terms of such variations may not only be evidenced by writing, but also by the conduct of the parties in
relation to the agreement and to their mode of conducting their business; when, therefore, there is a variation and
[s 11] Determination of rights and duties of partners by contract between the partners.—
alteration of the terms of a partnership, it does not follow that there was not a binding agreement at first. Partners, if
they please, may, in the course of the partnership, daily come to a new arrangement for the purpose of having some
addition or alteration in the terms on which they carry on business, provided those additions or alterations be made
with the unanimous concurrence of all the partners.26
A practice of the firm, though not part of the original agreement, may become binding by usage, and alterable
only by consent, eg mode of valuing assets,27 adjustment of profit and loss account.28
Where the power of general management as contemplated in the deed of partnership was with the manager
who was also one of the partners but by a resolution passed by the partners the duty of purchasing certain
machines was cast on another partner who failed to purchase the same in time despite reminders by the
manager, it was held that the manager was not responsible for the fault of that partner.29
Under section 11, a contract between the parties is subject to the provisions of the Act. Neither section 43
which deals with dissolution of partnership at will by notice in writing nor contract between the parties can
control the provisions of section 44 which confers an absolute and independent right on a partner to have the
partnership dissolved on the ground specified therein, and it is not open to the parties to take away that right by
means of an arbitration clause in the partnership agreement.30 However, in Phoenix v Pope, (1974) 1 WLR
71931 the view taken was that once the question of dissolution has been referred to the arbitrator, no application
can subsequently be made to the court for dissolution under section 35 of the UK Partnership Act, 1890.
[s 11.2] SUB-SECTION (2): AGREEMENTS IN RESTRAINT OF TRADE
Sub-section (2) re-enacts, with some verbal amendment, the substance of exceptions 3 to section 27 of the
Contract Act, which is one of the enactments repealed by the present Act (section 73 and Sch II). As to the
treatment of agreements in restraint of trade by the Contract Act, Pollock and Mulla can be referred to.32
Agreements of the kind protected by this sub-section are in fact extremely common, and it would be an
intolerable hindrance to business if they were not allowed.33
24 KD Kamath and Company v CIT, (1971) 2 SCC 873, p 882; MOH Uduman v MOH Aslum, (1991) 1 SCC 412, para 12.
25 (1823–24) T&R 496. A letter signed by all parties may be sufficient notice of the proposed change, Pegler v Abell,
(1973) 1 WLR 155.
26 Lord MR Langdale in England v Curling, (1844) 8 Beav 129, p 133 : 68 RR 39, p 42.
27 Coventry v Barclay, (1863) 3 De GJ&S 320.
28 Ex p Barber, [1870] LR 5 Ch 687.
29 Gur Dayal Prasad v L Raghunath Prasad, AIR 1976 All 141, pp 146, 147 (DB).
30 Sardar Hardutt Singh v Ch Mukha Singh, AIR 1973 J&K 46; Manibhai Shankerbhai Patel v Swashray Constn Co, 23 (1)
Guj LR 312, pp 314, 315; Valivenkaraswami v Gannabathulla Venkataswami, AIR 1954 Mad 9, p 11; CU Mulk v Commr
of AgriculturalIT, Kerala, (1980) Tax LR 325, p 327 (Ker) (DB).
31 (1974) 1 WLR 719; Lindley on Partnership, 15th Edn, pp 270–1 for earlier English authorities; Oliver v Hillier, [1959] 2
All ER 220 in which the Chancery Division held that the action would not be stayed because the power of ordering
dissolution was expressly given to the court under section 33(d) and (f ) of the Act, which was the ground contended
for, and also because the application was for appointment of receiver and manager as well as for dissolution.
32 Contract Act, 9th Edn, pp 271–72.
33 Lyne-Pirkis v Jones, [1969] 3 All ER 738, where restraint on practice as consultant was held to be too wide.
End of Document
[s 12] The conduct of the business.—


Subject to contract between the partners,—
(a) every partner has a right to take part in the conduct of the business;
(b) every partner is bound to attend diligently to his duties in the conduct of the business;
(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; and
(d) every partner has a right to have access to and to inspect and copy any of the books of the firm.
Maharashtra
In section 12,—
(a) in clause (c), at the end, omit the word ‘and’;

(b) in clause (d), for the words ‘books of the firm’, substitute the words ‘books of the firm; and’;
(c) after clause (d), insert the following clause, namely:—
(d) (e) in the event of the death of a partner, his heirs or legal representatives or their duly authorised
agents shall have a right of accesses to and to inspect and copy any of the books of the firm.
[Vide Maharashtra Act 29 of 1984, sec 4 (wef 1-1-1985)].
Section 12 in cll (a) to (d) deals with the rights and duties of a partner, but that again is subject to contract
between the partners.34 This and the next section correspond generally to section 24 of the English Act and
embody the most part of section 253 of the Contract Act.
[s 12.2] PARAGRAPHS (a) AND (b)
Paragraphs (a) and (b) taken together show the prima facie right and duty of every partner to take part in and
attend to the business of the firm.35 However, variation by contract is rather the rule than the exception in
practice. It is quite common to prove, by express agreement, that this or that partner need not, sometimes that
he may not, take any active part in the business, and also to assign a salary to be paid to a managing or active
partner. Any such salary will, of course, rank in taking accounts as between the partners as a debt from the
firm. A court will not, ordinarily, grant an injunction restraining another partner from participating in the
management unless such participation is either illegal or contrary to the terms of the partnership. The fact that
the relations between the partners may have been strained, would not entitle a partner to an injunction.36 A
partner cannot execute those power of attorney in favour of third party, when other partners had not retired and
were available and without their consent.37
[s 12.3] PARAGRAPH (c)
Paragraph (c) re-enacts the substance of section 253(5) of the Contract Act, with verbal amendment and
specification of every partner’s right to be heard before the matter is decided—a right about which there was
never any doubt.
[s 12.3.1] Majority
In respect of ordinary matters, before the majority can take a decision binding on the minority certain conditions
have to be fulfilled: (a) The minority partners have been given a right to express their opinion and there is
effective consultation with the minority; (b) The majority must act in good faith; (c) The majority must act for the
welfare of the firm and not for a purpose which is detrimental to the welfare of the firm.38
As in all other cases of the exercise of power by a majority acting in a quasi-judicial capacity, the decision must
be made in good faith with a view to the common advantage of the whole body, and when so made is
conclusive.39 A majority cannot bind a minority without notice to them and without giving them the opportunity to
express their opinion. If this were not so, it would practically put the entire management in the hands of a
highhanded majority, and would set the rule at naught that every partner has a right to take part in the conduct
of business.
The decision of the majority of the partners cannot be binding on the other partners particularly when the suit is
for passing off the name of a firm or infringement of the trade name as commercial activity of every kind is
proceeded through a partnership firm. Every partner has a vital interest in the activities of a partnership firm.
Majority cannot trample or impede the interests of minority partners.40 Any difference between the partners
cannot be a ground for dilution of statutory requirements to obtain a license to do business.41
[s 12.3.2] Ordinary Matters
What are ordinary matters connected with the partnership business would appear to be a question of fact upon
which evidence would be required as to requirements and usual practices of the particular business.42 It is only
when a difference of opinion arises that the matter connected with the business has to be decided by majority.
Hence, control and management can be exercised by a single partner who is entrusted with it and need not be
by majority.43
[s 12.3.3] Change in Nature of Business
If the partners are equally divided, those who forbid a change must have their way: in re communi potior est
conditio prohibentis.44 The fact that the new business is extremely profitable, will not justify any variation in the
nature of business without the consent of all the partners.45
[s 12.4] PARAGRAPH (d)
Paragraph (d) corresponds to the latter part of section 24, sub-section 9, of the English Act. A partner may
exercise his right of inspecting the books by an agent, provided that he is a fit person and undertakes, if
required, not to use the knowledge thus obtained for any other purpose than the confidential information of his
principals.46 The partner himself, no less than his agent, might be restrained if necessary from using copies or
extracts made in the exercise of his right for purpose hostile or injurious to the interest of the firm.47 If books of
account are not maintained or are deliberately vague, or withheld wrongfully or destroyed, a presumption may
be drawn by the court against those to whose negligence or misconduct the non-production of proper accounts
is due.48
The Bill, as drafted by the Special Committee, followed the English Act in prescribing that the firm’s books shall
be kept at its place of business or the principal place if there are more than one. However, the Select
Committee struck this out for two reasons; first, that the principal place might well, at that time, be in an Indian
state outside British jurisdiction, where the Act could not be directly enforced. The second reason was that the
principal place of business can be defined only by the partners themselves. With all due respect this is not
convincing. The partners of a firm having more than one place of business, will and generally do, if they are
wise men, declare in terms where the books are to be kept. However, if they do not, it is for the court to
ascertain, if necessary, from the usage of the firm and those who deal with it, which is, in fact, the principal
place.
The result is that the present Act, like the Contract Act, says nothing about the custody of the books. However,
the Contract Act, 1872 was in force for 60 years without its silence on this point causing, so far as appears, any
considerable inconvenience.
34 KD Kamath and Company v CIT, (1971) 2 SCC 873, p 882.

35 Erin Estate, Galah, Ceylon v CIT Madras, AIR 1958 SC 779; Peacock v Peacock, (1809) 16 Ves 51; Rowe v Wood,
(1795) 2 Jac & W 558; Goodman v Whitcomb, (1820) 1 Jac & W 589; Marshall v Colman, (1820) 2 Jac & W 266; Bawa
Jodh Singh v Bawa Gurdial Singh, AIR 1984 NOC 13 (Del).
36 Bishambhar Dayal v Moolchand, AIR 1964 Raj 179.
37 Horace Kevin Gonsalves v Prabha Ganpat Borkar, 2015 SCC OnLine Bom 262 : 2015 (6) Mh.L.J. 208.
38 Modern Metal Industries v Shanti Parolia, AIR 2004 All 249, paras 46, 68 and 71.
39 Const v Harris, (1824) Turn & R 525; applied in Abbott v Treasury Solicitor, (1969) 1 WLR 1575.
40 Economic Transport Carrier v Economic Transport Carrier (North), AIR 2003 Del 201, para 4.
41 Opium Bar-cum-Restaurant v State of WB, 2018 SCC OnLine Cal 7987 [Held, conditions of seeking a license under the
West Bengal Excise (Selection of New Sites and Grant of License for Retail Sale of Liquor and Certain other
intoxicants) Rules, 2003 cannot be diluted only because of differences between the partners due to which majority of
the partners are unable to fulfill all statutory requirements.]
42 Lindley on Partnership, 15th Edn, p 476; Highley v Walker, (1910) 26 TLR 685.
43 Erin Estate v CIT, AIR 1958 SC 779.
44 Donaldson v Williams, (1833) 1 G&M 345.
45 Attorney General v Great Northern Rly, (1860) 1 Dr & Sm 154.
46 Bevan v Webb, [1901] 2 Ch 59, 81 (CA); Dodd v Amalgamated Marine etc Union, [1923] 2 Ch 236, affirmed in [1924] 1
Ch 116.
47 Trego v Hunt, [1896] AC 7, 26.
48 Walmsley v Walmsley, (1846) 3 Jo & Lat 556; Gray v Haig, (1855) 20 Beav 219.
End of Document
[s 13] Mutual rights and liabilities.—


(a) a partner is not entitled to receive remuneration for taking part in the conduct of the business;
(b) the partners are entitled to share equally in the profits earned, and shall contribute equally to the losses
sustained by the firm;
(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;
(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; and
(f) a partner shall indemnify the firm for any loss caused to it by his wilful neglect in the conduct of the
business of the firm.
[s 13.1] GENERAL
Section 13 provides that a partner is not entitled to receive remuneration for taking part in the conduct of the
business. The partners are entitled to share equally in the profits earned and shall contribute equally to the
losses sustained by the firm. Where a partner is entitled to interest on the capital subscribed by him, such
interest shall be payable only out of profits. A firm has to indemnify a partner in respect of payments made and
liabilities incurred by him in the ordinary and proper conduct of business and in doing such act, in an
emergency for the purpose of protecting the firm from any loss as would be done by a person of ordinary
prudence under similar circumstances. The partner has also a duty to indemnify for any loss caused to the firm
by his wilful neglect in the conduct of the business of the firm. All these provisions in relation to mutual rights
and liabilities are only applicable to the individual partners who are members of the firm.49 The substance of this
section differs only in drafting and in arrangement, from the law declared or plainly implied by the Contract Act.
The first two paragraphs declare the presumptions that work done for the firm is gratuitous, and that profits are
divisible and losses apportionable in equal shares; those presumptions are, of course, constantly superseded
by express agreement50 and they might be so by the continued usage of the firm without express agreement.
[s 13.2] PARAGRAPH (a)
The specific provision in section 13 of the Act that a partner is not entitled to receive any remuneration for
taking part in the conduct of the business has been interpreted to mean that every partner is bound to attend
diligently to the business of the firm. For doing his duties, he cannot charge his co- partners any sum or
remuneration whether in the shape of salary, commission or otherwise on account of the trouble taken by him in
conducting the partnership business. There, however, can be a special contract to the contrary in which case,
the provisions of that contract will prevail.51
The Supreme Court has held that remuneration received by a partner is only an increased share of the profits
of the firm.52 It is wrong to think that a partner of a firm can under no circumstances be given remuneration for
taking part in the conduct of the partnership business. As of law, clause (a) only says that, subject to contract
between partners, a partner is not entitled to receive remuneration for taking part in the conduct of the
business. From the provision, it follows that by agreement, one of the partners in the partnership firm can be
remunerated for attending to the work of the firm.53 In CIT v RM Chidambaram Pillai, (1977) 1 SCC 431 the
Supreme Court has further elucidated the law in the following words:
Since a contract of employment require two distinct persons, viz., the employer and the employee, there cannot be a
contract of service, in strict law, between a firm and one of its partners. So that any agreement for remuneration of a
partner for taking part in the conduct of the business must be regarded as portion of the profits in being made over as a
reward for the human capital brought in. Section 13 of the Partnership Act, 1932 brings into focus this basis of
partnership business.54
What is the real nature of the salary paid to a partner vis-a-vis the income of the firm? On principle, payment of salary
to a partner represents a special share of the profits and is therefore part of the profits and taxable as such.55
It is implicit that the share income of the partner takes in his salary. The telling test is that where a firm suffers loss, the
salaried partner’s share in it goes to depress his share of income. Surely, therefore, salary is a different label for profits
in the context of a partner’s remuneration.56
It now seems well-settled that the position of a partner qua the firm is thus not that of a master and a servant or
employer and employee which concept involves an element of subordination but that of equality. The status of
a partner qua the firm is different from employees working under the firm. It may be that a partner is being paid
some remuneration for any special attention which he devotes but that would not involve any change of status
and bring him within the definition of employee.57
[s 13.3] PARAGRAPH (b)
Section 13(b) reproduces the provisions of the repealed section 253(2) of the Indian Contract Act, 1872. The
two provisions are in identical terms.58 In K Pitchiah Chettiar v G Subramaniam Chettiar,59 the scope of section
253(2) of the Indian Contract Act, 1872 has been explained which has received the approval of the Supreme
Court in context of section 13(b) as well:
Section 253(2) of the Indian Contract Act, 1872 lays down that all partners are entitled to share equally in the profits of
the partnership business, and must contribute equally towards the losses sustained by the partnership. As I read the
section, it lays down two presumptions with which the Court should start. The two presumptions are clubbed in one sub
section. The first is, if no specific contract is proved, the shares of the partners must be presumed to be equal. In the
present case the plaintiff alleged unequal shares which were not denied by the defendants. So the parties being
agreed on their pleadings as to the shares possessed by them in the profits, there is no scope for the application of this
first presumption. The second presumption is that where the partners are to participate in the profits in certain shares
they should also participate in the losses in similar shares. Now the section says that both should be in equal shares
but implies that if unequal shares are admitted by the partners as to profits that applies equally to losses. In the
absence of a special agreement, that this should be the presumption with which one should start is merely a matter of
common sense and in India one has only to rely on section 114 of the Evidence Act, 1872 for such a principle.
But in the absence of an agreement as to how the losses are to be apportioned, the rule that where the share in
profits are unequal, the losses must be shared in same proportions as the profits, will not apply in certain cases
like in a case even where a minor is admitted to the benefit of a partnership. In such a case, even if the adult
partners bear the losses in proportion to their respective shares in the profits, the amount of loss in the minor’s
share would still remain undistributed. Will the partners between them bear this loss equally, or to the extent of
their own individual shares. There is no means of ascertaining in such case how the losses are to be
apportioned.60
It may be agreed that as between the partners, any one or more of them shall not be liable for losses,61 or that
the profit or loss of two partners shall be joint.62 Where shares are unequal, upon the retirement of a partner his
share becomes merged in the firm and is distributed in the proportion of the shares of the remaining partners.63
It is also nothing unusual that in some partnerships only one party bears the losses, in as much as such
clauses exist in certain partnerships because only one partner carries on the complete business.64
In this respect, a managing partner stands on the same footing as any other partner and cannot charge his co-
partners with any sum in shape of salary or commission.65 The partners are liable to contribute equally to the
losses only when they are entitled to share equally in the profits. Where they have agreed to share the profits in
certain proportions, the presumption is that the losses are also to be shared in like proportions.66 Paragraph (b)
can apply only where a question arises in respect of the entire profits or losses of the firm as a whole and will
have no application where shares of more than one partner are cumulatively shown in the partnership
agreement.67
Entitlement to profit will not bring a partner down to the level of an employee from the position of an employer.68
Right to share profits equally arises in absence of contract between the parties and there is no specific
provision for sharing capital equally unlike the enactment in England as can be seen in section 24(1) of UK
Partnership Act, 1890.69
[s 13.4] PARAGRAPH (c)
The principle of paragraph (c) is that a partner, as regards the capital brought by him into the business, is not a
creditor of the firm but an adventurer70 and therefore any agreed interest on such capital is, unless the contrary
is clearly expressed, a payment in lieu or on account of profits, and accordingly chargeable to profits only. The
partners are not entitled to interest on the capital subscribed by them, when there are no profits with the firms
since interest can be paid out of profits only.71 Where a partner borrows money from the firm, paying interest
thereon, the interest is part of the profits of the firm.72 A capital contribution does not become an advance
because under the partnership deed, there is no compulsion to contribute or maintain capital with the firm.
Capital of a partnership can be withdrawn or added to by consent of all partners. The fact of withdrawal of
amount of several partners does not mean that there was no obligation to contribute.73 If, in substance, the
interest paid by the firm to a partner and the interest, in turn, received from the partner are mere expressions of
the applications of the funds or profits of the partnership and which having regard to the community of interest
of the partners, are mere variations of the method of adjustment of the profits, there should be no impediment in
treating them as part of the same transaction if, otherwise, in general law, they admit of being so treated.74
The distinction between capital subscribed by the partner and the amount due to him for advances by way of
loan is material in this context. The firm may owe money to the partner in respect of undrawn profits. Therefore,
it is desirable to maintain separate capital and current accounts in the books of partnership.75 It is submitted
that in the rule of Common Law, in absence of a special custom or agreement, a loan does not bear interest
which also prevailed in equity stands modified by the provisions of the Interest Act, 1978.76
[s 13.5] PARAGRAPH (d)
Paragraph (d) calls for no comment; it is identical with section 24, sub-section (3), of the English Act, but for
minute verbal difference, except that six percent is named, being the Indian standard rate of interest.77 A
partner, however, is not entitled to interest after the date of dissolution unless there is an express or implied
agreement to that effect.78 Award of interest from the date of the suit under section 34 of the CPC, in a suit for
dissolution of partnership, was held not to be illegal in Chandrappa v Div Commr Gulbarga, AIR 1975 Kant 7, p
12; Suleman v Abdul Latif, (1931) 58 Cal 208, p 213 (PC).
[s 13.6] PARAGRAPH (e)
Paragraph (e) consists of two branches, which are founded on distinct principles and must not be confused on
any account. By clause (i) the general rule of an agent’s right to indemnity in respect of lawful acts done by him
in the exercise of his authority, as can be seen in Contract Act, section 222, is applied to the case of a partner
acting in the firm’s business. The closely similar words of the English Act, section 24, sub-section (2)(a), are “in
the ordinary and proper conduct of the business of the firm”; what is covered by that description is obviously a
question of fact depending on the nature and circumstances of the business and express rules, if any, made by
agreement between the partners. If the partner refused to disclose the nature of expenditure incurred, he will
not be entitled to be indemnified by the firm.79 A partner is entitled to be reimbursed for expenditure properly
incurred even if the thing in respect of which it is incurred ultimately turns out to be worthless.80
Sub-clause (ii) corresponds to section 24, sub-section (2)(b), of the English Act, which declares a partner’s right
to indemnity for expenses “in or about anything necessarily done for the preservation of the business or
property of the firm.” Here the wording is elaborate and gives more precise guidance to the court.
The outgoings, for which a partner may be entitled to reimbursement, under this clause are in the nature of
emergency or salvage expenses incurred by him personally on behalf of the firm in circumstances of
extraordinary requirement. Money payments to satisfy debts of the firm are the commonest examples under this
head. There may also be urgent and necessary payments required for keeping the business of the firm in
existence as a going concern; thus in a mining business it may be necessary to sink a new shaft promptly to get
at unexhausted minerals. Claims of this kind are somewhat anomalous, and justified only by necessity, and the
court is not disposed to extend their scope.81 However, when such expenditure is once found to be authorised
by necessity, the necessity is the only measure of the amount, which can be allowed as proper; there is no rule
whereby it is limited to the nominal capital of the concern.82 No decisions lately have been found on the topic,
and in fact the English reported cases mostly, if not wholly, arose in earlier period, under conditions which
modern company law has superseded. There is only one known case in a private partnership illustrating the
principle, and there the point is not very clear or conspicuous.83 It would seem that right to indemnify is
available in respect of necessary acts and does not extend to mere voluntary acts, which are considered to be
advantageous by the partner concerned.84
[s 13.7] PARAGRAPH (f)
Paragraph (f) is new in form. A partner’s general duty to attend diligently to the firm’s business is, of course,
broken by wilful neglect in conducting it, and there is authority, if it were needed, to show that in taking accounts
under the direction of the court, one partner may have compensation awarded to him for damage incurred
through the neglect of another.85 Moreover, a general statement of the principle was made long ago by an
eminent English judge, and may be taken as authoritative even if it was not strictly necessary for his decision:
Suppose the case of an act of fraud, or culpable negligence, or wilful default, by a partner during the partnership, to the
damage of its property or interest, in breach of his duty to the partnership; whether in law compellable or not
compellable, he is certainly in equity compellable to compensate or indemnify the partnership in this respect.86
Questions of this kind occur, as a rule, only on the dissolution of a firm. There was already authority; not much
of it but enough, to show that a partner on whom the whole management of the business is thrown by another’s
wilful neglect of it is entitled to compensation.87
In Gurdial v L Raghunath, AIR 1976 All 141, p 146 it is held that the section does not contemplate of a suit by
one partner for damages against another. The liability of a partner is to the firm, and not to one particular
partner.
As to the term “wilful neglect” the framers of the Act used it as meaning “that degree of neglect shown by
abstention from an obvious duty, attended by a knowledge of the likely results of the abstention”. A classic
example of this kind of negligence, though the particular case has nothing to do with partnership, occurred over
a century ago in Vaugham v Menlove, (1837) 3 Bing NC 468 : 43 RR 711 where the defendant being warned
that a hayrack on the border of his land was in danger of fermenting and catching fire, said he would chance it.
The point decided was that what the law requires of every man is the diligence of a reasonable man in the
circumstances, not merely that which appears reasonable to himself.
The Special Committee’s note on this section suggests the question, apparently never yet raised in practice,
whether section 212 of the Contract Act, defining the skill and diligence required of agents, is applicable to
partners acting on behalf of the firm. By that section, an agent is liable for not having the ordinary skill of
persons doing the kind of business in hand “unless the principal has notice of his want of skill.” That exception
would make the application of the rule as between partners precarious, for mutual confidence is of the essence
of their contract, and is presumed to be founded on knowledge of one another’s aptitude for the business. It is
hard, therefore, to see how one active partner could well deny notice of another’s want of skill. In any case, the
provisions of the present Act are more appropriate and adequate.
Paragraph (f ), read in the original draft, “loss caused to it by his fraud or wilful neglect.” By reason of the
general heading of the section, “subject to contract between the partners”, this would have made it possible for
an express agreement between the partners to exempt a partner from liability to compensate the firm for losses
caused, not only by his negligence in the conduct of the business, but by his actual fraud. The result would
have been that even if the fraud amounted to a criminal offence and the offending partner might be prosecuted
for it, the firm would be without redress. No wonder that the Select Committee struck out the words “fraud or”
with the very temperate observation:
We consider that it will be improper to allow any partner to contract himself out of liability for fraud, and it is very
doubtful if such a contract will be legal.
As to legality, there are no assignable bounds in point of law to the immunities a sovereign legislature may
confer if it thinks fit. However, it is not at all doubtful that a dispensation to commit frauds is a flagrant
contradiction of natural justice and public policy. Although one is almost tempted to suspect some oversight in
the report of the Drafting Committee, it is observed that the Select Committee’s deletion was not only proper,
but also necessary.
49 Rashiklal & Co v CIT, (1998) 2 SCC 49, paras 13 and 14.

50 VD Dhanawatey v CIT, Madhya Pradesh, AIR 1968 SC 683, p 692; Shelat Bros v Nanalal Harilal Shelat, AIR 1973 Mad
78.
51 Rashiklal & Co v CIT, (1998) 2 SCC 49, para 15. See also, Bidari Ashwini Hospital (Dr) v Income Tax Officer, 2010
SCC OnLine Kar 5455 : (2012) 254 CTR 290.
52 D Dhanwantey v CIT, AIR 1968 SC 683, para 8, p 691 (by majority).
53 IR 1968 SC 683, para 6, p 693 (Hegde J dissenting).
54 Ibid, para 5.
55 Ibid, para 6.
56 Ibid, para 8.
57 RegionalDirector, Employees’State Insurance Corporation v Ramanuja Match Industries, (1985) 1 SCC 218, paras 4
and 9; Imperial Arms Co Gun Factory v UOI, 2012 SCC OnLine Pat 1036 : (2013) 2 PLJR 40; Sachan Nursing Home v
Regional Provident Fund Commissioner, 2012 SCC OnLine All 4152 : (2013) 4 All LJ 420 : (2013) 137 FLR 768 : 2013
Lab IC 2767 : 2013 LLR 981.
58 Mandyala Govindu and Co v CIT, (1976) 1 SCC 248, para 8.
59 ILR 58 Mad 25, p 28 referred in ibid, para 8 wherein the apex court held that, “The law stated here in the context of
section 253(2) of the Contract Act, 1872 applies equally to section 13(b) of the Partnership Act, 1932”.
60 Mandyala Govindu and Co v CIT, (1976) 1 SCC 248, para 9.
61 Raghunandan v Hormasjee, (1927) 51 Bom 342 : 29 Bom LR 207 : 100 IC 1025 : AIR 1927 Bom 187; British Cotton
Growers’Assn (Punjab) Ltd v CIT,(1937) Lah 306 : 168 IC 549 : AIR 1937 Lah 338.
62 Hukumchand Sarupchand v Hansraj Harji, (1938) 2 Mad LJ 966 (PC).
63 Mohammad Abdul v Hafija Bibi, (1944) Mad 729 : AIR 1944 Mad 346 : 220 IC 422.
64 Bhagwanti v Kanshi Ram, 2011 SCC OnLine Del 5534.
65 Hutcheson v Smith, (1842) 5 Ir Eq 117; Bentley v Craven, (1853) 18 Beav 75.
66 M Govindu & Co v CIT Andhra Pradesh, AIR 1975 SC 2284; Re Albion Life Assurance Society, (1880) 16 Ch D 83, p
87.
67 Harkisondas Gokaldas v CIT, Bom City II 1981 Tax LR 410, p 417 (Bom) (DB).
68 Imperial Arms Co Gun Factory v UOI, 2012 SCC OnLine Pat 1036 : (2013) 2 PLJR 40.
69 Gurugubilli Chandran Naidu v Achanti Pydisetti, AIR 1985 NOC 135 (AP).
70 KA Md Kassim v Controller of Estate Duty, AIR 1967 Ker 130.

71 ITO v Minnow Trading Co Pvt Ltd, 2011 SCC OnLine ITAT 10945 : [2011] ITAT 10077.
72 Sri Ram v CIT, AIR 1953 All 779.
73 CIT v Badrilal Bholaram, AIR 1969 MP 9.
74 Keshavji Ravji and Co v CIT, (1990) 2 SCC 231, para 26.
75 Smith v Gale, (1974) 1 WLR 9; PC Chetti v VM Chetti, AIR 1961 Mad 478.
77 Samasundaram v Sevuguru Chettiar, (1940) 190 IC 748 : AIR 1940 Mad 505; Motilal v Sarupchand, (1936) Bom LR
1058 : 167 IC 208 : AIR 1937 Bom 81.
78 Motilal v Sarupchand, (1936) Bom 38 LR 1058 : 167 IC 208 : AIR 1937 Bom 81; Chandrie v Madhaviah, AIR 1961 Mad
478; Bhagchand v Kaluram alias Moolchand, AIR 1966 Raj 24; Barfield v Loughborough, [1872] 8 Ch 1 .
79 York and North Midland Rly v Hudson, (1845) 16 Beav 485; East India Co v Blake, (1673) Finch 117; Thornton v
Proctor, (1792) 1 Anstr 94, no indemnity for expenses fraudulently or negligently incurred.
80 Gleadow v Hull Glass Co, (1849) 13 Jur 1020.
81 Ex p Williamson (1869) LR 5 Ch 309, p 313; The German Mining Colliery’s case, (1853) 4 DM & G 19 : 102 RR 7.
82 4 DM & G 42 : 102 RR 19.
83 Burdon v Barkus, (1862) 4 DF & J 42 : 135 RR 19. On implied authority of an agent to act in absence of specific
instructions see Story on Agency, ch VI; Lindley on Partnership, 15th Edn, p 550.
84 Burdon v Barkus, (1862) 4 DF&J 42, p 51, per Turner LJ.
85 Airey v Borham, (1861) 29 Beav 620 : 131 RR 736, see the terms of the inquiry ordered by the court.
86 Knight Bruce VC in Bury v Allen, (1845) 1 Coll CC 589, p 604 : 66 RR 200, p 210; Lindley on Partnership, 15th Edn, p
562; Banwarilal v Shaikh Shukrullah, AIR 1940 Pat 204, p 231.
87 Airey v Borham, (1861) 29 Beav 620 : 131 RR 736; Krishnamachariar v Sankarah Sah, (1920) 22 Bom LR 1343 : 57 IC
713, (PC).
End of Document
[s 14] The property of the firm.—


Subject to contract between the partners, the property of the firm includes all property and rights and interest in
property originally brought into the stock of the firm, or acquired, by purchase or otherwise, by or for the firm, or
for the purposes and in the course of the business of the firm, and includes also the goodwill of the business.
Unless the contrary intention appears, property and rights and interests in property acquired with money
belonging to the firm, are deemed to have been acquired for the firm.
[s 14.1] PROPERTY OF THE FIRM
Section 14 recognises that, subject to contract between the partners, the property of the firm would include all
the property and rights and interests in property originally brought into the stock of the firm or acquired by
purchase or otherwise, by the firm or for the purpose of, or in the course of business of, the firm and includes
the goodwill of the business. It further provides that unless the contrary intention appears, property and rights in
property acquired with money belonging to the firm are deemed to have been acquired for the firm.88 The first
paragraph of this section corresponds in fact to section 253, sub-section (1) of the Contract Act, with the very
important express addition of goodwill to the contents of the firm’s property89 and omission of the words defining
a partner’s share. The second paragraph is substantially identical with section 21 of the English Act.
Sections 5, 6 and 14 give a definite idea about the factum of the existence of the firm and the determination of
what is the property of the firm. The two methods by which property can be brought into the firm are:
(a) The rights and interests in property could be brought into the stock of the firm by partners at the time of
the formation of the firm.
(b) Subsequent acquisition,90 by purchase or otherwise, in the course of the business of the firm for the
purpose of bringing the separate property of a partner into the stock of the firm. It is not necessary to
have a written document. The result follows by operation of law when the intention is expressed and
the properties are treated as partnership properties. These principles could be traced of the elaborate
discussions in Addanki Narayanappa v Bhaskara Krishnappa91 all of which have been alluded in a
Madras case.92
The assets of the partnership belong to and are owned by the partners of the firm. So long as partnership
continues each partner is interested in all the assets of the partnership firm as each partner is owner of the
assets to the extent of his share in the partnership.93
The expression “property of the firm” refers to partnership property, partnership assets, joint stock, common
stock or joint estate denoting all property rights and interests to which the firm, ie, all the partners as such, may
be said to be entitled and in this context the assets of a firm may illustratively include benefit of a contract,
benefit of lease or renewal of a lease, benefit of licence or quota, lands and buildings, etc. The assets of a firm
have a tangible and different meaning than that of the goodwill of the firm and unless a contrary intention
appears even if the goodwill is included in the term as the property of the firm, the exclusion of goodwill
specifically in the term of the contract would not necessarily take within its fold the other properties or the
assets of the firm.94
It may be noted that the words used in section 14 are “subject to contract between the partners” which clearly
goes to show that the definition of the property given in the section hold good only in the absence of contract to
the contrary between the partners.95
[s 14.2] AS TO THE FIRM’S PROPERTY GENERALLY
When one talks of the firm’s property or firm’s assets, all that is meant is property or assets in which all partners
have a joint or common interest.96 It is not necessary that every partnership for the purposes of its business
should own and utilise its own partnership property only. It can utilise property owned by others for the
purposes of its business. It would become property of the partnership only if there is an agreement, express or
implied, that the property under the agreement of partnership to be treated as the partnership property.97
Property belonging to the partners, or to one of them, does not become property of the firm merely by being
used for the purpose of the business.98
The Act conceives the interests of partners in severalty. There is no community or unity of interest between
partners. They hold immovable property of the firm as tenants-in-common and not as joint tenants.99 The
partnership property belongs to all the partners constituting the firm.100 The firm’s property, again, is recognised
in more than one way, but only as that which is “joint estate” of all the partners as distinguished from the
“separate estate” of any of them, and not as belonging to a body distinct in law from its members. When the
constitution of the Partnership Firm changes by way of induction of new partners or retirement or death of the
existing partners, the property remains that of the Partnership Firm.101
The Supreme Court in Arjun Kanoji Tankar v Sataram Kanoji Tankar102 has held that property belonging to a
person, in the absence of an agreement to the contrary, does not, on the person entering into a partnership with
others, become the property of the partnership merely because it is used for the business of the partnership. It
will become property of the partnership only if there is an agreement express or implied that the property was,
under the agreement of partnership, to be treated as the property of the partnership. The court rejected the
contention that whenever there is a partnership and the assets which originally belonged to one of the partners
are used for the purposes of the partnership, they must be presumed to have become partnership assets. It
held that there is no rule that whatever is brought by a partner in the partnership and is continued to be used by
the members is presumed to have become the property of the partnership. Any right which a partner has over
any property, other than the partnership property, would remain as his individual asset.103 The mere fact that
the particular person has chosen to include himself as a partner of a firm will not result in incorporation of all his
individual properties as the assets of the partnership.104 It would become property of the partnership only if
there is an agreement, express or implied, that the property under the agreement of partnership to be treated
as the property of the partnership.105 The right of a partner to a share in the assets brought into the business
depended upon the terms of the agreement of partnership. There is no rule that whatever is brought by a
partner in the partnership, and is continued to be used by the members is presumed to have become the
property of the partnership.106 It will become so only if the partners show an intention to make it so, as where
the owner of a mill agreed to carry on the manufacture in partnership with orders, and was credited in the
accounts of the firm with the value of the mill and plant as his capital. In that case, both the mill and any
subsequent additions to the site and plant were the firm’s property, and any increased value obtained for them
on a sale of the business was divisible as partnership profits.107 Where partners contributed money to provide
capital to carry on business in electricity undertaking, and no permission was taken for assignment of the
licence in the name of partnership and the licence stood only in the name of one of the partners, whether the
money of the partners utilised for the purchase of the undertaking at the auction-sale became, by virtue of
section 14, the asset of the partnership and thus, could be claimed by those who originally contributed the
amount after those assets have been converted into money. The apex court, placing reliance upon section 65
of the Indian Contract Act, 1872 held that such money is recoverable even if the initial partnership agreement
was void.108 Similarly, where, in subsequent dealings between the partners one partner’s share in the land and
business is treated as an undivided, whole,109 the nature of the business may also be material. If there is no
express agreement, attention must be paid to:
(a) the source whence the property was obtained;

(b) the purpose for which it was acquired; and
(c) the mode in which it has been dealt with.110
When the partnership deed is not there or it could not be produced, then the “assets” that formed the
partnership must be gathered from the admission of the parties or other materials available on record.111
The Madras High Court112 has laid down the following general principles relating to a partner’s property being
treated as the property of the firm:
1. The mere fact that the partner allows his property to use for the partnership business, such property
would not become partnership property.
2. There must be an implied or express contract among the partners for treating the property as
partnership property.
3. In order to treat a property of a partner be that of partnership property, it must be thrown into the
partnership stock; it may be without any formal document.
4. If the partnership came to existence under a document and when there were no rights indicating
transfer of interest as between a partner through his property in the partnership and the rest of the
partnership, it cannot be presumed that the partner sold his property to the partnership firm.
5. A partner should intend that his separate property should become partnership property and the same
should be treated as such. Then by virtue of provisions of Contract and Partnership Act, the properties
become the properties of partnership.
Conversion of partnership firm into a private limited company would result in vesting of the firm’s property in the
company and any ownership/leasehold rights in the property would vest not in the erstwhile partners as
shareholders of the company but in the company itself.113
[s 14.3] CONTRIBUTION OF A PARTNER TO PROPERTY OF A FIRM
The partner who brings in his personal asset into the capital of the partnership firm as his contribution to its
capital, he reduces his exclusive right in the asset to the shared rights in it with other partners of the firm.114
While he does not lose his rights in the asset altogether, what he enjoys now is an abridged right which cannot
be identified with the fullness of the right which he enjoyed in the asset before it entered the partnership capital.
Each and every partner has an interest in the firm’s property. It cannot be dealt with by any one of the partner
for its own use.115 Property, though purchased by and in the name of a partner, become partnership property
when brought to the stock of the firm and cannot be attached in a proceeding against the partner in his
individual capacity.116 When a property is made over to a partnership firm, there is no sale.117 No written or
registered document is necessary for an individual to contribute any land or immovable property as contribution
against his share of the capital of a new partnership business.118 Even if a property contributed by one partner
be an immovable property, no document,119 registered120 or otherwise, is required for transferring the property
to the partnership. By virtue of section 14 of the Indian Partnership Act, 1932 and certain provisions of the
Contract Act, they become the properties of the firm as soon as the partners intend to do so bring them in and
treat them as such. This sort of contribution or transfer is not prohibited by the Transfer of Property Act, 1882,
or the Registration Act, 1908.121 So far as mutation in the municipal record is concerned, failure or omission of
the same hardly matters under law as it has got no impact on title of the property.122
Regardless of the character of the property brought in by the partners on the constitution of the partnership firm
or that which is acquired in the course of business of the partnership, such property shall become the property
of the firm and an individual partner shall only be entitled to his share of profits, if any accruing to the
partnership from the realisation of this property and upon dissolution of the partnership to a share in the money
representing the value of the property. It is well settled that the firm is not a legal entity, it has no legal
existence, it is merely a compendious name and hence the partnership property would vest in all the partners of
the firm. Accordingly, each and every partner of the firm would have an interest in the property or asset of the
firm but during its subsistence no partner can deal with any portion of the property as belonging to him, nor can
he assign his interest in any specific item thereof to anyone. By virtue of the implied authority conferred as
agent of the firm his action would bind the firm if it is done to carry on, in the usual way, the business of the kind
carried on by the firm but the act or instrument by which the firm is sought to be bound must be done or
executed in the firm name or in any other manner expressing or implying an intention to bind the firm. His right
is merely to obtain such profits, if any, as may fall to his share upon the dissolution of the firm which remain
after satisfying the liabilities set out in the various sub- clauses (i) to (iv) of clause (b) of section 48 of the Act.123
The Supreme Court, in Addanki Narayanappa v Bhaskara Krishnappa, held that the interest of the partners of a
family in the partnership assets was movable property and the document evidencing the relinquishment of that
interest was not compulsorily registerable under section 17(1) of the Registration Act. The Supreme Court
observed:
The whole concept of partnership is to embark upon a joint venture and for that purpose to bring in as capital money or
even property including immovable property. Once that is done, whatever is brought in would cease to be the exclusive
property of the person who brought it in. It would be the trading asset of the partnership in which all the partners would
have interest in proportion to their share in the joint venture of the business of partnership. The person who brought it
in would, therefore, not be able to claim or exercise any exclusive right over any property, which he has brought in
much less in any other partnership property. He would not be able to exercise his right even to the extent of his share
in the business of the partnership. It is true that even during the subsistence a partner may assign his share to another.
In that case what the assignee would get only that which is permitted by section 29(1), that is to say the right to receive
the share of profits of the assignor and accept the accounts of the profits agreed to by the partners.124
In Chennuru Gavararaju Chetty v Chennuru Sitaramamurthy Chetty, AIR 1959 SC 190, p 197 the Supreme
Court held that there is no absolute rule of law or equity that a renewal of a lease by one partner, must
necessarily ensure for the benefit of all the partners. There is a presumption of fact, as distinguished from a
presumption of law, that there is an enquiry in favour of the renewal of the lease ensuring for the benefit of all
the partners. But such a presumption being one of fact, is rebuttable, and must, therefore, depend upon the
facts and circumstances of each case.
[s 14.3.1] Whether Partner’s Contribution to Firm is a “Transfer”
In Sunil Siddarthabhai v CIT, (1985) 4 SCC 519, the question arose as to whether the capital contribution by a
partner to the assets of a partnership firm at an appreciated value can be said to give rise to a capital gain in his
hands liable to income tax under section 45 of the Income-tax Act, 1961. After analysing the inclusive definition
of the word “transfer” in section 2(47), the Supreme Court held that when the assessee brought the share of the
limited companies into the partnership firm as his contribution to its capital, there was a transfer of a capital
asset within the terms of section 45.125 However, it was ultimately held that there is no capital gains within the
scope of section 45 since (a) the consideration received by the partner on transfer of his shares to the
partnership firm does not fall within section 48; (b) there is no profit or gain for the purposes of Income-tax Act.
There is no transfer of the ownership to the assessee firm by the partners even though the land and hospital
building was introduced as a capital contribution.126
[s 14.4] INTENTION OF THE PARTNERS
It is the intention of the partners that results into throwing their individual assets into the pool of partnership
business and converting them into partnership assets. Where along with separate business of the partners all
the tangible and intangible assets, including the tenancy rights of the business premises, were thrown and
amalgamated in partnership assets of the new firm constituted by the partnership deed, it was held that the
consequences of assignment of the tenancy rights of the business premises ensued and decree of eviction was
confirmed.127
Where A, who carried on business as a photographer on premises which he held on lease, invited B to join him
as partner, the only agreement expressly made being that profits should be shared equally, it was held that the
lease, the furniture, and the equipment of the studio did not form part of the partnership property.128 The quota
allotted under the Woollen Yarn (Production and Distribution) Control Order 1960, was not an asset of the
partnership. It was a matter of privilege the grant of which lies with the Textile Commissioner.129
[s 14.5] TRANSFER OF PROPERTY OF THE FIRM TO A PARTNER
It is well settled that there is no transfer of property in case where there is a dissolution of partnership or a
partner retires and obtains in lieu of his interest in the firm, an asset of the firm.130 In the case of settlement of
interest among the partners, it is settled position of law that there is no transfer of interest, nor there is
conveyance.131
However, where the property is transferred to one of the partners during the subsistence of the partnership, it
amounts to a transfer. In BT Patil & Sons v Commissioner of Gift Tax, (2003) 9 SCC 172, the firm transferred
certain items of machinery to each of its five partners and debited their accounts with the consideration charged
for, which was muss less than the market value. In these facts, the Supreme Court held:132
When, during the subsistence of a partnership, an asset of the partnership becomes the asset of only one of the
partners thereof; there is, in such a case, a transfer of that asset by the partnership to the individual partner. Where
such transfer is for less than the value of that asset, there is a deemed gift to that extent of the difference under the
provisions of section 4(1)(a) of the Gift Tax Act.
[s 14.6] PROPERTY OF THE FIRM AND MISAPPROPRIATION
Ordinarily speaking, a partner has undefined ownership along with the other partners over all the assets of the
partnership. As such, every partner has dominion over partnership property in the same way as every owner of
property had dominion over his property. Where a partner was authorised to recover dues of the partnership
and spend the money for the business of the partnership, it was held that he was not guilty of criminal breach of
trust though he did not deposit the same in the bank. In a criminal case, the prosecution must establish that
dominion over the assets or a particular assets of the partnership was by a special agreement between the
partners entrusted to the accused person. If, in the absence of such a special agreement, a partner receives
money belonging to the partnership, he cannot be said to have received it in a fiduciary capacity or in other
words cannot be held to have been “entrusted” with dominion over partnership, properties. If a partner chooses
to use any assets of the partnership for his own purpose, he may be accountable civilly to the other partners.
However, he does not thereby commit any misappropriation.133
[s 14.7] LICENCE
A licence granted under the Cinematograph Act, 1952 is given to a person in respect of a “place” where
cinematographic apparatus have been installed. In this view, the Supreme Court set aside the order of the High
Court which held that where the licensed premises including the cinematograph used therein belongs to a
partnership and one of the partners obtains a licence in his separate name, the other partners automatically
acquire interests in the licence. It held that the licence is not a grant for the premises.134 Grant of a licence to a
firm would get affected in case of change of partners.135
[s 14.8] TENANCY
If a firm is a tenant in a premises, it is the firm which is the tenant. The partners, having an interest in the assets
of the firm; a tenancy right being an asset, the partners would have an interest in the tenancy.136
[s 14.9] GOODWILL
The goodwill is generally considered to be an asset of the partnership.137 A firm’s property generally includes
goodwill, so far as it exists and has exchangeable value138 about the incidents of goodwill. The nature and
incidents of goodwill are discussed under this section. The rights of partners, and the rights and duties of
vendors and purchasers of goodwill are discussed under section 36 and the position on dissolution under
section 55.
“Goodwill” of a business depends upon a variety of circumstances or a combination of them. The location, the
service, the standing of the business, the honesty of those who run it, and the lack of competition, locality and
many other factors go individually or together to make up the goodwill.139 It is properly a commercial term,
signifying the value of the business in the hands of a successor, so far as increased by the continuity of the
undertaking being preserved in the shape of the right to use the old name and otherwise. It is something more
than the mere chance of probability of old customers maintaining their connection, though this is a material part
of the practical fruits; it may be summed up as “the whole advantage, whatever it may be, of the reputation and
connection of the firm”.140 It, thus, means that every affirmative advantage as contrasted with negative
advantage that has been acquired in carrying on the business whether connected with the premises of
business or its name or style, everything connected with or carrying the benefit of the business.141 In Lord
Eldon’s decree in Cook v Collingridge, (1825) 27 Beav 456, p 459 : 54 ER 180 : 23 RR 767, there is an
exposition of the nature and legal incidents of goodwill which is still of high authority. It was held in Dulaldas
Mullick v Ganesh Das, AIR 1957 Cal 280, that a sale in execution of the goodwill of a going concern included
the tenancy right in the shop. Lord Macnaghten described goodwill as “a thing very easy to describe, very
difficult to define”.142
The importance of goodwill, as compared with others assets of a firm necessarily varies according to the nature
of the business. In some kinds of business, it may be inappreciable.143 In such businesses as those of solicitors
it is of little importance;144 and in other businesses, depending on personal and confidential relations, or more or
less independent of local connections, or of the resorting of customers to a particular place much the same
position arises.145 Goodwill cannot have any real value in case of a losing business.146
[s 14.10] SECOND PARAGRAPH OF THE SECTION
As regards the second paragraph of the section, the following illustrations may be found instructive.
If purchase of the property is made out of the funds of the firm, the fact that it was taken in the name of one
partner is of no consequence and it becomes the property of the firm.147 Anything bought in the name of one
partner and paid for by the firm out of the profits of the partnership business is partnership property unless a
contrary intention appears.148 However, the words “unless the contrary intention appears” at the beginning of
the second paragraph of the section is equally important.
Illustrations
(a) Land bought in the name of one partner, and paid for by the firm out of the profits of the partnership
business, is partnership property unless a contrary intention appears.149
(b) One partner in a firm buys railway shares in his own name without the authority of the other partners
but with the money and on account of the firm. These shares are partnership property.150
(c) The goodwill of the business carried on by a firm, so far as it has a saleable value, is partnership
property, unless the contrary can be shown.151
(d) A and B take a lease of colliery for the purpose of working it in partnership and do so work it. The lease
is partnership property.152
(e) A and B being tenants in common of a colliery, begin to work in it as partners. This does not make the
colliery partnership property.153
(f) If, in the case last stated, A and B purchase another colliery, and work in it in partnership on the same
terms as the first, the purchased colliery is not partnership property, but A and B are co-owners of it for
the same shares and interest as they had in the old colliery.154
(g) W, a nurseryman, devises the land on which his business is carried on and bequeaths the goodwill of
the business to his three sons as tenants in common in equal shares. After his death, the sons
continue to carry on the business on the land in partnership, and two of them buy the share of the third
in the land and business as an undivided whole. The land so devised to them is partnership
property.155
(h) A is the owner of a cotton mill. A, B and C enter into partnership as cotton-spinners, and it is agreed
that the business shall be carried on at his mill. A valuation of the mill, fixed-plant, and machinery is
made, and the ascertained value is entered in the partnership books as A’s capital, and he is credited
with interest upon it as such in the accounts. During the partnership, the mill is enlarged and improved,
and other lands acquired and buildings erected for the same purposes, at the expense of the firm. The
mill, plant and machinery, as well as the lands purchased afterwards and the buildings thereon, are
partnership property; and if on a sale of business, the purchase money of the mill, plant and machinery
exceeds the value fixed at the commencement of the partnership, the excess is divisible as profits of
the partnership business.156
(i) A and B, partners, effect insurance on their lives for and on account of the partnership and the
premiums in respect of the insurance policies are paid out of the funds of the partnership. The policies
form part of the partnership assets.157
(j) A lease, which is partnership property, contains an option to renew. One of the partners renews the
lease. The renewed lease is partnership property.158
(k) Trademark though acquired in a partner’s name but paid for by the firm is the asset of the firm.159
In peculiar facts, the Gujarat High Court held that even though the consideration was paid through the firm’s
account, the fact that the property has been purchased in the name of the partners and not the firm shows a
contrary intention that the property does not belong to the firm.160
88 Controller of Estate Duty v Mrudula Nareshchandra, 1986 (Supp) SCC 357, para 22; Rashmi Nagrath v Sarva Priya
House Bldg Socy Ltd, 2016 SCC OnLine Del 6123 : (2016) 235 DLT 601 (DB) : (2016) 160 DRJ 437; Prakashchand v
Velmurugan Constructions, 2014 SCC OnLine Mad 11585.
89 Khushal Khemgar Shah v Khorshed Banu Dadiba Boatwala, AIR 1970.
90 Mohd Laiquiddin v Kamala Devi Misra, (2010) 2 SCC 407 [Under the Partnership Act, 1932, property which is brought
into the partnership by the partners when it is formed or which may be acquired in the course of the business becomes
the property of the partnership and a partner is, subject to any special agreement between the partners, entitled upon
dissolution to a share in the money representing the value of the property.]; Commissioner of Gift Tax v MA
Unnerrikutty, 2006 SCC OnLine Ker 792 : (2007) 208 CTR 372.
91 AIR 1966 SC 1300; CR Ramachandra Gowder v CP Nanjappa, AIR 1973 Mad 179; JJ Rebello v Chief Controlling Rev
Auth, AIR 1971 Mys 318.
92 (1993) Mad LJ 63.
93 N Khadervali Saheb v N Gudu Sahib, (2003) 3 SCC 229, para 3; Charanjeet Singh v State (NCT of Delhi), 2019 SCC
OnLine Del 6397; Sudhir Jalan v Rajendra Bajoria, 2018 SCC OnLine Cal 7799 : AIR Online 2018 Cal 1573 :
LNINDORD 2018 CAL 148.
94 Shri Chemical Corporation v Miraben Prafulbhai Contractor, AIR 2001 Guj 171, p 174. Shree Ganesha Enterprises v
Sandeep Gullah, 2012 SCC OnLine Del 246 : 2012 (127) DRJ 743.
95 Sujan Suresh Sawant v Dr Kamlakant Shantaram Desa, AIR 2004 Bom 446, para 37; A. Ahammed Koya v United Bank
of India, 2013 SCC OnLine Ker 15898; Chhaganbhai Limbabhai Bhalala v Vinodbhai Limbabhai Bhalala, 2013 SCC
OnLine Guj 6536.
96 Malabar Fisheries v CIT, (1979) 4 SCC 766, para 18 : (1979) 120 ITR 49. See also, NT Agro Food Products v State of
WB, 2014 SCC OnLine Cal 20546.
97 Sujan Suresh Sawant v Kamlakant Shantaram Desa, AIR 2004 Bom 446, para 29
98 Lindley on Partnership, 15th Edn, pp 503–10; Davis v Davis, [1894] 1 Ch 393; Lachhman Das v Gulab Devi, (1936) 162
IC 143 : AIR (1936) All 270; Vraj Kuwar Bai, v Kunjbiharilal Krishnachandra, AIR 1971 MP 109; Gian Singh v Devraj
Nahar, (1965) 1 WLR 412 (PC); Eardley v Broad, The Times, 28 April 1970 cited on p 504 of Lindley on Partnership,
15th Edn; Re John’s Assignment Trusts in, Niven v Niven, (1970) 1 WLR 955.
99 Sardar Rajinder Singh v Sardar Vajinder Singh, 2014 SCC OnLine Bom 2667.
100 Seodayal v Joharmull,(1923) 50 Cal 549; Md Abdul v Sheikh Ismail, AIR 1934 Mad 9 : 148 IC 1137; Brij Kishore v Sheo
Charan, (1938) ILR All 100 : AIR 1938 All 69; CIT, West Bengal v AW Figgis & Co, AIR 1953 SC 455; Bacha F Guzdar
v CIT, AIR 1955 SC 74; S Meikole Udayar v SP Periaswami Korar, AIR 1967 Mad 449; Bharat Sarvodaya Mills Co Ltd
v Mohatta Bros, AIR 1969 Guj 178; Firm Alwar Iron Syndicate v The UOI, AIR 1970 Raj 86; Dulichand Lakshmi Narain
v CIT, AIR 1956 SC 354; CIT v Jadavji Narsinhdas & Co, AIR 1963 SC 1997, p 1500.
101 Pradeep Cinema v Collector-Junagadh, 2016 SCC OnLine Guj 6021.
102 (1969) 3 SCC 555, p 561; Arm Group Enterprises Ltd v Waldorf Restaurant, (2003) 6 SCC 423; Nitya Gopal Das v
State of Assam, 2015 SCC OnLine Gau 974 : (2016) 1 GLR 376; Dr Ramji Singh Properties and Hotels Private Ltd v
Debts Recovery Appellate Tribunal, 2013 SCC OnLine All 13873 : (2013) 4 All LJ 303 : (2013) 101 ALR (SUM 34) 17; A
Abdul Rahim v Dr Francis Pinto, 2017 SCC OnLine Mad 1102 : (2017) 6 CTC 337.
103 Chandan Pharmaceuticals Corporation v RK Jalan, 2018 SCC OnLine Mad 493 : (2018) 3 Mad LJ 778.
104 Shashi Kapila v RP Ashwin, (2002) 1 SCC 583, para 9; Viswanathan v Subramanian, 2018 SCC OnLine Ker 3440.
105 Jai Narayan Misra v Hashmathunnisa Begum, AIR 2002 AP 389, para 41.
106 Arjun Kanoji Tankar v Santaram Kanoji Tankar, (1969) 3 SCC 555, 561; Noor Mahommed Mir v Gh Qadir Mir, AIR
1983 NOC 181 (J&K); Boda Narayana Murthy & Sons v Valluri Venkatasuguna, AIR 1978 AP 257, p 259; followed in
Nariman Aspandiar Irani v Adi Merwan Irani, (1990) Mah LJ 265.
107 Robinson v Ashton, (1875) LR 20 Eq 25; Property of the firm—tenancy rights expressly brought into partnership stock
do not cease to be so merely because they are continued in the name of only one of the partners. Such tenancy are
liable to be dealt with as other partnership property till the firm is dissolved by final decree as in Ganpat Rai v Abnash
Chander, AIR 1973 J&K 74.
108 Ramagya Prasad Gupta v Murli Prasad, (1974) 2 SCC 256 : 1974 SCN 188.
109 Waterer v Waterer, (1873) LR 15 Eq 402. Where members of a joint Hindu family partition their business and lands and
vary their share in the business but stipulate that their shares in the property should remain the same, a strong
presumption is raised in favour of the view that the immovable properties do not form part of the assets of the
partnership; Lachhman Das v Gulab Devi, (1936) 162 IC 143 : AIR 1936 All 270.
111 Shreedhar Govind Kamerkar v Yesahwant Govind Kamerkar, (2006) 13 SCC 481 : 2007 (3) Bom CR 1010 : 2006 (14)
Scale 174. Rel. on Dwijendra Nath Mullick v Rabindra Nath Chatterjee, AIR 1987 Cal 289 and Jayalakshmi v
Shanmugham, AIR 1988 Ker 128.
112 Khaja Mohideen v M Mohammed Saliha, 2013 SCC OnLine Mad 1897 : 2013-4-L.W. 609. See also, Deepak Arora v
Vijay Khanna, 2009 SCC OnLine HP 1040 : 2009 (2) ShimLC 340.
113 UOI v Mahalaxmi Saw Mills P Ltd, 2015 SCC OnLine Del 14383 : 2016 IIAD (Delhi) 529 : 226 (2016) DLT323.
114 Sunil Siddarthabhai v CIT, (1985) 4 SCC 519, p 528; Sujan Suresh Sawant v Kamlakant Shantaram Desa, AIR 2004
Bom 446, para 29.
115 Special Officer, Tamil Nadu Handloom Wavers’ Cooperative Society v MVM Chellamuthu Pillai, 2010 SCC OnLine Mad
4548 : 2010 (3) MWN (Civil) 734.
116 Shivmoni & Co v Canara Bank, 2006 SCC OnLine DRAT 105 : (2007) 2 BC 38 (DRAT).
117 CIT v Hind Construction Ltd, (1972) 4 SCC 460 : (1972) 83 ITR 211; Sunil Siddarthabhai v CIT, (1985) 4 SCC 519; CIT
v Janab N Hyath Batcha Sahib, (1969) 72 ITR 528 (Mad); MC Kackkar v CIT, (1973) 92 ITR 87 (All); CIT v CM
Kunhammed, (1974) 94 ITR 179 (Ker); CIT v Abdul Khader Motor and Lorry Service,(1978) 112 ITR 360 (Mad).
118 Firm Ramsahay Mall Rameshwar Dayal v Bishwanath Prasad, AIR 1963 Pat 221; Sudhansu Kanta v Manindra Nath,
AIR 1965 Pat 144; Chief Controlling Revenue Authority v Chindambaram, AIR 1970 Mad 5.
119 N Marappan v VST Sengottaian, 2016 SCC OnLine Mad 6967 : 2016-3-L.W.248.
120 KD Pandey v Commissioner of Wealth Tax, Lucknow, 108 ITR 214. Rel on Prem Raj Brahmin v Bhani Ram Brahmin,
(1946) ILR 1946 1 Cal 191; Firm Ram Sahay Mall Rameshwar Dayal v Bishwanath Prasad, AIR 1963 Pat 221; CIT v
Janab N Hyath Batcha Sahib, (1969) 72 ITR 528 (Mad); Chief Controlling Revenue Authority v Chidambaram, AIR
1970 Mad 5; RM Ramanathan Chettiar v CED, (1975) 99 ITR 410 (Mad).
121 Kallepally Krishnam Raju v Commnr & IG of Registration & Stamps, AP, Hyd, 2007 SCC OnLine AP 301 : 2007 (2)
A.P.L.J 290 (HC).
122 Broadway Centre v Gopaldas Bagri, AIR 2002 Cal 78, para 35.
123 SV Chandra Pandian v SV Sivalinga Nadar, (1993) 1 SCC 589, para 8.
124 (1966) 3 SCR 400 : AIR 1966 SC 1300; CIT, West Bengal v Juggilal, AIR 1967 SC 401, p 404; Malabar Fisheries Co v
CIT, Kerala, AIR 1980 SC 176, pp 182, 183; Board of Revenue, Uttar Pradesh v Autosales, Allahabad, Uttar Pradesh,
AIR 1979 All 312; Boda Narayan Murthy & Sons v Valluri Venkatasuguna, AIR 1978 AP 257; Jugailal Kamlapat
Bankers v Wealth Tax Officer, Special Circle, Kanpur, [1979] 116 ITR 646 (All); CIT, Madhya Pradesh v Dewas Cine
Corpn, AIR 1968 SC 676, p 678 holding that adjustment of the rights of the partners in a dissolved firm is not a transfer.
125 Ibid, para 16.
126 Chakrabarty Medical Centre v Tax Recovery Officer, 2015 SCC OnLine ITAT 1076 : (2015)169 TTJ (Pune)745. Rel KD
Pandey v Commissioner of Wealth Tax, Lucknow, 108 ITR 214.
127 Shah Chatrabhuj Narshi v Nensibhai Shavanjibhai Gohil, 21 Guj LR 377, pp 378, 390.
128 Miles v Clarke, [1953] All ER 779.
129 Shadilal v Naginchand, AIR 1973 SC 776.
130 For detailed discussion, see under the heading “Distribution of assets of dissolved firm” under section 48 below.
131 D Balan v Inspector General of Registration, 2016 SCC OnLine Mad 10436 : AIR 2017 (NOC 496) 164.
132 Ibid, para 6.
133 Velji Raghavji Patel v State of Maharashtra, AIR 1965 SC 1433; Bhuban Mohan Das v Surendra Mohandas, AIR 1951
Cal 69; R v Bonner, [1970] 2 All ER 97. There may be an “appropriation” by one partner within the meaning of Theft Act
of 1968.
134 Ved Gupta v Apsara Theatres, (1983) 4 SCC 323.
135 Calcutta Plywood v State of Bihar, 2018 SCC OnLine Pat 2171.
136 Enigma Gym “N” SPA v Shehanshah Real Estate, 2012 SCC OnLine Del 3093.
137 Ramnik Vallabhdas Madhvani v Taraben Pravinlal Madhvani, (2004) 1 SCC 497, para 70.
138 Levy v Walker, (1879) 10 Ch D 436, p 446; Re David and Mathews, [1899] 1 Ch 378; Jennings v Jennings, [1898] 1 Ch
378; Ramakrishna Ayyar v Muthusami Ayyar, (1929) Mad 672 : 121 IC 609 : AIR 1929 Mad 456; Md Abdul v Hafija Bibi,
(1944) Mad 729 : AIR 1944 Mad 346 : 220 IC 422.
139 SC Combatta and Co v Commissioner of Excess Profits Tax, AIR 1961 SC 1010, para 9.
140 Lord Macnaghten in Trego v Hunt, [1896] AC 24 ; Ramnik Vallabhdas Madhvani v Taraben Pravinlal Madhvani,
(2004) 1 SCC 497, para 68; New Gujarat Cotton Mills Ltd v Labour Appellate Tribunal, AIR 1957 Bom 11; Stateof
Rajasthan v Bundi Electric Supply Co Ltd, AIR 1970 Raj 36.
141 Ramnik Vallabhdas Madhvani v Taraben Pravinlal Madhvani, (2004) 1 SCC 497, para 68.
142 Inland Revenue Commr v Muller & Co, [1901] AC 223 . Property of the firm, goodwill of the business is the property
of the firm, goodwill can be an advantage connected with premises in which business is carried on; the benefit of
tenancy rights can also form part of goodwill in absence of any stipulation to the contrary, [1901] AC 217, p 223 : [1896]
AC 7 : 1859 John 174, p 188 : (1880) 14 Ch D 596 : 61 NY 226 : AIR 1957 Cal 280 relied on; Ganpat Rai v Abnash
Chander, AIR 1973 J&K 74; State v Prem Nath, AIR 1977 P&H 62 (FB).
143 Steuart v Gladstone, (1879) 10 Ch D 626, p 657.
144 Austen v Boys, (1858) 2 De G&J 626 : 44 ER 1133 : 119 RR 264, p 270; Arundell v Bell, (1883) 31 WR 477 (CA); but in
Burchell v Wilde, [1900] 1 Ch 551, it is assumed throughout that it does exist in some sense and for some purposes.
145 As in the case of commission merchants, Steuart v Gladstone, (1879) 10 Ch D 626, 657; see also Farr v Pearce,
(1818) 3 Mad 74 : 56 ER 437.
146 C Abdul Shukoor Saheb v Arji Papa Rao, AIR 1963 SC 1150, para 10, p 1154.
147 Smith v Smith, (1880) Ves 189; Diwell v Franes, (1959) 1 WLR 624; MacDonald v MacDonald, [1957] 2 All ER 690; AE
Jones v FW Jones, (1977) 1 WLR 438; in relation to cases where are lenient in common has ousted another in Dennis
v MacDonald, (1982) Fam 63; CRR Gowder v CP Nanjappa, AIR 1973 Mad 179 (DB) house reconstructed from
partnership firm.
148 Debi Parshad v Jai Ram Dass, AIR 1952 Punjab 284 : LNIND 1951 PNH 181.
149 Nerot v Burnand, (1827) 4 Russ 247 : 2 Bli NS 215 : 38 ER 798 : 28 RR 65; Wedderburn v Wedderburn, (1856) 22
Beav 104 : 52 ER 1047 : 111 RR 70; Debi Prashad v Jai Ram, AIR 1952 Punj 284.
150 Ex p Hinds, (1849) 3 De G&Sm 603 : 64 ER 629.
152 Lindley on Partnership, 15th Edn, p 341; Crawshay v Maule, (1818) 1 Swanst 495, pp 518, 523 : 36 ER 479 : 18 RR
126, pp 132, 136. A fortiori, where the colliery belongs toA alone before the partnership, Burdon v Barkus, (1862) 4 DF
& J 42 : 45 ER 1098 : 135 RR 19.
153 Ibid.
154 Implied in Steward v Blakeway, [1869] LR 4 Ch 603; though in that case it was treated as doubtful if there was a
partnership at all.
155 Waterer v Waterer, (1873) LR 15 Eq 402; see also Davis v Davis [1894] 1 Ch 393 : 63 L Ch 219.
156 Robinson v Ashton, (1875) LR 20 Eq 25 : 44 LJ Ch 542.
157 Re Adarji Mancherji Dalai (1931) 55 Bom 795 : 133 IC 254.
158 Debi Prashad v Jai Ram, AIR 1952 Punj 284.
159 Darshan Kumar v Ranjit Kumar Sharma, 2014 SCC OnLine IPAB 18.
160 Uttamsingh Jodhsingh Ahaluwalia v Jagzitkaur Giansingh Ahaluwalia, 2008 SCC OnLine Guj 34 : (2008) 1 GLH 646 :
(2008) 49 (1) GLR 643 [Held, the suit property if was the property of the firm, then, it could have been purchased in the
name of the firm whereas the sale deed makes it clear that it has been purchased in the individual name of two
brothers.]
End of Document
[s 15] Application of the property of the firm.—


Subject to contract between the partners, the property of the firm shall be held and used by the partners
exclusively for the purposes of the business.
[s 15.1] APPLICATION OF PARTNERSHIP PROPERTY
This corresponds to the latter part of section 20, sub-section (1), of the English Act, with slight verbal variation.
It is to be read not as purporting to enact any specific rule, but as declaring, in a summary way, a principle
inherent in the nature of the partnership contract, which is worked out in the detailed provisions of the Act. A
fastidious draftsman might call it superfluous, but it is nonetheless useful for the instruction of unlearned
persons who have to make use of the Act.
Section 15 provides that the property of the firm shall be held and used exclusively for the purpose of the firm.
In partnership, there is a community of interest in which all the partners take in the property of the firm. But that
does not mean that during the subsistence of the partnership, a particular partner has any proprietary interest in
the assets of the firm. Every partner of the firm has a right to get his share of profits till the firm subsists and he
has also a right to see that all the assets of the partnership are applied to and used for the purpose of
partnership business.161
This legal position precludes the possibility of any property of the firm being shown as separate property of any
partner so long as the partnership subsists. Read with section 19, it was held that no partner can ever validly
sell or dispose of any of the partnership property as his own property. A partner cannot deal with any portion of
the partnership property as his own property for the reason that he is not like a co-owner of the property.162
In a general way, it is obvious that the partners, if all of one mind, can as between themselves do as they
please with the firm’s property, or authorise some or one of them to deal with it, and that no partner can, in the
absence of an express agreement of all, go beyond his ordinary implied authority to act on behalf of the firm. In
the absence of a contract to the contrary, no partner can point to any part of the partnership assets as
belonging to him alone.163 The limits of that authority are declared in sections 19 and 20 below. Only some of
the partners cannot exclusively use the goodwill and the assets of the partnership.164
Section 15 comes under Chapter III “Relations of Partners to One Another” and mandates that subject to
contract, the property of the firm shall be held and used by the partners for the purposes of the business. This
decides the relationship between those persons who are in the status of partners, inter-se. It is trite that a
partnership firm has no separate existence from that of its partners and does not have the status even of a legal
entity. Section 15 at best would regulate the relationship between the partners and does not affect a third party
who claims against one of the partners.165
161 Controller of Estate Duty v Mrudula Nareshchandra, 1986 (Supp) SCC 357, para 22.
162 Rajnikant Hasmukhlal Golwala v Natraj Theatre, AIR 2000 Guj 80, p 87.
163 Ajudhia Pershad v Sham Sundar, (1947) Lah 417 : AIR 1947 Lah 13; Addanki Narayanappa v Bhaskara Krishnappa,
AIR 1966 SC 1300; Reddi Verraju v Chittori Zakshminarasamma, AIR (1971) AP 266; notes under section 14
164 Bawa Jodh Singh v Bawa Gurdial Singh, AIR 1984 NOC 13 (Del); Vraj Kuwar v Kunjibiharilal, AIR 1971 MP 109, p 111.
165 Paily & Company v State of Kerala, 2016 SCC OnLine Ker 24073 : 2016 (4) KHC 80 : 2016 (3) KLJ 589 : 2017 (1)
RCR(Civil) 91.
End of Document
[s 16] Personal profits earned by 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.
Comparing sections 29, 30 of the English Act and sections 258, 259 of the Contract Act, it can be seen that
every partner being presumably an agent of the firm, the principle may be regarded as developed from or
parallel to the stringent and universal rule in the law of agency that an agent must not deal on his own account
or make any undisclosed profit for himself in the business of his agency as can be seen in sections 216, 218 of
the Contract Act. The two clauses of the present section being branches of the same fundamental rule, their
application is not always easily distinguishable.
[s 16.1] CLAUSE (a)
In case of Aas v Benham, it has been observed by Lindley, LJ that:
It is clear law that every partner must account to the firm for every benefit derived by him without the consent of his co-
partners from any transaction concerning the partnership or from any use by him of the partnership property, name, or
business connection.166
Even apart from this provision where a partner represents himself as acting as agent for the firm even though
he does not have any express authority, he may be liable to account for any profit made thereby.167 A partner
will not be allowed to acquire renewal of a lease of the partnership property for his own benefit to the exclusion
of others.168
Although there is a fiduciary relationship between partners, a partner receiving assets on behalf of the
partnership on account of himself and his partners is not liable as a person acting in a fiduciary capacity. If,
however, a partner is made a managing partner and betrays the trust reposed in him, he may be held
accountable as a fiduciary.169
A partner, who had used the kiln and the apparatus and machinery belonging to the firm for manufacturing the
bricks which he supplied to the government, was held liable to account for the price obtained by him for the
bricks on the ground that he had derived profits himself by using the property of the partnership.170 A
partnership property cannot be transferred by a partner for his own benefit or mortgaged, because he has no
right to deal with it as his personal property.171
Where a partner fraudulently secured a partnership contract in his own name, it was held that he was liable for
damages.172 However, a partner is not liable to account for profit made in an independent business, not
competing with the firm in which information which he has acquired as a partner has or may have been useful
to him, not even if his undertaking any such business is a breach of the partnership articles entitling the other
partners to damages or possibly a dissolution.173
Clause (a) is of course subject to contract between the parties and any profit derived by a partner in view of
such contract is permissible.174
[s 16.2] CLAUSE (b)
There is an equitable duty on part of a partner not to compete with the business of the partnership firm even if
there be no express prohibition under the partnership agreement in this regard. However, if the partnership
agreement expressly provides for the same, the partner is free to compete. Same is applicable to a joint
venture as well. Such competing or rival business, without written permission or contract, will definitely cause
damage to the purpose or object of the joint venture or Partnership.175 Profits in the hand of a partner earned
out of a competing business shall be accounted for to the firm for tax purposes.176
One or more persons may, with knowledge and consent of all parties, be members of two distinct firms carrying
on a similar, if not a directly competing business, as where the two undertakings are a morning and an evening
newspaper. In such a case, members of a firm A who also belong to firm B are not entitled, though a majority in
A, to use A’s special information for the purposes of B.177 There may be an express agreement not to engage in
any business whatever other than the firm’s, irrespective of competition. Breach of such an agreement,
however, does not make the partner breaking it, liable for an account of profits.178 In fact, an agreement so
expressed is only equivalent to the more usual form by which the promisor undertakes to give his whole time
and attention to the firm’s business.
If a partner is doing business which does not compete with the business of the firm even if the business is of
the same nature, clause (b) will not apply. The clause postulates that the firm is carrying on some business
activity. The competition in business must be at the same level in the time dimension as observed:
It is not possible to read clause (b) as contemplating competition in a business carried on by a partner in presenti on
one hand and a business which was once being carried on by the partnership in the past. The very idea of competition
connotes a rival activity at the same point of time.179
166 [1891] 2 Ch 244, p 255; Shiam Sunder v Pratap Chandra, AIR 1952 All 330.
167 English v Dedham Vale Properties Ltd, (1978) 1 WLR 93.
168 Featherstonbaugh v Fenwick, (1810) 17 Ves 298; Clegg v Edmondson, (1856) 8 De GM & G 787; Robert Watte
Pathirana v Ariya Pathirana, [1967] 1 AC 233 (PC).
169 Mathura Datt v Prem Ballabh, AIR 1961 All 19.
170 Abdul Razaak v Mashiruddin Ahmad, AIR 1959 Cal 660 (DB).
171 Vraj Kuwar v Kunjbiharilal, AIR 1971 MP 109, p 112.
172 Navinchandra Jethabhai v Moolchand Sadaram Gindodiya, AIR 1966 Bom 111.
173 Dean v MacDowell, (1878) 8 Ch D 345; Aas v Benham, above, considered by the House of Lords in Boarman v Phipps,
[1967] 2 AC 46; IndustrialDevelopmentConsultants Ltd v Cooley, (1972) 1 WLR 443; Re Coffey’s Registered Design,
(1982) FSR 227; Ratanlal Ahluwalia v Jai Jamindar Prasad, AIR 1976 P&H 200, p 205 holding that knowledge and
information derived from the partnership business cannot be termed property of the partnership and cl (a) is not
attracted.
174 Pannalal Kejriwal v Income-Tax, 2011 SCC OnLine Cal 1067 [The firm was involved in the business of shares. It
purchased shares for the two partners by debiting their capital contribution and also charging them brokerage. Since it
is done with the agreement of the partners, the same was found permissible under the law.]
175 Novartis Vaccines & Diagnostics Inc v Aventis Pharma Limited, 2009 SCC OnLine Bom 2067 : (2010) 2 Bom CR 317.
176 Income Tax v Kandla Shipping Services, 2014 SCC OnLine Guj 13143.
177 Glassington v Thwaites, (1823) 1 S & St 124 : 24 RR 153.
178 Dean v McDowell, (1878) 8 Ch D 345.
179 Narrottamdas Mayabhai Shah v Anubhai Sarobhai Shah, 18 Guj LR 73, p 76.
End of Document
[s 17] Right and duties of partners.—


Subject to contract between the partners—
(a) after a change in the firm.—where a change occurs in the constitution of a firm, the mutual rights and
duties of the partners in the reconstituted firm remain the same as they were immediately before the
change, as far as may be;
(b) after the expiry of the term of the firm, and.—Where a firm constituted for a fixed term continues to
carry on business after the expiry of that term, the mutual rights and duties of the partners remain the
same as they were before the expiry, so far as they may be consistent with the incidents of partnership
at will; and
(c) where additional undertakings are carried out.—where a firm constituted to carry out one or more
adventures or undertakings carries out other adventures or undertakings, the mutual rights and duties
of the partners in respect of the other adventures or undertakings are the same as those in respect of
the original adventures or undertakings.
[s 17.1] CLAUSES (a) AND (b)
This section covers the ground of section 256 of the Contract Act, 1872 and section 27 of the English Act, but is
more explicit and goes further; those sections purport to deal only with cases where a partnership contract
made in the first instance for a fixed term has been continued after the expiration of the term without any new
express agreement. Analogous questions may arise in other circumstances, as in a rather curious case where
three partners carried on business for many years with no formal agreement at all, but only a memorandum
appended to the annual accounts, to the effect that on the death of any partner, his capital as shown by the
amount, should be paid out to his representatives and the business continued by the survivors (who were thus,
in effect, bound to buy his share at that valuation). One of the three died and his capital was paid out
accordingly: the survivors continued the business without any formal agreement, and without renewing the
memorandum above mentioned, though not without some discussion; on the decease of one of them the court
found on the whole facts that they had agreed, though not formally, to treat the memorandum as still in force.180
The present section is wide enough to include such cases under clause (a); the case of carrying on after the
expiry of a fixed term is specifically dealt with by clause (b) in terms almost identical with those of the English
Act, section 27.181 Such reconstitution will, however, have no effect upon third parties unless they accede to
it.182
Clause (a) was applied to a case in which A and B were partners with ten annas and six annas share
respectively. On the death of A, his son stepped into his shoes and, without any express agreement, carried on
the business with B. A’s son was entitled to ten annas share.183
Section 26, 48 and 55 of the Income-tax Act, 1922 go to show that technical view of the nature of a partnership
under English law or Indian law, cannot be taken in applying the law of the income tax. A mere change in the
constitution of the partnership does not necessarily bring into existence a new assessable unit, or a distinct
assessable entity and in such a case there is no devolution of the business as a whole.184 If, on the expiry of the
prescribed term of the partnership the partners continued to carry on business, the partnership in law would be
a different partnership, a partnership at will which must be deemed to come into existence immediately on the
expiry of the prescribed period.185
[s 17.2] CLAUSE (c)
Clause (c) seems to be a piece of rather abundant caution. There is no reason for suggesting that any
extension of a firm’s business, however considerable, is presumed to work any change in the terms of its
constitution, beyond the addition of such provisions as may be plainly necessary for working the new venture.
There is no rule or principle to prevent the members of a firm from forming a new and distinct firm for some new
purpose, even though it may be auxiliary to the old firm’s business and under much the same management;
certainly this clause does not do so. Moreover, things of that nature do happen, though it is more convenient
and usual to attain the object by forming incorporated companies. The method and working of such schemes
belong not to partnership, but to company law.
The rest of the commentary on this section is taken from Pollock’s Digest of Partnership Law.186
Illustrations
(a) A clause in partnership articles entered into between A and B for a fixed term provides that “in case
either of the said partners shall depart this life during the said co-partnership term” the surviving
partner shall purchase his share at a fixed value. A and B continue their business in partnership after
the expiration of the term. This clause is still applicable on the death of either of them.187
(b) Articles for a partnership for one year contain an arbitration clause, and the partnership is continued
beyond the year. The arbitration clause is still binding.188
(c) A and B are partners for seven years, A taking no active part in the business. After the end of the
seven years, B continues the business in the name, on the premises, and with the property of the firm,
and without coming to an account. The partnership is not dissolved, and A is entitled to participate on
the terms of the original agreement in the profits thus made by B.189
(d) Partnership articles provided that a partner wishing to retire shall give notice of his intention a certain
time beforehand. If the partnership is continued beyond the original term, this provision does not hold
good, as not being consistent with a partnership at will.190
(e) A and B enter into partnership for seven years, under articles which empower either partner, if the
other neglects the business, to dissolve the partnership by notice, and purchase his share at a
valuation. They continue in partnership after the seven years. This power of dissolution on special
terms can no longer be exercised, as either party may now dissolve the partnership at will.191
A covenant restraining competition is not carried over from a fixed term partnership into a partnership at will.192
[s 17.3] WHERE BUSINESS CONTINUED BY SURVIVING PARTNERS
The same rule has been substantially acted upon in the case of a business being continued by the surviving
partners after the death of a member of the original firm;193 the court inferred as a fact from their conduct that
the business was continued on the old terms, but probably, if there were nothing more than a want of evidence
to the contrary, a continuance on the old terms would be presumed.
In the Scottish appeal of Neilson v Mossend Iron Co, [1886] 11 AC 298, the House of Lords held that a clause
providing for the optional retirement of any partners on special terms “three months before the termination of
this contract” was not applicable to the partnership as continued after the expiration of the original term.
However, this decision was on the construction of “a strangely and singularly worded article” per Lord
Selborne.194 Lord Watson affirmed the general rule that “when the members of a mercantile firm continue to
trade as partners after the expiry of their original contract without making any new agreement, that contract is
held in law to be prolonged or renewed by tacit consent, or, as it is termed in the law of Scotland, by “tacit
relocation”. The rule obtains in the case of many contracts besides that of partnership; and its legal effect is that
all the stipulations and conditions of the original contract remain in force, in so far as these are not inconsistent
with any implied term of the renewal contract”. In this case, however, time was of the essence of the
condition.195
In a latter case,196 it was held that a clause giving one partner an option of buying the other’s share within three
months “after the expiration of determination of the partnership by effluxion of time” applies to the partnership
as continued after the expiration of the original term, and that Neilson v Mossend Iron Co really confirmed the
previous authorities.
180 King v Chuck, (1853) 17 Beav 325 : 99 RR 169. The case was argued and adjudged on the question of what the parties
had agreed in fact, nothing being said about any presumption in law; so it really decided no legal point whatever (as the
headnote frankly discloses) and was not properly reportable. It is not reported elsewhere. Stekel v Ellice, (1973) WLR
191 where parties continued on the basis of their pre-existing relationship as the new agreement which was
contemplated was not concluded
181 Still there is a new agreement, and therefore the benefit of registration for income tax purposes can be obtained after
the expiry of the term only by executing a new deed: Krishna Aiyar & Sons v CIT, (1928) 52 Mad 367 : 115 IC 254 : AIR
1929 Mad 67
182 R Hanumanthappa & Sons v CIT, Coimbatore, AIR 1965 Mad 297, p 300.
183 Dawood Sahib v Sheik Mohideen, (1937) 2 Mad LJ 760 : 175 IC 766 : AIR 1938 Mad 5 (DB).
184 CIT, West Bengal v AW Figgis & Co, AIR 1953 SC 455, p 456.
185 CIT, Madras v D Arokiaswami Chetti & Co, AIR 1949 Mad 221.
186 Fifteenth Edn, pp 80–82.
187 Essex v Essex, (1855) 20 Beav 442 : 55 ER 674; Cox v Willoughby, (1880) 13 Ch D 863 : 49LJ Ch 237; Cookson v
Cookson, (1837) 8 Sim 529 : 59 ER 210, must be considered as not being law on the subject. Yates v Finn, (1880) 13
Ch D 839, does not break the current of authority, for the opinion there reported incidentally (the case being mainly on
other points) on a more or less similar clause turns out to have been justified by the presence of special stipulations not
applicable to a partnership at will; Daw v Herring, [1892] 1 Ch 284, p 289; Bhagwan v Hiraji, (1932) 34 Bom LR 1112 :
AIR 1932 Bom 516; Rajindra Prasad v Panna Lal Champa Lal, (1931) 36 Cal WN 8 : 138 IC 348 : AIR 1932 Cal 343;
Babu Kirparam v Jawaharsing, (1932) 34 Bom LR 737 : AIR 1932 Bom 375, award may be made against a firm.
188 Gillett v Thornton, (1875) LR 19 Eq 599 : 44 LJ (Ch) 398; Morgan v William Harrison Ltd,[1907] 2 Ch 137.
189 Parsons v Hayward, (1862) 4 DFJ 474 : 45 ER 1267 : 135 RR 249.
190 Featherstonbaugh v Fenwick, (1810) 17 Ves 307 : 34 ER 115 : 11 RR 81.
191 Clark v Leach, (1862) 32 Beav 14 : 1 DJS 409 : 55 ER 6 : 137 RR 246; see the MR’s Judgment, 31 Beav 21.
192 Hensman v Trail in The Times, 22 October 1980 cited in Lindley on Partnership, 15th Edn, p 188.
193 King v Chuck, (1853) 17 Beav 325 : 51 ER 1059 : 99 RR 169.
194 11 App Cas 304.
195 11 App Cas 304, pp 308, 311.
End of Document
[s 18] Partner to be agent of the firm.—

Act, 8th ed > The Indian Partnership Act, 1932 > Chapter 4 Relations of Partners to Third
Parties
CHAPTER 4 Relations of Partners to Third Parties

Subject to the provisions of this Act, a partner is the agent of the firm for the purpose of the business of the firm.
[s 18.1] AGENCY
This and the two following sections supersede section 251 of the Contract Act, 1872 by a much more explicit
statement, which closely resembles section 5 of the English Act in form. For obvious reasons, the summary
statement of principle in section 18 called for the expansion which is supplied in section 19, and these two
closely connected sections are here dealt with together for the reader’s convenience. In Cox v Hickman, (1860)
8 HLC 268, p 312, Lord Wensleydale said:
So if two or more agree that they should carry on a trade, and share the profits of it, each is a principal, and each is an
agent for the other, and each is bound by the other’s contract in carrying on the trade, as much as a single principal
would be by the act of an agent who was to give the whole of the profits to his employer.
The settled position of law is that the act of the partner of the firm can well be construed as an act on behalf of
all the partners if the circumstances warrant such a conclusion.1
It can be noted that the firm is not presumed, conversely, to be an agent of the individual partners. Payment to
one partner is in general a good payment to the firm; but payment to the firm of a private debt due to one
partner is not a discharge, unless it is shown that the firm had in fact authority to receive it.2
Where the vehicle belonging to the firm is being driven by a partner, it can be said that it is done with the
permission of the owner namely, the firm or with its implied authority. The vehicle can be said to be driven by
the insured itself or with is permission.3
1 Structee Mech India v Bharat Kumar Pahlajrai, AIR 1982 Mad 51, p 55. Letter written by a partner stating that the firm
had suspended the payments treated as act of insolvency by all the partners.
2 Powell v Brodhurst, [1901] 2 Ch 160. A finding on such questions of pure fact is not authority in any other case, though
some reporters appear to think so, see eg Mathura Nath v Sreejukta Bageswari, 106 IC 516 : AIR 1928 Cal 57 : 46 Cal
LJ 362
3 Narcinva V Kamat v Alfredo Antonio Doe Martins, (1985) 2 SCC 574, paras 9 and 13.
End of Document
[s 19] Implied authority of partner as agent of the firm.—

Parties
(1) Subject to the provisions of section 22, the act of a partner which is done to carry on, in the usual way,
business of the kind carried on by the firm, binds the firm.4
The authority of a partner to bind the firm conferred by this section is called his implied authority.
(2) In the absence of any usage or custom of trade to the contrary, the implied authority of a partner does
not empower him to—
(a) submit a dispute relating to the business of the firm to arbitration,5
(b) open a banking account on behalf of the firm in his own name,6
(c) compromise or relinquish any claim or portion of a claim by the firm,7
(d) withdraw a suit or proceeding filed on behalf of the firm,8
(e) admit any liability in a suit or proceeding against the firm,
(f) acquire immoveable property on behalf of the firm,
(g) transfer immoveable property belonging to the firm, or
(h) enter into partnership on behalf of the firm.
[s 19.1] IMPLIED AUTHORITY OF PARTNER
Section 19(1) provides that, subject to the provisions of section 22, the act of a partner which is done to carry
on, in the usual way, the business of the kind carried on by the firm binds the firm. It further states that the
authority of a partner to so bind the firm conferred by the said section is called his “implied authority”.
Subsection (2) enumerates the various matters, which a partner cannot do under the implied authority, in the
absence of any usage or custom of trade to the contrary.9 The question whether a given act can or cannot be
said to be done in carrying on a business in a way in which it is usually carried on shall be determined by the
nature of business and by the practice of the persons engaged in it.10
The Contract Act, 1872 provided that a partner has such authority as he would have if he were an expressly
appointed agent of the firm. Section 18 has adopted the more direct method of the English Act and lays down
that he is an agent. This is a clear improvement. The generality of a partner’s authority as agent is not affected
by the fact, where it is so, that two Hindu partners are brothers or otherwise members of a joint Hindu family.
They are on an equal footing for the purposes of partnership law.11
Implied authority in Indian situations arose for consideration by the Supreme Court and by the High Courts of
Madras and Andhra Pradesh. One of the partners entered into a contract for supply of dal, a purpose not
specifically enumerated as business of the firm. The Supreme Court noted “it was not the case of partners that
the firm was not carrying on the business of supply of dal.” Another fact found by the court was that the partner
was authorised to do business on behalf of the firm”. In that factual setting, the apex court held that the contract
for supply of dal, though entered into by only one of the partners, would be binding on the other partners of the
firm. In addition to the facts already found, the court held that the subsequent conduct of the partners also
constituted ratification of the contract.12
The Andhra Pradesh High Court in Kadiyala Seshagiri Rao v Kanneganti Desaiah, AIR 2000 AP 263, (2000) 2
Andh LT 234, distinguished the above decision. In that case, the firm had as its objects, trade in rice, paddy and
groundnut with the usual processing of those articles. There was an express provision in the partnership deed
authorising them “to deal in any other commodity as may be agreed upon by partners”. The court held that
dealing in turmeric was beyond the implied authority under section 19(2), particularly in view of the agreement
by partners visualised under the deed, and when the express agreement pleaded was found as not established.
A partner of a non-trading firm, as distinguished from a trading one, has no implied authority to bind the firm by
his individual act.13 On the other hand, the managing partner of a trading firm has every right to borrow moneys
for the purposes of the firm.14 Other illustrations of the principle are in Porbandar Commercial Co-op Bank Ltd v
Bhanji Lavji, AIR 1985 Guj 106. The positive statement in section 19, subsection (1), is as plain as words can
make it, but its negative aspect, namely that a partner’s implied authority extends only to the firm’s usual
business and not to anything unusual, needs the elucidation which sub-section (2) supplies. The implied
authority of a partner as regards proceedings under Arbitration Act has been discussed in National Small
Industries Corpn v Punjab Time Printing and Metal Industries, AIR 1979 Del 58, and in Kaveru Water Well
Drillers v P Duraiswamy Gounder,(1999) 1 Kant LJ 23, where one of the partner defendant files the written
statement against the wishes of the other defendant partners, it would constitute a step in proceedings. A
prayer for stay of proceedings under section 34 of the Arbitration Act would be unavailable despite the
incorporation of an arbitration clause in the partnership deed. If one of the partners takes step in the
proceedings, then the same would be deemed to be a request on behalf of other partners as well. Receiving of
arbitral award by one partner amounts to receiving by all.15 A statement made by one partner in an execution
petition binds all the other partners.16 Partners are agents of one another and acts done in the ordinary course
of business bind the partnership. Section 21, clause 2 of the Limitation Act, 1963 by which one of several
debtors cannot keep the debt alive and subsisting against the others by reason only of a written
acknowledgement signed or payment made by him was not intended to apply to transactions conducted by
partners in the ordinary course of partnership business.17
The Supreme Court in Tanna & Modi v CIT, held that disclosure by a partner before the income tax authorities
amounts to disclosure by the firm. In this case, a partner made a disclosure of income under the Voluntary
Disclosure of Income Scheme, 1997. The same amount was later disclosed by the firm. The court held that the
earlier disclosure was on behalf of the firm and the firm later cannot enjoy double benefit of the Scheme. 18
A firm always operates through its partners, one or more. There is no restriction laid down by the law that a
partner cannot acknowledge the subsisting debt of the firm in favour of its creditor. Such acknowledgement of
the liability of the firm neither amounts to compromising or relinquishing a claim or a portion thereof, nor does it
amount to admission of any liability in a suit or proceeding as against the firm.19 In a running trading firm an
authority to acknowledge can be presumed.20 Section 20 adds an important protection for customers; they are
entitled to presume that any partner has the usual implied authority, and to rely on it as binding the firm,
notwithstanding any restriction agreed on among partners, unless they have notice of that restriction. This is, in
principle, well settled law; previous judicial statements do not, of course, add anything to the force of the Act
itself, but they may still be found instructive and some of them are quoted here:
Generally speaking, a partner has full authority to deal with the partnership property for partnership purposes.21
Ordinary partnerships are by the law assumed and presumed to be based on the mutual trust and confidence of each
partner in the skill, knowledge and integrity of every other partner. As between the partners and the outside world
(whatever may be their private arrangements between themselves), each partner is the unlimited agent of every other
in every matter connected with the partnership business, or which he represents as partnership business, and not
being in its nature beyond the scope of the partnership.22
The general powers of partners as agents of the firm are summed up by a story in a passage, which has been
adopted by the Judicial Committee of the Privy Council:23
Every partner is in contemplation of law the general and accredited agent of the partnership, or as it is sometimes
expressed, each partner is praepositus negotiis societatis, and may consequently bind all the other partners by his acts
in all matters which are within the scope and objects of the partnership. Hence, if the partnership be of a general
commercial nature, he may pledge or sell the partnership property; he may buy goods on account of the partnership:
he may borrow money, contract debts, and pay debts, on account of the partnership; he may draw, make, sign,
indorse, accept, transfer, negotiate, and procure to be discounted promissory notes, bills of exchange, cheques and
other negotiable paper in the name and on account of the partnership.
The usual authority of a partner in a trading partnership24 also enables him to receive, and give receipts for
debts due to the firm,25 engage employees for the firm,26 and retain a solicitor to conduct an action for
recovering debts due to the firm.27 The statute does not provide any restriction in bringing in action by an
individual partner in a court of law.28
[s 19.2] LIMITS ON IMPLIED AUTHORITY
The operations of sections 18 and 19(1) is subject to the exceptions engrafted in sub-section (2) of section 19.29
As to the limits on a partner’s implied authority specified in section 19, sub-section (2), the words making a
general exception in favour of usage or custom of trade derive from the Select Committee, whose information
showed that special usages of this kind are common: “in Calcutta particularly it is a trade custom that partners
make contracts of sale containing a clause referring disputes to arbitration.”
No substantial innovation is made by the Select Committee’s amendment, for the existence of a well-known
usage in any trade carried on by a firm suffices, on the general principle governing the recognition of such
usages, to raise a presumption that the partners intended to embody it tacitly as a part of their contract,
especially where, as often happens, there are no formal partnership articles. Indeed, the whole sub-section is a
matter of presumptions, for the most part already well-settled by judicial authority and common practice, for the
purpose of narrowing the inevitable margin of disputes as to the burden of proof. Any underlying dispute of
substance must always be in itself a dispute of fact.
The question whether a given act can or cannot be said to be done in carrying on a business in the way in
which it usually is carried on must evidently be determined by the nature of the business and by the practice of
persons engaged in it. Evidence on both of these points, is therefore necessarily admissible.30
In Mann v D’Arcy it is observed:
Moreover, what is “usual” may vary from time to time. Commercial expedience of a particular method of operation may
be considered for deciding as to whether such method was usual.31
It must not be assumed that the list of matters not included in a partner’s implied authority is exhaustive. Since
section 19 stipulates that the act of a partner which is done to carry on the business of the kind carried on by
the firm, binds the firm and an act done by the partner is his implied authority, to bind the firm, that cannot be
interpreted, in such a situation, to hold that such authority extended to a direct violation of the partnership deed,
qua the partners inter se.32 Nothing is said about giving a guarantee in the name of the firm, but in English law it
is certain that, even if it is, in fact, a reasonable and convenient thing in the particular case, no partner can bind
the firm in this manner unless he is authorised by special agreement or it is allowed by the general usage of
firms engaged in that kind of business.33 No reason is known why it should be otherwise in India.34 A guarantee
may become binding upon other partners as a result of doctrine of estoppel.35 Where it was found that it was
not the usual course of business of the firm to execute any suretyship contracts for the benefit of third parties
when they become debtors, it was held that merely because the partner signed as a surety on behalf of his firm,
by that act alone he could not bind any other partner of the firm or the firm itself for the purpose of answering
the claim of the creditor.36 A partner will have no implied authority to bind the firm unless it can be shown that
giving of guarantees is necessary for carrying on the business of the firm in the ordinary way.
Still less, on the other hand, is it possible to enumerate the recognised and usual functions of partners as
agents of the firm. It may be useful; however, to give shortly the results of authorities, including English
decisions which presumably are applicable in India, with regard to some ordinary matters of business.
Although a partner may do an act on behalf of the firm which he is not authorised to do, it is open to the other
partners to ratify the act.37
They should, however, either ratify the whole transaction or disclaim the whole transaction and cannot ratify a
part of the transaction which best serves their interests and repudiate the remainder.38 If the other partners
stand by after being aware of the arbitration proceedings, they will be deemed to have ratified the act of their
partners. A submission to arbitration may be ratified by the conduct of the other partners.39 The award will,
however, always bind the referring partner.40
[s 19.3] ARBITRATION
Section 19(2)(a) provides that in the absence of any usage or custom of trade to the contrary,41 the implied
authority of a partner does not empower him to submit a dispute relating to the business of the firm to
arbitration.42 A contract containing an arbitration clause, which has not been repudiated by the partners, is
binding on them.43
The implied authority of a partner as regards proceedings under Arbitration Act has been discussed in National
Small Industries Corpn Ltd v Punjab Tin Printing and Metal Industries, AIR 1979 Del 58, and in Kaveri Water
Well Drillers v P Duraiswamy Gounder, (1999) 1 Kant LJ 23. Where one of the partner-defendant files the
written statement against the wishes of the defendant partners, it would constitute a step in proceedings under
section 34 of the Arbitration Act, but would be unavailable despite the incorporation of an arbitration clause in
the partnership deed. If one of the partners takes a step in the proceedings, then the same would be deemed to
be a request on behalf of other partners.
[s 19.4] COMPROMISE
The implied authority of a partner does not, in absence of any usage or customs of trade to the contrary,
empower him to compromise or relinquish any claim or portion of a claim by the firm. The principle underlying is
to protect the other genuine partners of the firm whose entitlement may be reduced by a reckless, fraudulent or
illegal act of a partner. However, it cannot and ought not to be applied to defraud the third person when raised
by the partner whom himself has compromised.44
[s 19.5] NEGOTIABLE INSTRUMENTS
In trading firms every partner has implied power to bind the firm if there is no agreement to the contrary; but a
non-trading firm is not bound unless the issue of negotiable instruments by one partner is shown to be
necessary or usual in the particular business.45 For this purpose, brokers and commission agents are not
traders46 nor are cinematographic theatre owners.47 Firms of solicitors,48 quarryworkers,49 auctioneers50 and
engineering contractors51 are instances of non-trading partnerships. Partners of such firms cannot accept,
make or issue negotiable instruments other than ordinary cheques52 nor can they pledge the partnership
property.53
When a negotiable instrument is regularly drawn by a partner in a trading firm in a transaction incidental to the
firm’s business, another partner is not less liable because his name does not appear on the face of the
instrument.54 A specific conferment of power to contract debt on a partner in a trading firm is unnecessary since
every partner is an agent of the firm for the purpose of its business. Where the partnership agreement
contemplated raising of loans by the firm, the managing partner would have every right to borrow moneys for
the purposes of the firm. A firm will be bound under a negotiable instrument only if the partner “acts” in the
name of the firm. It is necessary that the negotiable instrument must, in order to bind the firm, be made in the
name of the firm.55 It is held in the case of M Rajagopal v KS Iman Ali, AIR 1981 Ker 36, p 40, in which the
promissory notes were neither signed on behalf of the firm nor was there any other material to infer having
been executed for the firm, that when there is a conflict between section 19 and 22 of the Partnership Act, 1932
on the one hand and sections 26, 27 and 28 of the Negotiable Instruments Act, the latter Act should prevail. A
claim against a firm based on a written contract by one partner in the course of business with authority to act
will be held to be binding on the firm. However, when such a claim is made on the strength of a promissory note
or a bill of exchange, court will have to be satisfied that the negotiable instrument discloses the liability of the
firm clearly. Where a partner made earlier endorsements acknowledging debt for himself and on behalf of other
partners and wherever he intended to represent the other partners, he specified the same but in the last
endorsement there was no such mention nor any power of attorney referred to, it was held that the last
endorsement did not amount to acknowledgement of liability of the firm for the purpose of computing limitation
in a suit for recovery of money borrowed by the firm.56
Where a negotiable instrument has been drawn by a partner in his own name, the other partners are not liable
on the instrument in the absence of evidence that it was made for and on behalf of the firm.57 A partner cannot,
without the consent and knowledge of the other partners, enter into a contract with himself so as to bind the
firm.58
Where the managing partner transferred a promissory note during dissolution in favour of another partner, it
was held that authority to transfer could be inferred from the fact that all the partners were present when the
transfer was effected and the question of subsequent ratification did not arise in such a case.59
[s 19.6] BORROWING MONEY
Every partner in a trading firm has implied authority to borrow money for the purposes of the business or credit
of the firm.60 The sudden exigencies of commerce render it absolutely necessary that such power should exist
in the partners of a trading firm. At the same time like every other implied power of a partner it only exists where
the business is of such a kind that it cannot be carried on in the usual way without such a power.61
[s 19.7] NON-TRADING FIRM BORROWING
Though a business may not be of a commercial nature, the fact that the money borrowed by one partner has
been applied for the purposes of the business is sufficient to make the other partners liable.62
[s 19.8] PURCHASE
A partner may buy any goods of a kind used in its business, on credit of the firm and the firm will be bound,
notwithstanding any subsequent misapplication by them by that partner.63 This power extends to non-trading
partnerships.64
[s 19.9] HIRE
A partner may hire any goods of a kind used in its business on the credit of the firm, and the firm will be bound
by the terms of the contract of hire. Thus, where a partner hired an elephant to trap wild elephants, which was
the business of the firm, and one of the terms was that the hirer should pay Rs 5,000 if the elephant died during
the period of hire, it was held that the other partners were bound by that term.65
[s 19.10] ADMISSION OF LIABILITY IN A SUIT OR PROCEEDING
A partner does not have an implied authority to admit any liability against the firm in a suit or proceeding.66
[s 19.11] PAYMENT TO AND RELEASE BY ONE PARTNER
Payment to one partner is a good payment to the firm,67 and by parity of reason a release by one partner binds
the firm, “because, as a debtor may lawfully pay his debt to one of them, he ought also to be able to obtain a
discharge upon payment”.68 If, however, the debt is due, not to the firm but to one of the partners, the rule does
not hold good and in such a case the payment must be made to the partner to whom the debt is due. 69
[s 19.12] SERVANTS
“One partner has implied authority to hire servants to perform the business of the partnership,” and probably
also to discharge them if the other partners do not object.70 The Bombay High Court in Priyanka Ridham Gada
v Sai Pooja Developers, 2015 SCC OnLine Bom 3632, has held that an admission an affidavit in reply in
absence of proof indicating any authority cannot be relied upon in view of section 19(2)(e) read with section 23
of the Contract Act.
[s 19.13] SALE OF PARTNERSHIP PROPERTY

Under section 19(2), in the absence of any usage or custom of trade to the contrary, the above implied authority
does not prima facie empower the partner to “transfer immovable property belonging to the firm” as stated in
clause (g) of section 19(1) of the Partnership Act. Such a power to transfer property of the firm must be
expressly given to the transferring partner.71 If the requirement of section 19(1) is not complied with, even
compliance of procedure under section 22 would not bind the firm.72
In Devi Prasad Rai v Kanhaiyalal Mukharya, (1986) 4 SCC 5, K who was the owner of certain vacant site
entered into a partnership with D and others. He agreed to allow his vacant land to be used by the firm for
raising cinema exhibition hall with an undertaking that he will not alienate the property during the subsistence of
the firm. Notwithstanding this restriction in the partnership deed, he alienated the property by a registered sale
deed to a third party. The Supreme Court agreed with the finding of the high court that: (i) K as the owner of the
property had the right to sell his property; but, (ii) during the subsistence of the firm, the sale deed was not
binding on the other partners who can continue to remain in possession.
Where a partner, along with his interest in the partnership firm, also sold a part of the immovable property of the
firm, it was found that the transaction of sale of property is hit by section 19. The Gujarat High Court held that a
partner has a right to do business and in the course of business he can deal with the property of the firm.
However, in view of section 15, it was held that no partner can ever validly sell or dispose of any of the
partnership property as his own property. A partner cannot deal with any portion of the partnership property as
his own property for the reason that he is not like a co-owner of the property.73
[s 19.14] LEASE OR MORTGAGE
There is no implied authority of partner to lease out the immovable property of the firm if it having no nexus with
the business of that firm.74 The High Court of Bombay has held that where one partner takes a lease of
premises in his own name, though on behalf of the partnership and with the assent of the other partners, the
latter are not liable to be sued by the lessor for the rent reserved by the lease.75 The decision proceeds on the
ground that a lease is not a mere contract, but a conveyance by way of demise, and the person covenanting to
pay the rent is the person to whom the demise is made. The better opinion, however, would seem to be that the
other partners are liable for the rent, though their names do not appear on the lease, provided the lease was
taken for the partnership, and this accords with the view of the Madras High Court in a later case.76 It has been
held by the Privy Council that a mortgage of a village, which was partnership property, made by some of the
partners for the benefit of the firm, is binding on a member of the firm though not executed by him.77 In a
Madras case78 Wallis J, after referring to that case, said:
If, as held, I think rightly, in that case, a partner in India can mortgage partnership property by deposit of title deeds,
there is, I think, no good reason why he should not effect a legal mortgage as well. The observation of Straight, J in
Harrison v Delhi and London Bank, 4 All 437, p 459, that in India the presumption is against the existence of such a
power, was made in the case of a partnership between Englishmen, and I am unable to agree with it, especially as
applied to natives of India.
This opinion was confirmed by the Privy Council as to a managing partner.79 It is submitted that the custom may
be taken as settled, and therefore preserved by the Act.
A purchaser of immovable property cannot be required to assume that one partner is authorised to execute a
release or reconveyance in the name of the firm.80
The manager of a joint Hindu family can bind the other co-partners by a mortgage of family property executed
in his own name for the purpose of carrying on the family business.81
[s 19.15] PARTNER’S ABUSE OF FIRM’S CREDIT FOR PRIVATE PURPOSES
When the ordinary limits of a partner’s authority have been stated, there appears no obvious need for saying in
terms that acts on the face of them outside those limits do not bind the firm. The English Act, however, does
say this in section 7, a section declaratory of the law, to which nothing in the present Act, corresponds, and
adds a caution, in which the real point of the section lies, to the effect that another member or members of the
firm may have incurred personal liability to the creditor by somehow giving him reasonable cause to believe that
the acting partner in fact had authority. This section runs as follows:
7. Partner using credit of the firm for private purposes—. Where one partner pledges the credit of the firm for a purpose
apparently not connected with the firm’s ordinary course of business, the firm is not bound, unless he is in fact specially
authorised by the other partners; but this section does not affect any personal liability incurred by an individual partner.
This section sums up the effect of long accepted authorities, and seems purposely to leave an unsettled point
where it was.
The passage cited above in part from Story on Agency continues as follows:
The restriction of this implied authority of partners to bind the partnership are apparent from what has been already
stated. Each partner is an agent only in and for the business of the firm; and therefore his acts beyond that business
will not bind the firm. Neither will his acts done in violation of his duty to the firm bind it when the other party to the
transaction is cognisant of or co-operates in such breach of duty.82
Persons who “have notice or reason to believe that the thing done in the partnership name is done for the
private purposes or on the separate account of the partner doing it”,83 cannot say that they were misled by his
apparent general authority. For, his authority presumably exists for the benefit and for the purposes of the firm,
not for those of its individual members. The commonest case to which this principle has to be applied is that of
one partner giving negotiable instruments or other security in the name of the firm to raise money (to the
knowledge of the person advancing it) for his private purposes or for the satisfaction of his private debt.84 It can
be seen in Mercantile Law:
The unexplained fact that a partnership security has been received from one of the partners in discharge of a separate
claim against himself is a badge of fraud, or of such palpable negligence as amounts to fraud, which it is incumbent on
the party whoso took the security to remove, by showing either that the partner from whom he received it acted under
the authority of the rest, or at least that he himself had reason to believe so.85
In case of Bank of Australasia v Breillat it is observed:
If a person lends money to a partner for purposes for which he has no authority to borrow it on behalf of the
partnership, the lender having notice of that want of authority cannot use the firm.86
As per Montague Smith J:
When a separate creditor of one partner knows he has received money out of partnership funds, he must know at the
same time that the partner so paying him is exceeding the authority implied in the partnership—that he is going beyond
the scope of his agency; and express authority therefore is necessary from the other partner to warrant that payment.87
It is not within the implied authority of a partner to set off his own separate debt against the debt due to the
firm.88
[s 19.16] WHETHER THE CREDITOR MAY BE ENTITLED AS AGAINST THE FIRM BY REASONABLE
BELIEF IN THE PARTNER’S AUTHORITY
It is doubtful whether a separate creditor thus taking partnership securities or funds from one partner is justified
even by having reasonable cause to believe in the existence of a special authority; the opinion has been
expressed by Cockburn CJ that he deals with him altogether at his own peril.89 However, it may happen that the
other partner whom the separate creditor seeks to bind has so conducted himself as to give reasonable ground
for supposing there is authority; and where he has done so, he may be personally bound on the general
principle of estoppel. The rule is stated with this qualification or warning by Blackburn J, and Montague Smith
J.90 Moreover, the case appears to be contemplated by the final clause of the section, which, however, it will be
observed, does not positively impose or declare any liability.
[s 19.17] INSTANCES OF THE GENERAL RULE
The rule declared by section 7 of the English Act was applied in a case where two out of three partners gave an
acceptance in the name of the firm for a debt incurred before the third had entered the partnership. This was
held not to bind the new partner, for it was in effect the same thing as an attempt by a single partner to pledge
the joint fund for his individual debts.91
Again, if a customer of a trading firm stipulates with one of the partners for a special advantage in the conduct
of their business with him, for a consideration which is good as between himself and that partner, but of no
value to the firm, the firm is not bound by this agreement, and incurs no obligation in respect of any business
done in pursuance of it.92
The same principle applies to the rights of persons taking negotiable instruments endorsed in the name of the
firm. Where a partner authorised to endorse bills in the partnership name and for partnership purposes
endorses a bill in the name of the firm for his own private purposes, a holder who takes the bill, not knowing the
endorsement to be for a purpose foreign to the partnership, can still recover against the other partners,
notwithstanding the unauthorised character of the endorsement as between the partners;93 but if he knows that
the endorsement is in fact not for a partnership purpose he cannot recover.94
The same principle is applicable in the case (among others) of a partner raising money on the credit of the firm
in such circumstances that the lender knows the loan to be intended for the borrower’s private use and not for
partnership purposes. In such a case, the separate creditor must know that the partner is acting outside his
normal authority, and therefore he cannot hold the firm liable unless there is, in fact, express authority from the
other partners.95 It is a question whether reasonable belief in the existence of express authority be enough to
justify the creditor in holding the firm liable. On principle, it would seem not, except so far as that belief may
have been induced by the conduct of all, or some of the other partners, in which case those who have so acted
may well be liable personally, having, in effect, held out the borrowing partner as authorised. However, “the
mistaken belief that the one partner had that authority” (to appropriate money coming from partnership funds to
his private account) “cannot prejudice the right of the other, if the other did nothing to induce such a belief”.96
Similarly, an endorsement of a negotiable instrument by one partner in the name of the firm, but without
authority and for his own private purposes, confers no title on an endorsee having notice of the purpose and no
reason to believe that there is authority.97
Generally, it must be understood that partners, known or unknown, are bound only by what is done on behalf of
the firm; even if the firm has the use of money borrowed by a partner in his own name, this is at most evidence,
but not conclusive, to show that the borrowing was in fact on account of the firm.98 Moreover, where a partner
has purchased goods in his own name, not professing to act on behalf of the firm, the firm is not necessarily
liable merely because such transactions are in the way of its business.99
4 As to the manner of doing acts in the firm’s name.

5 Ram Bharose v Kallu Mal, (1899) 22 All 135, following English authorities; Datoobhoy Hassum v Vallu Mahommed,
(1899) 1 Bom LR 828; Arunachela Iyah v Louis Dreyfus & Co, (1927) 107 IC 793 : AIR 1928 Mad 107; Sohan Lal v
Firm Madho Ram, AIR 1952 Punj 240; Alagappa Cotton Mills v Indo Burmah Trading Corpn, AIR 1976 Mad 79, holding
that acceptance of arbitration by a partner by letter does not bind the partnership.
6 Alliance Bank v Kearsley, (1871) LR 6 CP 433.
7 A partner does not have an implied authority to compromise or relinquish any claim or portion thereof of the firm. Sadhu
Ram & Company v Ram Nath Cotton Factory, 2009 SCC OnLine P&H 2137, Chainraj Ramchand v VS
Narayanaswamy, AIR 1982 Mad 326; although a partner is entitled to assign a decree in favour of the firm, he has no
implied authority to assign such a decree for a lesser sum. This would amount to relinquishing a portion of the claim by
the firm, Krishnaji Bharamalji & Cov Abdul Razak, (1941) 43 Bom LR 888 : AIR 1942 Bom 22; Nagappa v Bhagwanji,
(1936) 59 Mad 1036 : AIR 1936 Mad 593; where by the partnership deed a partner is appointed the general manager of
the business with power “to negotiate with all persons for the purpose of the business” it gives him power to negotiate
the settlement of a suit against the partnership. No question of implied authority under this section arises, GM Shahani
v Havero Trading Co Ltd, 51 Cal WN 488. Earlier conflicting authorities, if such there be, are clearly overruled by the
plain words of these clauses.
8 Ghulam Mahommed v Sohna Mal, 101 IC 742 AIR 1927 Lah 385; Debi Dayal v Baldeo Prasad, (1928) 50 All 982 : 111
IC 143 : AIR 1928 All 491.
9 KD Kamath and Company v CIT, (1971) 2 SCC 873, p 882; Reshmi Constructions v Laxman Vithal Chunekar, 2014
SCC OnLine Bom 2894 : 2014 (5) Mh. L.J. 537.
10 Chaina Ram v State of Rajasthan, 2014 SCC OnLine Raj 6516 : 2014 (4) RLW 3609 (Raj).
11 Ibid
12 Sanganer Dal and Flour Mills v FC, AIR 1992 SC 481.
13 Raghava Veera Sons v Padmavathi, AIR 1978 Mad 81.
14 KA Lona v Dada Ibrahim Hilari & Co, AIR 1981 Ker 86.
15 Karanbir Rice Mills v Punjab Agro Food Grains Ltd, 2016 SCC OnLine P8d I 11145.
16 Nachattar Singh v Puran Chand Vinod Kumar, 2016 SCC OnLine P8d I 5576.
17 Ratan Lal v The Commercial & Industrial Bank Ltd, AIR 1965 AP 349.
18 (2007) 7 SCC 434 .
19 Firm of Sarabhai Hathising v Shah Ratilal Nathalal, AIR 1979 Guj 110, p 113.
20 Premji v Dossa, (1886) ILR 10 Bom 358; Gordhandas v Bhulabhai, (1932) 34 Bom LR 623; Veeranna v
Veerbhadraswami, (1917) ILR 41 Mad 427 (FB); Onkarlal v Mohanlal, AIR 1952 MB 78; Goodwin v Parton, (1880) 42
LT 568; Watson v Woodman, (1875) 20 Eq 721 (730).
21 Lord Westbury in ex p Darlington & Banking Co; Re Reches, 4 De GJ & section 581, p 585 : 46 ER 1044 : 146 RR 466,
p 469.
22 James LJ, in Baird’scase, (1870) LR 5 Ch 733; Mercantile Credit Co Ltd v Garrold, [1962] 3 All ER 1103, p 1105 where
sale of car by a partner of a firm carrying on a garage business mainly concerned with repairing cars was treated as”an
act for carrying on in the usual way business of the kind carried on by the firm”. Such questions necessarily depend
upon particular circumstances of the case; Re Bell’s Indenture, (1980) 1 WLR 1217.
23 Storyon Agency, section 124; Bank of Australasia v Breillat, (1847) 6 Moo PC 193 : 13 ER 657 : 79 RR 53. One partner
alone cannot, by notice, affect the rights of another to act on behalf of the firm as in Sri Gopal Jalan & Co v Singhania
Bros, AIR 1965 Cal 531.
24 It is said that business of a trading partnership must consist in buying and selling goods as in Wheatley v Smithers,
[1906] 2 KB 321 and Higgins v Beauchamp, [1914] 3 KB 1192.
25 Porter v Taylor, (1817) 6 M&S 156.
26 Beckham v Drake, (1843) 11 M&W 315.
27 Court v Berlin, [1897] 2 QB 396.
28 Super Cast v Ionik Castings Private Ltd, 2014 SCC OnLine Guj 8085.
29 Sangener Dal and Flour Mill v FCI, (1992) 1 SCC 145.
30 Lindley on Partnership, 15th Edn, p 288; UOI v Firm Vishyda Ghee Mandal, AIR 1951 All 541.
31 (1968) 1 WLR 893; Customs and Excise Commrs v Evans, (1982) STC 342; Re Bell’s Indenture, (1980) 1 WLR 1217;
Alagappa Cotton Mills, Rajapalayam v Indo Burmah Trading Corpn, AIR 1976 Mad 79, p 82.
32 Baljeet Singh v Balwant Singh, 2016 SCC OnLine P&H 6391 : 2017 (2) RCR (Civil) 263.
33 Brettel v William, (1849) 4 Ex 623 : 80 RR 276.
34 This point does not appear to have been raised in Suwalal v Fazle Hussain, (1939) 179 IC 771 : AIR 1939 Ngp 31,
where the other partners were held liable on the ground that the managing partner executed a surety bond on behalf of
the firm.
35 For example, Amalgamated Investment & Property Co Ltd (in liquidation) v Texas Commerce Intl Bank Ltd, [1982] QB
84; Lindley on Partnership, 15th Edn, pp 306, 307.
36 Porbandar Commercial Co-operative Bank Ltd v Bhanji Lavji, AIR 1985 Guj 106, 110; approvingly citing Lindley on
Partnership, 15th Edn, p 306.
37 Hanuman Chamber of Commerce v Jassa Ram, AIR 1949 Punj 46; SN Soni v Taufiq Farooki, AIR 1976 Del 63, holding
that if an act is done by a partner in excess of his implied authority then all the partners of a firm can ratify such an act
provided the act could be legally done with the authority of all the partners given previously and the ratification is with
full knowledge of the facts. The restrictions contained in section 19(2) are not absolute and it is open to the partners to
relax or waive the restrictions.
38 Commercial Banking Coof Sydney v Maun, [1961] AC 1.

39 Thomas v Atherton, (1878) 10 ChD 185; Mohinder Kaur Kochhar v Punjab National Bank Ltd, AIR 1981 Del 106; SN
Soni v Taufiq Farooki, AIR 1976 Del 63, p 68; sections and SN Goenka v UOI, AIR 1981 NOC 44 (Del); Parameshwar
Lal vjai Narain, AIR 1952 Punj 373; Shankar Das Rup Lal v Governor General in Council, AIR 1952 Punj 234; Ram
Bahadur Thakur v Thakurdas, AIR 1958 All 522; International Coal Corpn v Pure Sitalpur Coal Concern Ltd, AIR 1972
Cal 45; National Small Industries Corpn Ltd v Punjab Tin Printing & Metal Industries, AIR 1979 Del 58, p 60.
40 Krishan Kumar v Knitting Inds, AIR 1973 Del 37.
41 Sain Dass Rice Mill v Distt Food and Supplies Controller, 2009 SCC OnLine P&H 6731 : (2010)1 RCR (Civil) 824 :
(2009) 4 ICC 305 [In the instant case, all the agreements with the Government was signed by only one partner of each
firm of Millers. Arbitration Clause was part of the contract and was inseparable. No other partner came forward at any
stage of dispute to challenge the authority of the partner who had signed the contract (arbitration agreement). This very
partner appeared before the Arbitrator, contested the case, challenged the awards before the District Judge and filed
the appeals before the High Court. In such situation, the Court held it appears that it is the normal routine, usage and
practice in the trade of milling that one partner enters into contract on behalf of the firm and therefore, the present case
did not fall within the mischief of section 19(2)(a)].
42 Sunil Kumar Sethia v Devendra Kumar Sethia, 2017 SCC OnLine Gau 1035 : (2017) 6 GLR 30; Sulana Santimano v
Graciano Cottages, 2010 SCC OnLine Bom 1389 : LNIND 2010 GOA 215; Bhagwan Marwadi v Hiraji Premajo
Marwadi, AIR 1932 Bom 516.
43 Sangener Dal and Flour Mill v FCI, (1992) 1 SCC 145, p 147.
44 Foot Style (A partnership firm) v Bata India Ltd, 2011 SCC OnLine Del 1229.
46 Yates v Dalton, (1958) 28 LJ Ex 69 : 118 RR 896.
47 Higgins v Beauchamp, [1941] 3 KB 1192 .
48 Hedley v Boimbridge, [1842] 3 QB 316 .
49 Thicknesse v Bromilow, (1832) 2 Cr & J 425.
50 Wheatley v Smithers, [1960] 2 KB 321 , reversed on another point, [1907] 2 KB 684 (CA).
51 Raghav Veera Sons v Padmavathi, AIR 1978 Mad 81, p 84.
52 Backhouse v Charlton, [1878] 8 Ch 444 ; Forster v Mackreth, (1867) LR 2 Ex 163.
53 Higgins v Beauchamp, [1941] 3 KB 1192 , p 1194.
54 Bunarsee Dass v Gholam Hossein, (1870) 13 MIA 358; Moti Lal v Unnao Commercial Bank, (1930) 32 Bom LR 1571.
Promissory note by managing partner of firm, endorsement by holder, suit by endorsee on the note against all partners,
maintainability, Negotiable Instruments Act, 1881, section 16(2); G Subbarayudu v MP Narasimhan, AIR 1974 AP 307.
55 KA Lona v Dada Haji Ibrahim Hilari & Co, AIR 1981 Ker 86, pp 98, 101; Ringham v Hackett, (1980) 124 SJ 201; Re
Riches, (1865) 4 De GJ & section 581; MM Abbas Bros v Chetandas Fatehchand, AIR 1979 Mad 272, pp 275, 276;
Ghisulalv Hazi Mahommed, AIR 1981 Raj 58.
56 Mansa Ram & Sons v Janki Dass Om Prakash, AIR 1984 All 267, p 270.
57 Harbhogwandas v Narayana, AIR 1952 Mys 116; Sitaram Krishna v Chimandas, (1928) 52 Bom 640.
58 Sunderdas v Liberty Pictures, AIR 1956 Bom 618.
59 BV Narasimhulu Cheetty v Ratankonda Krishna Murthy, AIR 1986 AP 177, p 182.
60 Bank of Australasia v Breillat, (1847) 6 Moo PC 152 : 194 77 RR 24, 53; Maung Pe Thaung v Toungoo Timber Co,
(1932) 10 Rang 204 : 138 IC 210 : AIR 1932 Rang 118; Saremal Punamchand v Kapurchand Punamchand, (1923) 48
Bom 176 : 77 IC 548 : AIR 1924 Bom 260; Hari Shankar v Bansilal, (1946) Ngp 301 : AIR 1946 Ngp 266; Veera
Perumal v A Mahommed, AIR 1958 Ker 257; Chandan Lal Joura v Amin Chand Mohan Lal, AIR (1960) Punj 500; KA
Lona v Dada Haji Ibrahim Hilari & Co, AIR 1981 Ker 86, pp 98, 101; Lindley on Partnership, 15th Edn, p 299.
61 Bank of Australasia v Breillat, (1847) 6 Moo PC 152; Maung Pe Thaung v Toungoo Timber Co, (1932) 10 Rang 204 :
138 IC 210 : AIR 1932 Rang 118; Saremal Punamchand v Kapurchand Punamchand, (1923) 48 Bom 176 : 77 IC 548 :
AIR 1924, Bom 260; Hari Shankar v Bansilal, (1946) Ngp 301 : AIR 1946 Ngp 266; Veera Perumal v A Mahommed,
AIR 1958 Ker 257; Chandan Lal Joura v Amin Chand Mohan Lal, AIR 1960 Punj 500; KA Lona v Dada Haji Ibrahim
Hilari & Co, AIR 1981 Ker 86, pp 98, 101; Lindley on Partnership, 15th Edn, p 299; Dalip Singh v Jagdev Singh, 2011
SCC OnLine P&H 6400 : (2012) 115 AIC (Sum 15) 10 : (2012) 3 CCC 314.
62 Reversion Fund and Insurance Co Ltd v Maison Coswary Ltd, [1913] 1 KB 634 ; Gordhandas v Raghovirdasji,
(1932) 34 Bom LR 1137 : AIR 1932 Bom 539; Md Lutjulla v Gauhati Bank Ltd, AIR 1953 Assam 217.
63 Bond v Gibson, (1808) 1 Camp 185 : 10 RR 665.

65 Mathura Nath v Sreejukta Bageshwari, (1927) 46 Cal LJ 362.
66 Prabhakar Traders v Veejay Traders, 2009 SCC OnLine P&H 11699 : (2010) 2 BC 153 : (2010) 2 CCC 231.
68 Best CJ in Stead v Salt, (1825) 3 Bing 103 : 130 ER 453 : 28 RR 603, p 604.
69 Powell v Brodhurst, [1901] 2 Ch 160.
71 Bina Murlidhar Hemdev v Kanhaiyalal Lokram Hemdev, (1999) 5 SCC 222 [On fact, held that clause 10 of the
partnership deed does not contain any express power to Shri RK Jain to transfer the immovable property of the firm.];
Rajiv Kumar Gupta v Susham Singla, 2015 SCC OnLine P&H 8020 : 2016 (5) ArbLR 357 (P&H) : (2016) 181 PLR 516;
D Srinivasan v HS Viswanath, 2006 SCC OnLine CLB 84 : (2008) 145 Comp Cas 563 (CLB) : (2006) 75 CLA 267;
Gupta International v Ashok Kumar Singhal, 2018 SCC OnLine Del 8528 : (2018) 249 DLT 606.
72 Sagarmal v Shri Gujarati Beedi Co, 2011 SCC OnLine MP 240 : 2011 (2) MP.L.J.626.
73 Rajnikant Hasmukhlal Golwala v Natraj Theatre, AIR 2000 Guj 80, p 87.
74 P Manthiramurthy v P Marimuthu, 2009 SCC OnLine Mad 2454 : 2010-1-L.W.388 [In this case, the firm had a business
of manufacturing nuts and bolts. However, one of the partners leased out an immovable property of the firm to
organisations, where he himself played a major role.]
75 Ragoonathdas v Morarji, (1892) 16 Bom 568; citing Walters v Northern Coal Mining Co, (1855) 5 De GM & G 629 : 104
RR 232.
76 Chinnaramanuja v Padmanabha, (1896) 19 Mad 471, p 476.
77 Juggeewundas v Ramdas, (1841) 2 MIA 487.
78 Asan Kant v Somasundaram, (1908) 31 Mad 206.
79 Jafferali Bhaloo Lakha v Standard Bank of S Africa, (1927) 107 IC 453 : AIR 1928 PC 135.
80 Hirachand Amersey v Jayagopal Gangabishan, (1924) 49 Bom 245, p 267 : 80 IC 553 : AIR 1925 Bom 69.
81 Bemola v Mohun, (1880) 5 Cal 792.
82 Section 125; Bank of Australasia v Breillat, (1847) 6 Moo PC 194 : 79 RR 53.
83 Ex p Darlington & Banking Co; Re Riches, (1864) 4 De GJ & section 585 : 146 RR 469.
84 Cases referred to in the next note, and Heilbut v Nevill, (1869–70) LR 4 CP 354 : in Ex Ch 5 CP 478.
85 Smith, 9th Edn, p 43 adopted by Keating and Byles JJ, inLevieson v Lane, (1862) 13 CBNS 278 : 32 LJCP 10; by Lord
Westbury, inex p Darlington & Banking Co; Re Riches, (1864) 4 De GJ & section 585 : 146 RR 469; and by Cockburn
CJ (subject to a doubt as to the last words), in Kendal v Wood, (1870) LR 6 Ex 243 : 39 LJ Ex 167; Baker v Barclays
Bank Ltd, [1955] 2 All ER 571, where the defendant was liable to the other partners for wrongful conversion.
86 (1847) 6 Moo PC 196 : 79 RR 55.
87 Kendal v Wood, (1871) LR 6 Ex 253.
88 Dalichand v Mathuradas, AIR 1958 Bom 428.
89 LR 6 Ex 243 : 39 LJ Ex 167.
90 LR 6 Ex 251, p 253.
91 Shirreff v Wilks, (1800) 1 East 48 : 102 ER 19 : 5 RR 509, per Le Blanc J.
92 Bignold v Waterhouse, (1813) 1 M&S 255.
93 Lewis v Reilly, [1841] 1 QB 349 : 55 RR 262.
94 Garland v Nacomb, (1873) LR 8 Ex 216 (Ex Ch); Pollock and Mulla, The Contract Act, 9th Edn, pp 718–20.
95 Kendal v Wood, (1871) in Ex Ch, LR 6 Ex 248, p 253, per Montague Smith J.
96 Ibid, per Lush J, p 254.
97 Garland v Nacomb, (1873) LR 8 Ex 216, (Ex Ch); SN Soni v Taufiq Farooki, AIR 1976 Del 63; when a partner assigns a
pronote in excess of his implied authority then it is open to the defendant-debtor to assail the legality and validity of the
assignment in case of a suit filed by the assignee of the pronote.
98 Ram Chandra Sahu v Kasem Khan, (1923) 28 Cal WN 824 : 81 IC 513 : AIR 1925 Cal 29.
99 Damordas v Gourishankar, AIR 1958 Bom 445.
End of Document
[s 20] Extension and restriction of partner’s implied authority—.

Parties

The partners in a firm may, by contract between the partners, extend or restrict the implied authority of any
partner.
Notwithstanding any such restriction, any act done by a partner on behalf of the firm which falls within his
implied authority binds the firm, unless the person with whom he is dealing knows of the restriction or does not
know or believe that partner to be a partner.
A conjoint reading of sections 18, 19 and 22 show that a partner is not only the agent of the firm but has implied
authority also to bind the firm by any of the acts done by him for and on behalf of the firm. Section 20 provides
an exception to the aforesaid implied authority. A perusal of section 20 shows that a partner in a firm may by
contract between themselves extend or restrict the implied authority of any partner. However, it has further
been provided that notwithstanding any such restriction, any act done by a partner on behalf of the firm, which
falls within his implied authority, binds the firm, unless the person with whom he is dealing knows of the
restriction or does not know or believe that partner to be a partner. It is apparent that unless and until the
contrary is proved, the implied authority of every partner is inherent and the onus to prove that such an
authority has been restricted would always be upon such person who claims such a restriction.100
The second paragraph of this section corresponds, in substance, to the exception to section 251 of the Contract
Act and it is closely similar to section 5 of the English Act, but is cast in a different form and embodies the effect
of section 8 of that Act.
In the words of the Special Committee:
Every person dealing with a firm is entitled to assume that all the partners wield the full implied authority, subject only
to such restrictions as have been brought within his knowledge.
On the other hand, it is equally just that known restrictions should be regarded.
The case of a partner having neither real nor apparent authority—that is, not being authorised in fact and not
known or believed to be a partner by the person he is dealing with—is now expressly dealt with, following the
English Act. There is no reason to think that the law was formerly otherwise. The converse case of a partner
dealing in his own name and the firm being in fact, his undisclosed principal is too remote from any usual or
probable practice to call for further or other remark, save that it would be dealt with, if it occurred, according to
the ordinary rules of agency.
By the combined effect of sections 3 and 11(1) of this Act and section 1 of the Indian Contract Act, it is
permissible for partners to agree among themselves that one or more of the partners shall have no authority to
act for the firm either generally or in a particular respect. In such cases, the actual authority is less than the
usual authority and if a partner exceeds his actual authority in fact by doing a prohibited act, the question at
once arises as to whether what he has done was within his usual authority. If it was, then although it was
expressly forbidden by the partnership agreement, the firm will be bound unless the person who dealt with the
partner knew of the prohibition. If he knew of the prohibition, the firm will not be bound for in that case, so far
from the partner having a usual authority, it would be clear that he had none.101 The partners may agree that
the exclusive power and control of management of the firm will rest with one of them only.102 However, third
parties dealing with the firm without notice of such internal restrictive arrangements among partners are not
affected by such restrictions.103 On the other hand, if a person seeks to fasten upon the firm liability in respect
of some act of one of the partners which does not fall within the limits of his authority as set out by sections 18
and 19, a more extensive authority, must be shown to have been actually conferred upon his by the other
partners to make the firm liable, even though the firm seeking relief had no notice of the real authority
possessed by the partner who dealt with him.104
100 State Bank of India v Simko Engineering Works, AIR 2005 P&H 63, paras 19, 20 & 21.
101 Underhill’s Principles of the Law of Partnership, 11th Edn, p 52.
102 KD Kamath & Co v CIT, [1971] 82 ITR 680 (SC).
103 Cox v Hickman, (1860) 8 HLC 268, p 304; Motilal v Unnao Bank, (1930) 28 All LJ 1358 (PC); Hallet v Dawadell, [1852]
18 QB 2 ; Forbes v Marshall, (1855) 11 Exch 166; Yusuf Mahboob & Co v Firm Salleh Mahommed, AIR 1928 Sind
37; Imperial Loan Co v Stone, [1892] 1 QB 599.
End of Document
[s 21] Partner’s authority in an emergency—.

Parties
[s 21] Partner’s authority in an emergency—.

A partner has authority, in an emergency, to do all such acts for the purpose of protecting the firm from loss as
would be done by a person of ordinary prudence, in his own case, acting under similar circumstances, and such
acts bind the firm.
[s 21.1] AUTHORITY IN EMERGENCY
By section 13, clause (e), the partner doing an act of this kind is entitled, subject to any special agreement, to
be indemnified by the firm, but nothing is said in that section about the firm’s position with regard to other
parties; this is dealt with by this section. By section 189,105 of the Contract Act, 1872 an agent is authorised, in
an emergency, to do such acts, described in practically the same terms; and it may well be that a partner, who
is expressly declared by section 18 of this Act to be an agent of the firm, can derive authority in an emergency
from that section. The Select Committee assumed that the present section makes an innovation; but, whether it
does or not, the terms are clear and leave no doubt for the future. If is asked why the firm’s liability to indemnify
the acting partner is not sufficient for practical purposes, the answer is that cases may occur where the
necessary action could not be taken at all without pledging the firm’s credit. However, it is to be noted that the
agent of a principal whose business does not include borrowing money was held in England to have no
authority to borrow money on the principal’s credit, even in emergency to enable the business to be carried
on.106 This case proceeds on the footing that a power to do what is usual does not include a power of a ship, is
expressly distinguished as being founded on the peculiar character of maritime risks. Still, the doctrine of
agency of necessity cannot, at this day, be confined to any innumerable classes of business;107 and it seems to
be least arguable in India that decisions purporting to lay down any such limitations are not consistent with the
comprehensive words of this section, and are therefore not to be followed in Indian courts.
105 The number 212 in the Special Committee’s note is a slip of the pen for 189.
106 Hawtayne v Bourne, (1841) 7 M&W 595 : 56 RR 806; see also Simpson’s claim (1887) 36 ChD 532, where necessity in
fact was not proved.
107 See the careful discussion by McCardie J in Prager v Blatspiel, Stamp and Heacock Ltd, [1924] 1 KB 566. Here again
the evidence of necessity broke down.
End of Document
[s 22] Mode of doing act to bind firm.—

Parties

In order to bind a firm, an act or instrument done or executed by a partner or other person on behalf of the firm
shall be done or executed in the firm name, or in any other manner expressing or implying an intention to bind
the firm.
Section 22 provides that in order to bind a firm by an act or an instrument executed by a partner on behalf of
the firm, the act should be done or the instrument should be executed in the name of the firm, or in any other
manner expressing or implying an intention to bind the firm.108 This section is held to be merely a procedural
provision which shows how a partner can bind his firm and the rest of the partners of the firm, once his act is
within the four corners of section 19(1). It is obvious that the procedure of section 22 can be pressed in service
provided the basic condition for foisting the liability on the firm and the remaining partners is established as per
the requirement of section 19(1). If that basic requirement is not satisfied, even though the partner complies
with the procedure of section 22 by executing instruments in the manner provided by section 22, it would
remain an abortive exercise.109
This section is equivalent to section 6 of the English Act, which adds that general rules relating to the execution
of deeds or negotiable instruments are not to be affected. A similar proviso in the Special Committee’s draft
was deleted by the Select Committee as unnecessary. It has been laid down in England, “section 5 of the
Partnership Act, 1932 was not intended to, and does not, overrule section 4 of the Statute of Frauds”,110 and
accordingly will not dispense with the need, in an agreement within that enactment, for a sufficient
memorandum in writing, identifying the party or parties to be bound. There is no reason to doubt that the
analogy of this decision is applicable in India; here, as in England, a document authorised in fact will have
whatever effect, compatible with its actual form, it is capable of having, although it claims to be some other kind
of instrument and does not clearly make that claim good.111
If the written agreement is clearly entered into by the firm even the partner whose name does not appear in it is
liable to be sued like any other undisclosed principal.112 On the same principle, the firm will be liable to pay for
the goods ordered by one of the partners on behalf of the firm and delivered to him, although the co-partners
were unknown to the vendors.113 A firm is not necessarily bound by a contract made with one of its partners just
because some benefit may have accrued to it. The real question in such cases is whether the firm entered into
the contract, and not whether it derived any benefit from the contract.114 To make a bill of exchange or a
promissory note binding on a firm the name of the firm or the names of all its partners must be upon it. If the
firm is not reflected in the instrument, a partner whose name is not on it will not be liable to be sued upon it.115
Where the managing partner, with an intention and with a view to bind firm had signed and affixed the seal of
the firm on the promissory note and recitals thereon showed that consideration was being received for sake of
the firm, it was held that other partners of the firm are also liable.116 In view of sections 18, 19, 20 and 22, a
partner of a firm has authority to file an application before a court.117 Where a hundi was drawn by one of the
partners, though not in the name of the firm, the Privy Council held that the other partner was also liable
because admittedly the hundi was drawn as partnership transaction.118
Where sub-lease taken by a partner was not executed in the name of the firm, nor was the partner acting on
behalf of the firm, it was held that the sub-lease did not bind the firm.119
Difficulties may arise when name of a partner is adopted as the firm name. In such cases if the co-partners can
successfully show that the bills were given by the partner, whose name is adopted as the firm name, as his own
and not as of the firm, they will not be liable even to a bona fide holder for value.120 Where the firm name was
changed but through mistake a contract was entered into with the firm in its old name, it was held that the
members of the new firm may sue on it, provided the other party is not prejudiced thereby.121 In a case where
after the dissolution of the firm the partner taking over the business signed the invoices for the goods sent to an
old customer as the proprietor by scoring out the word “Partner” it was held that the other members of the
dissolved firm were not liable for such subsequent transactions.122
108 Devji v Magan Lal R Atharana, AIR 1965 SC 139, p 140.

109 Porbandar Commercial Co-op Bank Ltd v Bhanji Lavji, AIR 1985 Guj 106, p 109; Sagarmal v Shri Gujarati Beedi Co,
2011 SCC OnLine MP 240 : 2011 (2) MPLJ 626.
110 Keen v Mear, [1920] 2 Ch 574, p 581, a decision turning on section 5 of the Partnership Act, 1890 and the repealed
words in section 4 of Statue of Frauds which are replaced by section 40 of the Law of Property Act, 1925; Where the
partition of the assets of the dissolved firm was effected between a partner and the representative of a deceased
partner it was held that the document does not require to be registered as in Madiammal v Glory Chandrakantha, AIR
1977 Mad 209, p 213.
111 Re Briggs & Co, [1906] 2 KB 209, the particular technical difficulty of an instrument purporting to be the deed of two
partners but being executed only by one (the substance of the transaction being within his authority) cannot, of course,
occur in India.
112 Beckham v Drake,(1843) 11 M&W 315, affirming (1841) 9 M&W 79; Venkatasubbiah v Govindrajulu, (1980) 31 ILR
Mad 45.
113 Bottomley v Nuttal, (1858) 5 CB 122 (NC); Ruppell v Roberts, (1834) 4 Nev & Man 31; Robinson v Wilkinson, (1817) 3
Price 538; Court v Berlin, [1897] 2 QB 396.
114 Beckham v Drake, (1841) 9 M&W 79, p 100, per B Rolfe; Emly v Lye, (1812) 15 East 7; Bevan v Lewis, (1827) 1 Sim
376
115 See Bottomley v Nuttal, (1858) 5 CB (NS) 122; Lloyd v Ashby, (1831) 2 C&P 138; Eastwood v Bain, (1858) 3 H&N 738;
Miles’ Claim (1874) LR 9 Ch App 635; Ringham v Hackett, (1980) 124 SJ 201; notes under section 19 above.
116 Vattumalli Narayana Rao v Medrarapu Krishna Rao, AIR 2003 AP 46.
117 Naren Advertising and Marketing v State Bank of Saurashtra, AIR 2001 Guj 222, para 19.
118 AIR 1914 PC 132.
119 Devji v MaganlalR Atharana, AIR 1965 SC 139.
120 Yorkshire Banking Co v Beatson, (1880) 5 CPD 109.
121 Mitchell v Lapage, (1816) Holt NPC 253; Usher v Dauncey, (1814) 4 Camp 97.
122 H Manjunatha Nayak v Ullal Dayananda Nayak, AIR 1984 Kant 55, p 59.
End of Document
[s 23] Effect of admissions by a partner—.

Parties

An admission or representation made by a partner concerning the affairs of the firm is evidence against the
firm, if it is made in the ordinary course of business.
[s 23.1] ADMISSION BY PARTNER
This is almost identical with section 15 of the English Act. Its matter is a necessary branch of the law relating to
a partner’s general authority. As to admissions in general and their effect, the Evidence Act I of 1872, sections
17– 23123 can be referred to. An admission by a partner concerning the affairs of the firm would be evidence
against the firm under section 18 of the Evidence Act.124 Inasmuch as a partner’s admission is no more than
evidence against himself, it is not conclusive, though relevant, as against the firm.125 A partner’s statement
about the extent of his authority can of course add nothing to the authority he has in fact; for otherwise he could
bind the firm to anything merely by representing himself as authorised to do so.126 By hypothesis, the
representation that the business of the firm is more extensive than it really is or that it is different falls outside
the scope of the partnership business and therefore a partner cannot bind the firm by misrepresenting the
nature of business.127 However, mis-statements by a partner acting in the ordinary course of business of a firm
causing loss or injury to any third party will make the firm liable.128
[s 23.2] ACKNOWLEDGEMENT OF DEBT BY A PARTNER
The mere writing or signing of an acknowledgement of a debt by one partner does not necessarily of itself bind
his co-partner unless he had authority, express or implied, to do so. According to Calcutta, Bombay and
Allahabad decisions, such authority is to be presumed as an ordinary rule in a going mercantile concern.129
According to the Madras decisions, evidence of authority from the other partners is necessary and cannot be
presumed.130 After dissolution, however, express authority must be proved,131 except, it must be remembered,
when a partner is exercising the power given by section 47 (section 38 of the English Act). More details can be
had in section 20 of the Limitation Act, 1963.
123 As to the effect of the Limitation Act, sections 21 and 22; on an acknowledgment made by one partner Mahadeva Iyer v
Rama Krishna Iyer, 50 Mad LJ 67 : 92 IC 653 : AIR 1926 Mad 114; the better opinion is that it does not invalidate
acknowledgments which are really in the business of the firm.
124 Thomas Bear & Sons Ltd v Rulia Ram, AIR 1934 Lah 625; Sohanlal v Gulabchand, AIR 1966 Raj 229, p 231.
125 Stead v Salt, (1825) 1 Bing 103, 28 RR 604.
126 Ex p Agace, (1792) 2 Cox 312, 2 RR 49.
127 Jacobs v Morris, [1902] 1 Ch 816; affirming [1901] 1 Ch 261.

128 Anderson (WB) & Sons v Rhodes (Liverpool), [1967] 2 All ER 850; section 26 below.
129 Bengal National Bank Ltd v Jatindra Nath Mazumdar, (1929) 56 Cal 556 : AIR 1929 Cal714; Premji v Dossa, (1886) 10
Bom 358; Dalsukhram v Kalidas, (1902) 26 Bom 42; Gadoo Bibi v Parshotum, (1888) 10 All 418; Gharabharan v Radha
Kishan, AIR 1958 All 313. In Dalsukhram v Kalidas Candy J; referred with approval to Scott, J’s ruling in Premji v Dossa
but the court eventually sent down an issue whether the acknowledgment was, or was not, an act necessary for or
usually done in carrying on the business of the partnership; Firm of Sarabhai Hathising v Shah Ratilal Nathalal, AIR
1979 Guj 110, p 113; Gordhandas v Bhulabahi, (1932) 34 Bom LR 623; Omkarlal v Mohanlal, AIR 1952 MB 78;
Goodwin v Parton, (1880) 42 LT 568; Watson v Woodman, (1875) 20 Eq 721, p 730.
130 Valasubramania v Ramanathan, (1908) 32 Mad 421; Shaik Mohideen v Official Assignee of Madras, (1911) 35 Mad
142 : 11 IC 332; KRV Firm v Seetharamaswami, (1914) 37 Mad 146, p 152 : 21 IC 624; Veeranna v
Veerabhadraswami, (1918) 41 Mad 427 : 45 IC 18.
131 Premji v Dossa, (1886) 10 Bom 358; Rajagopala v Krishnasami, (1898) 8 Mad LJ 261.
End of Document
[s 24] Effect of notice to acting partner—.

Parties

Notice to a partner who habitually acts in the business of the firm of any matter relating to the affairs of the firm
operates as notice to the firm, except in the case of a fraud on the firm committed by or with the consent of that
partner.
Section 24 deals with the effect of notice to a partner. Such notice may be binding if the following conditions are
satisfied:132
(a) the notice must be given to a partner;

(b) the notice must be a notice of any matter relating to the affairs of the firm;
(c) fraud should not have been committed with the consent of such partner on the firm.
Section 24 is based on the principle that as a partner stands as an agent in relation to the firm, a notice to the
agent is tantamount to the principle and vice versa. As a general rule, notice to a principal is notice to all his
agents; and notice to an agent of matters connected with his agency is notice to his principal.133 Notice to
partner, who has habitually acted in relation to the affairs of the petitioner firm, would operate as a notice to the
firm, be it for a notice invoking arbitration134 or service of the arbitral award.135
This is all but verbally identical with section 16 of the English Act; the substance is well-settled law. A notice
sent to the firm and received by a member of the firm constitutes effective service on all its partners.136
Actual notice must be shown, not a mere speculative constructive notice.137
If two firms have a common partner, notice which is imputable to one of them is imputable to the other, provided
it also relates to the business of that other firm,138 but not if it relates to the affairs of a client or customer of
either firm.139
There is curious but, so far as can be inferred from the absence of authority, hardly a practical question whether
an incoming partner carries with him into the firm, so to speak, knowledge of facts acquired by him before he
became a partner. More than a century ago Sir G Jessel threw out a suggestion that such knowledge might be
held to the notice to the firm.140 The exception is too obvious to common sense to call for comment. A partner
who is defrauding the firm will certainly not inform his partners of any fact tending to expose the fraud.
132 Ashutosh v State of Rajasthan, (2005) 7 SCC 308, para 11.

133 Ibid, para 12.
134 Bablu Namdev Navratne v Khimji Jaisa Sanda Krishna Enterprises, 2016 SCC OnLine Bom 2627 : [2016 (3). Mh.L.J.
858 [Though the application for appointment of arbitrator was dismissed as being pre-mature.]
135 Manohar Lal & Co v Axis Bank Limited, 2018 SCC OnLine Cal 4842 : LNIND 2018 CAL 8381.
136 Kanhayalal v Devidas, AIR 1931 Lah 227, p 229; Krishnalal Oil Mills v State of Andhra Pradesh, (1969) 24 STC 304, p
316.
137 Re Coasters Ltd [1911] 1 Ch 86; Rampal Singh v Balbhaddar Singh, (1902) 25 All 1, pp 17 : 29 IA 203; Morumal v
Gobindram, (1933) 144 IC 452 : AIR 1933 Sind 176; see also section 3, Expl III of the Transfer of Property Act, 1882;
Feuer Leather Corp v Frank Johnstone & Sons, (1981) Com LR 251; Nelson v Larholt, [1948] 1 KB 339; Greer v Downs
Supply Co, [1927] 2 KB 28; Manchester Trust v Furness,[1895] 2 QB 539, p 545.
138 Steele v Stuart, (1866) 2 Eq 84; Re Worcester Corn Exch Co, (1853) 3 De GM & G 180; Powles v Page,(1846) 3 CB 16
139 Campbell v Mc Creath, 1975 SLT 5 (Notes); Lindley on Partnership, 15th Edn, p 292.
140 Williamson v Barbour, (1877) 9 Ch D 535 .
End of Document
[s 25] Liability of a partner for acts of the firm.—

Parties

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.
[s 25.1] HISTORY
This agrees with the law of Scotland and with what was commonly supposed to be the English rule until the
House of Lords decided in 1879,141 that during a partner’s life his liability is only joint, though after his death, his
estate can be held liable (but not in competition with his separate creditors) for debts to the firm contracted
while he was a partner and remaining unsatisfied. Results of that decision in England do not find applicability in
India. The rule, which it rejected, had been supposed by the framers of the Contract Act, 1872 to be good
English law, and was expressed by them in section 249 of the Act. The present Act repeats it in a more concise
and emphatic form.
It will be remembered that under section 43 of the Contract Act, 1872 joint promises of every kind create a joint
and several obligation in the absence of express agreement to the contrary.
[s 25.2] SCOPE
Section 25 provides that 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.142 A firm is not a legal entity. It is only a collective or compendious name for
all the partners. In other words, a firm does not have any existence away from its partners. A decree in favour
of or against a firm in the name of the firm has the same effect as a decree in favour of or against the partners.
While the firm is incurring a liability it can be assumed that all the partners were incurring that liability and so the
partners remain liable jointly and severally for all the acts of the firm.143 Partners of a firm have unlimited liability
to the creditors of the firm. That is what distinguishes a partnership from a limited company or a limited liability
partnership.144 Since liability of a firm is the liability of all its partners, an inter se arrangement between partners
to discharge liability of the third person does not bind the third person unless the third person is also a party to
the inter se arrangement between the partners.145 Each partner shall be liable as if the “debt” of the firm has
been incurred on its personal liability.146
Section 25 does not make a distinction between a continuing partner and an erstwhile partner and makes liable
every partner for all acts of the firm done while he is a partner.147 It is open to a creditor of the firm to recover
the debt from any one or more of the partners.148 Each partner shall be liable as if the debt of the firm has been
incurred on his personal liability.149 An endorsee of a promissory note executed by a managing partner of the
firm has a right to hold all the partners liable as the makers of the promissory note.150 The liability of the
partners for the loan availed from a Bank is joint and several151 and bank could recover the outstanding amount
against the firm from any partner and it could not lie in the mouth of a partner that he is not liable to discharge
liabilities of the firm but is liable only to the extent of his share and lien could not be created against his
securities.152
Where a subscriber had two telephone connections, one in his own name and the other in the name of his
partnership firm, and the firm defaulted in paying the dues of the telephone department, the action of the
department in disconnecting both the telephone lines was upheld on the ground that liability of the partner was
joint and several.153
A partnership debt contracted by fraud was held to be joint and several in ex p Adamson.154 In equity a breach
of trust imputable to a firm created a joint and several obligation on all the partners to make it good.155 However,
an act of a person, before he becomes a partner, will not be an act of the firm and will be his sole
responsibility.156
Where damages arose out of the wrongful act of infringement of a trademark after the dissolution of the firm the
person who were partners when the act was committed were held to be liable.157
In the absence of any specific provision contained in the Bombay Sales Tax Act, 1959 (51 of 1959) or the
Rules, there could be no settlement with an individual partner so as to discharge him from his obligation to pay
the sales tax dues payable by the assessee firm.158
[s 25.3] EXECUTION OF A DECREE
In a decree against a partnership firm, each partner is personally liable except the minor whose liability is
limited to his assets in the partnership. A decree passed in a suit, though in form, against the firm, is in effect a
decree against all the partners.159 Beyond doubt, where all the partners of a firm are capable of being sued and
of being adjudged judgment-debtors, a suit may be filed and a decree may be obtained against a firm under O
XXX of the Code of Civil Procedure and such a decree may be executed against the property of the partnership
and against all the partners by following the procedure of O XXI, rule 50 of the Code of Civil Procedure.160 But
there may be cases where a suit is filed against a firm under the provisions of O XXX, of the Code of Civil
Procedure, and it is found that one of its partners cannot be sued or cannot be adjudged a judgment-debtor.
Order L, rule 1(c), CPC specifically provides for execution of a decree against the firm may be granted against
any person who has been individually served as a partner with a summons and has failed to appear. Decree
can be executed even against the personal properties of a partner.161 The execution can be granted against the
partnership property as well as against the partner.162
Each partner shall be liable as if the debt of the firm has been incurred on his personal liability.163 If this premise
is valid, there being no express prohibition against arrest as a mode of execution of a decree in the law of
partnership, the procedural remedy under section 51 and O XXI, rule 30 of the CPC of the coercive process of
arrest in execution of the decree for partnership debt, is inevitably adjunct to such liability.164
[s 25.4] CRIMINAL LIABILITY
Once established that the illegal act is committed by the firm or its partners, then the partners will be jointly
liable for it.165 However, the question of liability of the partners for an act constituting an offence will have to be
decided with reference to the statute creating such liability.166 While dealing with a case relating to Essential
Commodities Act, the
Supreme Court, in Sham Sunder v State of Haryana, (1989) 4 SCC 630, paras 9 and 10, held as under:
we are concerned with a criminal liability under penal provision and not a civil liability. The penal provision must be
strictly construed in the first place. Secondly, there is no vicarious liability in criminal law unless the statute takes that
also within its fold. Section 10 does not provide for such liability. It does make all the partners liable for the offence
whether they do business or not.
It is, therefore, necessary to add an emphatic note of caution in this regard. More often it is common that some of the
partners of a firm may not even be knowing of what is going on day to day in the firm. There may be partners, better
known as sleeping partners who are not required to take part in the business of the firm. There may be ladies and
minors who were admitted for the benefit of partnership. They may not know anything about the business of the firm. It
would be a travesty of justice to prosecute all partners and ask them to prove under the proviso to sub-section (1) [of
section 10 of Essential Commodities Act (10 of 1955)] that the offence was committed without their knowledge. It is
significant to note that the obligation for the accused to prove under the proviso that the offence took place without his
knowledge or that he exercised all due diligence to prevent such offence arises only when the prosecution establishes
that the requisite condition mentioned in sub-section (1) is established. The requisite condition is that the partner was
responsible for carrying on the business and was during the relevant time in charge of the business. In the absence of
any such proof, no partner could be convicted.
In a case related to section 138 of the Negotiable Instruments Act, 1881(26 of 1881), the Supreme Court167 held
that the primary responsibility is on the complainant to make necessary averments in the complaint so as to
make the accused vicariously liable. For fastening the criminal liability, there is no presumption that every
partner knows about the transaction. The obligation of the appellants to prove that at the time the offence was
committed they were not in charge of and were not responsible to the firm for the conduct of the business of the
firm, would arise only when first the complainant makes necessary averments in the complaint and establishes
that fact. The said case, it was found, was of total absence of requisite averments in the complaint.168 Each of
the partner has the responsibility to conduct the business of the firm and would be liable for being prosecuted
for an offence under section 138, Negotiable Instruments Act, 1881 (26 of 1881).169 However, section 141,
Negotiable Instruments Act, 1881 (26 of 1881) is applicable to a partnership firm.170 Section 25 of the Act has to
be read together with section 141 of the Negotiable Instruments Act, 1881 (26 of 1881) in the context of
dishonour of a cheque. Section 25 cannot be applied in isolation to fasten criminal liability on the partner of a
firm and that in terms of section 141 of the Negotiable Instruments Act, 1881 (26 of 1881)the partner can rebut
the statutory presumption.171
In a criminal prosecution under the Indian Penal Code, 1860 firm need not be made a party. Only partners are
to be made accused.172 A complaint under section 138, Negotiable Instruments Act, 1881 (26 of 1881) against
the partners would require filing of partnership deed and to show that the named accused are partners in the
firm. Failure to do so would lead to quashing of the complaint.173
141 Kendall v Hamilton, 4 AC 504.

142 Baljit Singh v Food Corporation of India, 2015 SCC OnLine P&H 19962.
143 Dena Bank v Bhikhabhai Prabhudas Parekh & Co, (2000) 5 SCC 694. See also Zodiac Traders India v Seychelles
Public Transport Corpn, 2013 SCC OnLine Mad 3037 : 2013 (6) CTC 301.
144 P Kishanchand v Lalishah Khanna, 2009 SCC OnLine Del 2587.
145 Asha Gupta v Inder Singhal, 2018 SCC OnLine Del 8428 : LNIND 2018 DEL 1672.
146 N Elangovan v C Ganesan, 2014 SCC OnLine Mad 8704 : 2014 (3) MWN (Cr) DCC 177 (Mad).
147 ITO (III) v Arunagiri Chettiar, (1996) 9 SCC 33.
148 Sahu Rajeshwar Nath v ITO, Meerut, AIR 1969 SC 667, p 669, the contention that a partner of the assessee firm
should also have been served a notice of demand under section 29 of the Income Tax Act, 1922 was repealed on
consideration of the provisions of that Act; Nilkanth Balappa Mangave Shop v Raj & Co, AIR 1982 Bom 288, p 290;
Jatindrakumar Dass v Dhirajlal Vrajlal Kanakia, AIR 1975 Cal 123, pp 126, 127 where suit for recovery of arrears of rent
was held to be maintainable even though filed only against the partner who had contracted tenancy for the firm. See
also E Jayaraman v Thanneerkattu Perumal Thirukkovil, 2009 SCC OnLine Mad 1833 : 2010 (1) MWN (Civil) 321;
Gupta Enterprises v Dharam Pal Gupta, 2016 SCC OnLine P&H 3339 : (2016) 168 AIC 565 : (2017) 1 RCR (Civil) 219.
149 Ashutosh v State of Rajasthan, (2005) 7 SCC 308, para 13. Noted in S Gnanavadivu v Abdul Azeez, 2015 SCC OnLine
Mad 6031 : (2015)6MLJ280 : [2015] 132 SCL 336 (Madras).
150 Gurram Subbaravudu v Narasimham, AIR 1974 AP 307, p 309.
151 Gurpreet Singh v State of Punjab, 2013 SCC OnLine P&H 1022 [The argument of liability of each partner being limited
to their share in the firm was rejected.] See also Vinod Kumar v Gulshan Rai, 2016 SCC OnLine P&H 2388; Andhra
Bank v Raghunath Tripathy, 2017 SCC OnLine Ori 793; Mrinal Kanti Roy Partner v Sunil Nath, 2018 SCC OnLine Gau
293; State of Tripura v Bhowmik and Company, AIR 2004 Gau 19 : LNIND 2003 GAU 214
152 J e5’ K Bank Limited v Abdul Samad Chaloo, 2006 SCC OnLine J&K 15 : AIR 2008 J&K 1 : (2008) 2 AIR Bom R (NOC
204) 65; AS Karmachari Grih Nirman Sanstha, Gwalior v Subhash Yadav, AIR 1996 MP 39.
153 Bhagwanji Devraj v UOI, 16 Guj LR 357, p 362.
154 (1878) 8 Ch D 807.
155 Vulliamy v Noble, (1817) 3 Mer 593; Clayton’s case, (1816) 1 Mer 572; Brydges v Branfill, (1842) 12 Sim 369; Blyth v
Fladgate, [1891] 1 Ch 337, p 353.
156 Heap v Dobson, (1863) 15 CB 460 (NS); Wilson v Whitehead, (1842) 10 M&W 503.
157 Thomas Bear e5’ Sons v Rulia Ram, AIR 1934 Lah 625; Maurice Mayadas v W Morley, AIR 1925 Cal 937.
158 Pradip Nanjee Gala v STO, (2015) 13 SCC 149 : 2015 (5) Scale 695.
160 Ashutosh v State of Rajasthan, (2005) 7 SCC 308; Baljit Singh v Food Corporation of India, 2015 SCC OnLine P&H
19962.
161 P Kishanchand v Lalishah Khanna, 2009 SCC OnLine Del 2587.
163 Ashutosh v State of Rajasthan, (2005) 7 SCC 308 : AIR 2005 SC 3434.
164 N Ranganyakulu vj Narasimharao, AIR 1971 AP 58, pp 61, 62.
165 Brij Trading Co v Enforcement Directorate, (2014) 2 HCC (Del) 451 : 208 (2014) DLT 133.
166 See eg, section 10 of the Essential Commodities Act, 1955, for liability of the partners for offence by a firm
167 Monaben Ketanbhai Shah v Stateof Gujarat, (2004) 7 SCC 15. [Dist in Alfa Graphics v Arjun Kohli, 2008 SCC OnLine
Del 161 : 2008 (101) DRJ 301 holding that in a section 138, Negotiable Instruments Act, 1881 complaint, there is no
need to arraign the partners as accused and only the firm can be made an accused.].
168 See also for instance, Saroj Kumar Poddar v State, (NCT of Delhi) (2007) 3 SCC 693, paras 14 & 18.
169 Green Sea Marine v VA Anty, 2008 SCC OnLine Ker 148 : (2008) 2 KLJ 780.
170 Devendra Pundir v Rajendra Prasad Maurya, 2007 SCC OnLine Mad 846 : (2008) (1) MWN (CR.) DCC 179; Suresh
Kumar Joon v Mool Chand Motors, 2012 SCC OnLine Del 4303.
171 Steel Authority of India Ltd v State, 2014 SCC OnLine Del 6524 : (2015) 216 DLT 73 : (2014) 146 DRJ 645.
172 Food Corporation of India v State of Punjab, 2011 SCC OnLine P&H 10188 : LNIND 2011 PNH 3906.
173 Vinod Zaveri v Metallica Industries Ltd, 2009 SCC OnLine Del 2871 : (2009) 165 DLT 697. The Bombay High Court in
Mukesh Raoji Navadhare v Ajit Bhaskar Kasbekar, 2009 SCC OnLine Bom 1935 : 2010 (2) Mh. L.J. 469 held that a
complaint under section 138, Negotiable Instruments Act, 1881 by a partner against the firm is not maintainable since
the complainant is co-drawer as well as payee of the cheque in view of nature of “firm” under the law.
End of Document
[s 26] Liability of the firm for wrongful acts of a partner—.

Parties

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 therefor to the same extent as the partner.
[s 26.1] GROUND OF LIABILITY: HOW MATERIAL TO USAGE OF FIRM
This is identical, but for minute verbal variation, with section 10 of the English Act. The principle of this section
is a branch of the universal rule that everyone must answer for the acts and defaults of his servants or agents in
the course of their employment.174 Liability of the firm for acts done by the partner would arise if such act is in
“ordinary course of business”.175 As regards the application of it, the chief difficulty that occurs in practice is that
of knowing whether the partner guilty of the neglect or fraud was really “acting in the ordinary course of the
business of the firm,” or was only operating a wrong of his own, for which his position in the firm gave him an
opportunity.176 It is to be observed that there is no reference to the person for whose benefit the act is done in
section 26. A principal is liable for the fraud of his agent acting within the scope of his authority, whether the
fraud is committed for the benefit of the principal or of the agent.177
All the members of a firm of solicitors will be liable for the negligent advice given by one of them to the client of
the firm or for negligent conduct of their clients” claim.178 The firm being a legal entity, it is being managed by its
partners. The firm itself cannot transact its business. Contravention of any law by anyone of the partner of the
firm would be a contravention by the firm itself.179 If one partner in ordinary course of business of the firm
commits breach of the revenue laws, all the partners will become liable for the consequent penalties.180
Where the default consists, as it usually does, in the misappropriation of money which a customer or client was
minded to entrust to the firm, it is material to consider whether it ever came into the firm’s custody; for in this
case the firm is liable for misappropriation by a partner, whether he was the partner originally trusted, and
whether he acted in the exercise of apparently regular authority as is evident in section 11 of the English Act.
Moreover, the question whether a partner was acting on behalf, or with the ostensible authority of the firm, can
seldom be answered except by reference to the expectations created either by the special usage of that firm, or
by what is usual in that kind of business generally. Depositing securities with a banker for safe custody will
make the firm responsible for a misappropriation of them; but putting money in the hands of one member of a
banking firm to be invested at his discretion will not; for the former transaction is within the scope of what
bankers in England habitually do for their customers, the latter is outside it.181 Similar distinctions hold where
solicitors are employed in money matters. Receipt of money with instructions to invest it in a specific manner
binds the firm, as being in the ordinary way of solicitors’ business,182 but if the instructions are general to invest
at the solicitor’s discretion, it does not.183 However, a particular firm may widen its responsibility by habitually
undertaking particular kinds of business for its clients.184
A firm may also be liable for money which has come into its funds by the irregular or fraudulent act of either a
partner185 or an agent who is not a partner,186 and this whether the act was in the ordinary course of business,
at all events if the partners knew or might have known of the payment and its source. However, this does not
really depend on anything specially belonging to the law of partnership.
In an English case, one of two partners bribed the clerk of the plaintiff, who was a competitor of the firm, to
disclose certain information as to the plaintiff’s operations which as between him and his employer was
confidential; it was in the course of the firm’s business to obtain such information by proper means. Both
partners were held liable to the plaintiff.187
On the principle that the wilful tort of one partner is not imputable to the firm, it was held in the undermentioned
case that the firm is not liable if a partner maliciously prosecutes a person, unless all the partners are, in fact,
privy to the malicious prosecution.188
However, a wilful tort committed by the partner in the course of business of the firm may make the firm liable.189
It has been held in Bombay High Court that a malicious prosecution by the managing partner of a firm does not
render the other members of a firm liable in damages, unless it is shown that the firm was, in some way or
other, concerned in the prosecution and had instigated it.190 The decision in this particular case may well be
right, on the ground of want of authority, either general or special, and the language of the court may have been
appropriate in the circumstances, but it is submitted that this cannot be relied on as a general proposition. If a
prosecution was undertaken on behalf of a firm by a member of it (or any other agent) having general authority
to prosecute on behalf of the firm in a proper case; if the prosecutor was acting with a view, however perverse
or erroneous, to the interest of the firm, and not merely for his private purposes; and if the prosecution was, in
fact, malicious in the sense of being undertaken without reasonable cause, and in order to damage a person
obnoxious to the firm rather than to advance justice, then, it is conceived, the partners in the firm would be
liable, according to principle and to the English authorities, whether at the time they knew anything of the
prosecution or not.191 In the case of defamatory statements in a letter by the partners of a firm written on a
privileged occasion, each partner has a personal privilege, and only a partner actuated by malice is liable in
damages.192
Wrongful employment of trust property by a trustee in a business in which he is a partner is specially dealt with
by the Trusts Act, 1882, section 67, with which compare the English Partnership Act, section 13.
Where the vehicle belonging to the firm is being driven by a partner, it can be said that it is done with the
permission of the owner namely, the firm or with its implied authority. The vehicle can be said to be driven by
the insured itself or with is permission.193
[s 26.2] PENALTY
Whenever the legislature intends to treat the partners and the firm as separate entities for the purposes of
penalty, it expressly provides for the same. Once penalty is imposed on a partnership firm for contravention of a
statute, it amounts to levy of penalty on the partners and there can be no question of penalising the partners
separately for the same contravention, (for instance, under the Customs Act, 1962) unless the intention of the
legislature to treat the firm and partners as distinct entities is borne out from the statute itself (for instance, the
Income-tax Act, 1961).194 Once penalty is imposed on a partnership firm for contravention of the Central Excise
Act, 1944 it amounts to levy of penalty on the partners.195
When penalty has been imposed upon the firm, imposition of penalty upon each of the partners is unjustified in
the absence of lapse/negligence/bona fides on the part of the partners of the firm individually.196
174 For the general illustration of this rule, the textbooks on the law of torts may be consulted.
175 Anand Armoury v Govt of NCT of Delhi, 2010 SCC OnLine Del 1781.
176 Munshi Basiruddin Mullick v Surja Kumar Naik, (1908) 12 Cal WN 716, p 719.
177 Lloyd v Grace Smith & Co, [1912] AC 716; Din Bandhu Saha v Abdul Latif Molla, AIR 1923 Cal 157; Hurruckchand v
Gobindlal Khetry, (1906) 10 Cal WN 1053; Mathuranath Chowdhury v Sreejukta Bageswari, AIR 1928 Cal 57, p 58.
178 Esso Petroleum Co Ltd v Mardon, [1976] QB 801; Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp, [1979] Ch 384;
Welsh v Knarston, 1972 SLT 96; Hedley Byrne& Co Ltd v Heller and Partners Ltd, [1964] AC 465; Blyth v Fladgate,
[1891] 1 Ch 337; WB Anderson & Sons v Rhodes (Liverpool), [1967] 2 All ER 850 on negligent misstatements by a
partner.
179 RS Exports v State of Karnataka, AIR 2000 Kar 332, para 9.
180 R v Stranyforth, (1721) Bumb 97; R v Manning, (1739) 2 Com 616; Attorney General v Burges, (1726) Bumb 223.
181 Contrast Clayton’s case, (1816) 1 Mer 572, p 579; with Bishop v Countess of Jersey, (1854) 2 Drew 143 : 100 RR 51.
182 Blair v Bromley, (1847) 2 Ph 354 : 71 RR 213.
183 Harman v Johnson, (1853) 2 E&B 61 : 95 RR 429.
184 Rhodes v Moules, (1895) 1 Ch 236 (CA).
185 Marsh v Keating, (1834) 1 Bing NC 198 : 2 Cl & F 250, p 289 : 37 RR 75, p 106; Hurruck Chand v Govind Lal Khetry,
(1906) 10 Cal WN 1053 (where one of two partners who dealt in piece-goods stole piece-goods, the property ofa
merchant, and credited the sale proceeds to the firm).
186 Reid v Rigby & Co, [1894] 2 QB 40.
187 Hamlyn v Houston & Co, [1903] 1 KB 81 (CA).
188 Arbuckle v Taylor, (1815) 3 Dow 160.
189 Limpus v London General Omnibus Co, (1861) 1 H&C 526; Citizens’Life Assurance Co v Brown, [1904] AC 423.
190 Ahmedbhai v Framji, (1903) 28 Bom 226.
191 This conclusion is reinforced by the rule, now settled in Citizen’s Life Assurance Co v Brown, [1904] AC 423, that a
corporation may be sued for malicious prosecution.
192 Meekings v Henson, [1962] 1 All ER 899.
193 Narcinva V Kamat v Alfredo Antonio Doe Martins, (1985) 2 SCC 574, paras 9 and 13.
194 Central Excise & Customs v Mohammed Farookh Mohamed Ghani, 2010 SCC OnLine Guj 8034 : (2010) 259 ELT 179.
195 Central Excise & Customs Surat-II v Ilyas Gulamnabi Kapadia, 2011 SCC OnLine Guj 1050.
196 Overseas Textiles Corporation v Special Director, Enforcement Directorate, 2012 SCC OnLine Bom 1297 : LNIND 2012
BOM 557.
End of Document
[s 27] Liability of firm for misapplication by partners.—

Parties

Where—
(a) a partner acting within his apparent authority receives money or property from a third party and
misapplies it, or
(b) a firm in the course of its business receives money or property from a third party, and the money or
property is misapplied by any of the partners while it is in the custody of the firm, the firm is liable to
make good the loss.
This is all but identical with section 11 of the English Act and it follows from this provision that if a partner in the
course of some transaction unconnected with the business of the firm, or not within the scope of such business,
obtains money and then misapplies it, the firm is not liable to make good the loss. In the same way, a fraud
committed by a partner whilst acting on his own separate account is not imputable to the firm, although had he
not been connected with the firm he might not have been in a position to commit the fraud.197 The illustrations
and notes to this section are taken, with minor modifications, and some additions from Pollock’s Digest of
Partnership Law.198 It will be observed that in several English cases the peculiarities of an English solicitor’s
business, and of the special jurisdiction exercised over him as an officer of the court, are involved. Rights and
duties of solicitors in India seem to be governed to a large extent by the Common Law of England.199 Care must
be taken not to suppose that such purely English incidents are literally applicable in India; but they may be
valuable by way of analogue if used with caution.
Illustrations
(a) A, B and C are partners in a bank, C taking no active part in the business.
• D, a customer of the bank, deposits securities with the firm for safe custody, and these securities are
sold by A and B without D’s authority. The value of the securities is a partnership debt for which the
firm is liable to D; and C or his estate is liable whether he knew of the sale or not.200
(b) A and B are solicitors in partnership. C, a client of the firm, hands a sum of money to A to be invested
in a specific security. A never invests it, but applies it to his own use. B receives no part of the money
and knows nothing of the transaction. B is liable to make good the loss, since receiving money to be
invested on specified securities is part of the ordinary business of solicitors.201
(c) If, the other facts being as in the last illustration, C had given the money to A with general directions to
invest it for him, B would not be liable, since it is no part of the ordinary business of solicitors to receive
money to be invested at their discretion.202
(d) J and W are in partnership as solicitors. P hands them GBP 1,300 to be invested on a mortgage of
specified real estate, and they jointly acknowledge the receipt of it for that purpose. Afterwards, P
hands GBP 1,700 to W on his representation that it will be invested on a mortgage of some real estate
of F, another client of the firm, such estate not being specifically described. J dies, and afterwards both
these sums are fraudulently applied to his own use by W. W dies, having paid interest to P on the two
sums till within a short time before his death, and his estate is insolvent. J’s estate is liable to make
good to P GBP 1,300, with interest from the date when interest was last paid by W, but not GBP
1,700.203
(e) A and B, solicitors in partnership, have by the direction of C, a client, invested money for him on a
mortgage, and have from time to time received the interest for him. A receives the principal money
without directions from C, and without the knowledge of B, and misapplies it. B is not liable, as it was
not part of the firm’s business to receive the principal money; but if the money when repaid had been
passed through the account of the firm, B would probably be liable.204
(f) A, one of the partners in a banking firm, advises B, a customer, to sell certain securities of B which are
in the custody of the bank, and to invest the proceeds in another security to be provided by A. B sells
out by the agency of the bank in the usual way, and gives A, a cheque for the money, which he
receives and misapplies without the knowledge of the other partners. The firm is not liable to make
good the loss to B, as it is not part of the ordinary business of bankers to generally receive money for
investment.205
(g) A customer of a banking firm buys stock through the agency of the firm, which is transferred to A, one
of the partners in the banking firm, in pursuance of the arrangement between the partners, and with the
customer’s knowledge and assent but not at his request. A sells out this stock without authority, and
the proceeds are received by the firm. The firm is liable to make good the loss.206
(h) A customer of a banking firm deposits, with the firm, a box containing securities. He afterwards
authorises one of the partners to take out some of these and replace them by certain others. That
partner not only makes the changes he is authorised to make in the contents of the box, but makes the
changes without authority, and concerts the customer’s securities to his own use. The firm is not liable
to make good the loss, as the separate authority given to one partner by the customer shows that he
elected to deal with that partner alone, and not an agent of the firm.207
(i) A, one of the partners in a banking firm of M & Co, forges a power of attorney from B, a customer of
the bank, to himself and the other partners, and thereby procures a transfer of stock, standing in B’s
name at the Bank of England. The proceeds of the stock are credited to M & Co in their passbook with
another bank, but there is no entry of the transaction in N & Co’s own books. The other partners in the
firm of M & Co are liable to B, because it is within the scope of the firm’s business to sell stocks for its
customers, and to receive the proceeds of the sale, and the sale took place and the money was
received in the usual way and because they might, by the use of ordinary diligence have known of the
payment and from what source it came.208
(j) W and J are solicitors in partnership. A, B and C, clients of the firm, have left moneys representing a
fund in which they are interested in the hands of the firm for investment. After some delay, a mortgage
made to W alone is, with the consent of A, B and C, appropriated as a security for this fund. W realises
the security, and misapplies the money without the knowledge of J. The firm is not liable, as A, B and C
dealt with W, not as a solicitor but as a trustee, and the breach of duty did not happen while the money
was in the hands of the firm.209 However, if there were facts showing that A, B and C dealt with W as a
member of the firm, and the matter of the investment was treated as the business of the firm, the firm
would be liable.210
(k) J and G are solicitors in partnership. G is secretary to a company. The company purchases land
through J and G as its solicitors, instructing them not to disclose the name of their client, and, in
accordance with a resolution of the company, the conveyance is made to G in his own name. G keeps
the conveyance in his own custody, mortgages the property therein comprised to a lender who acts in
good faith, and applies the money to his own use. J is not liable to the company, for it was by the
company’s own act alone that G had the legal estate and the custody of the deed. It makes no
difference that the profits of G’s secretaryship were included in the partnership, for it was not part of the
secretary’s duty to act as trustee of the company’s property.211
(l) A and B are solicitors in partnership. A rendered himself liable to the beneficiaries as a constructive
trustee by rendering assistance to the trustees of a marriage settlement to dissipate the entire trust
fund. B did not know about these activities, but moneys received and paid out in breach of trust fund
passed through the firm’s client account. B is not liable for misapplication of the trust fund, since the
moneys had not been received by the firm as trustees but were received by A as a constructive trustee
and he had no authority in the ordinary course of his practice to constitute himself a constructive
trustee or to accept office as a trustee of the trust.212
[s 27.1] GROUND OF LIABILITY
The general principal on which the firm is held to be liable in case of this class may be expressed in more than
one way. It may be put on the ground “that the firm has in the ordinary course of its business obtained
possession of the property of other people, and has then parted with it without their authority”;213 or the analogy
to other cases where the act of one partner binds the firm may be brought out by saying that the firm is to make
compensation for the wrong of the defaulting partner, because the other members “held him out to the world as
a person for whom they were responsible”.214
[s 27.2] GENERAL TEST ON PRINCIPAL OF AGENCY
The rules laid down in sections 10 and 11 of the English Act are really derived from the wider rule to the same
effect which is one of the most familiar and important parts of the law of agency. The question is always
whether the wrongdoer was acting as the agent of the firm and within the apparent scope of his agency. If the
wrong is extraneous to the course of the partnership business, the other partners are no more liable than any
other principal would be, for the unauthorised act of his agent in a like case. The proposition that a principal is
not liable for the wilful trespass or wrong of his agent is for most purposes sufficiently correct; but a more exact
statement of the rule would be that the principal is not liable if the agent goes out of his way to commit a wrong,
irrespective of whether with a wrongful intention. On the one hand, the principal may be liable for a manifest
and wilful wrong if committed by the agent in the course of his employment, and for the purpose of serving the
principal’s interest in the matter in hand;215 he is also liable for trespass committed by the agent under a
mistake of fact, where if the facts had been as the agent supposed the act done would have been not only
lawful in itself, but within the scope of his lawful authority;216 on the other hand, he is not liable for acts outside
the agent’s employment, though done in good faith and with a view to serve the principal’s interest,217 unless in
fact authorised or ratified.218
[s 27.3] SPECIAL CASES OF MISAPPLICATION OF CLIENT’S MONEY BY ONE PARTNER
Cases to which it has been sought, with or without success, to apply the principal stated in section 11 of the
English Act have generally arisen in the following manner. Some client of a firm of solicitors or bankers,
reposing special confidence in one member of the firm, entrust him with money for investment; this sometimes
appears in a regular course in the accounts of the firm, but at other times does not. Then the money is
misapplied by the particular partner in question. When it is sought to charge the firm with making it good, it
becomes important to determine whether the original transaction with the defaulting partner was in fact a
partnership transaction, and if it was so, whether the duty of the firm was not determined before the default. The
illustrations given above will show better than any further comments of a general kind how these questions are
dealt with in practice.
In a case, where the facts were of a special and complicated kind, the wrong consisted in a negligent
investment of trust funds on improper security made under the professional advice of one member of a firm of
solicitors while the trust fund was in the hands of the firm. The result was that his partners were deemed to
have notice of the improper character of the investment, and were answerable for the breach of trust as well as
himself.219
In another very peculiar case, one solicitor used the name of another firm without authority to get money out of
court, which he proceeded to misapply. He then told a member of the firm he had used their name, but led him
to suppose that it was a merely formal matter. In that belief that member of the innocent firm accepted a
relatively small sum for costs of which part was returned, for out of pocket expenses and the rest went to the
firm’s credit, the other partner not knowing the circumstances of the payment. The firm was held liable only for
this last- mentioned residue and the partner who acted only for the amount paid to him.220
197 Lindley on Partnership, 15th Edn, pp 331 and 333.

198 Fifteenth edn, pp 45–50.
199 Tyabji Dayabhai & Co v Jetha Devji & Co, (1927) 29 Bom LR 1196; Ghulam Moideen v Commer Sahib, AIR 1931 Mad
183; Harnandray v Gooliram, (1919) ILR 46 Cal 1070.
200 Devaynes v Noble Clayton’s case, (1816) 1 Mer 529, pp 572, 579 : 35 ER 767, p 786 : 15 RR 61.
201 Blair v Bromley, (1847) 2 Ph 354 : 41 ER 979 : 71 RR 213. Cases of this kind do not depend on the law relating to
trusts, and are therefore not within section 8 of the Trustee Act, 1888 (as to the Statute of Limitations). Supposing that
section applicable, would not be within the exceptions, Moore v Knight, [1891] 1 Ch 547 : 60 LJ Ch 271.
202 Harman v Johnson, (1853) 2 E&B 61 : 22 LJ QB 297 : 118 ER 691 : 95 RR 429.
203 Plumer v Gregory, (1874) LR 18 Eq 621.
204 Sims v Brutton, (1850) 5 Ex 802 : 20 LJ Ex 41; as corrected by Lord Lindley’s criticism in Lindley on
Partnership,15th Edn, pp 332–3; see also Cleather v Twisden, (1883) 28 ChD 340 : 54 LJ Ch 408; Cooper v Prichard,
[1883] 11 QBD 351 : 52 LJ QB 526; Rhodes v Moules, [1895] 1 Ch 236 : 64 LJ Ch 122 (CA), where the securities
misappropriated by one partner were or a class habitually held by the firm for their clients, and the firm was therefore
liable.
205 Bishop v Countess of Jersey, (1854) 2 Drew 143 : 61 ER 673 : 100 RR 51.
206 Devaynes v Noble, Baring’scase, (1816) 1 Mer 529, pp 611, 614 : 35 ER 767, p 794 : 15 RR 151.
207 Ex p Eyre, (1842) 1 Ph 227 : 41 ER 618 : 65 RR 375; see also the remark of VC, James, LR Eq 516 (1869).
208 Marsh v Keating, (1834) 2 Cl & F 250, p 289 : 6 ER 1149 : 37 RR 75, p 106; Lindley on Partnership, 15th Edn, pp 330–
31, 337–38. If the comment in Lindley is right, as it clearly is, one can hardly see what the knowledge or means of
knowledge of the partners had to do with it; they were liable because money representing their customer’s property had
come, in an apparently regular course, though in truth by wrong, into the custody of the firm. The point is treated as
material in the opinion of the judges, but seems at this day to be so only in cases where the transaction is not in the
ordinary course of business
209 Coomer v Bromley, (1852) 5 De G & Sm 532 : 64 ER 1230 : 90 RR 131; a fuller account of the case in Lindley on
Partnership, 15th edn, pp 334–5.
210 Cleather v Twisden, (1883) 28 Ch D 340 : 54 LJ Ch 408, where the CA, agreeing with the court below as to the law,
held that the facts did not come up to this; see also Blyth v Fladgate, [1891] 1 Ch 337 : 60 LJ Ch; Rhodes v Moules,
[1895] 1 Ch 236 : 64 LJ Ch 122 (CA). At all events, it is not within the scope of a solicitor’s implied authority in
partnership matters to impose liability on his partner by making himself a constructive trustee: Mara v Browne, [1896] 1
Ch 199 : 65 LJ Ch 225 (CA).
211 Tendering Hundred Waterworks Cov Jones, [1903] 2 Ch 615 : 73 LJ Ch 41; Terril v Parkerand Thomas, (1915) 32 TLR
48.
212 Re Bells Indenture, (1980) 1 WLR 1217, p 1230; Blyth v Fladgate, [1891] 1 Ch 337 distinguished.
214 Per VC James, in Earl of Dundonald v Masterman, (1869) LR 7 Eq 517 : 58 LJ Ch 350; Hurruck Chand v Gobindlal
Khetry, (1906) 10 Cal WN 1053; Saremal Punamchand v Punamchand, AIR 1924 Bom 260, p 263; Munshi Basiruddin
Mullick v Surja Kumar Naik, (1908) 12 Cal WN 716.
215 Limpus v General Omaibus Co, (1862) 1 H&C 526 (Ex Ch); Hamlyn v Houston Co, [1903] 1 KB 81 (CA); Lloyd v Grace
Smith & Co,[1912] AC 716.
216 Bayley v Manchester & Rly Co, (1873) LR 8 CP 148 (Ex Ch ) : 42 LJ CP 78.
217 Poulton v L & SWR Co, [1867] LR 2 QB 534 : 36 LJ QB 294; Allen v L & SWR Co, [1870] LR 6 QB 65 : 40 LJ QB 55;
Bolingbroke v Swindon Local Board, (1874) LR 9 CP 575 : 43 LJ CP 575.
218 Hewitt v Bonvin, [1940] 1 KB 188.
219 Blyth v Fladgate, [1891] 1 Ch 337 : 60 LJ Ch 66.
220 Marsh vjoseph, [1897] 1 Ch 213 : 66 LJ Ch 128 (CA).
End of Document
[s 28] Holding out.—

Parties
(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.
This section supersedes the rather loosely worded sections 245 and 246 of the Contract Act, 1872 and follows
section 14 of the English Act with variations in language, only one of which calls for mention. In sub-section (2),
the words “any act of the firm done” looks rather wider than “any partnership debt contracted”, which are those
of the English Act. However, it is clear from the very brief note of the Special Committee that no substantial
change in the law was intended to be made. A subsequent act of the firm, which does not create a debt, can
obviously not concern a deceased partner’s estate.
[s 28.1] “HOLDING OUT”
This is the rule of liability commonly called “holding out.” Representation of this kind “can only conclude the
defendants with respect to those who have altered their condition on the faith of its being true”.221 In fact, this
kind of liability is neither more nor less than a special application of the principle of estoppel.222
As long ago as in 1829, the rule was laid down incidentally by Parke J. Lord Wensleydale said that in the case
then before the court:
If it could have been proved that the defendant had held himself out to be a partner, not “to the world”—for that is a
loose expression— but to the plaintiff himself, or under such circumstances of publicity as to satisfy a jury that the
plaintiff knew of it and believed him to be a partner, he would be liable to the plaintiff in all transactions in which he
engaged and gave credit to the defendant upon the faith of his being such partner. The defendant would be bound by
an indirect representation to the plaintiff, arising from his conduct, as much as if he had stated to him directly and in
express terms that he was a partner, and the plaintiff had acted upon that statement.223
Nearly half a century later, the doctrine was more concisely stated in an opinion of the Privy Council:
Where a man holds himself out as a partner, or allows others to do it...he is then properly estopped from denying the
character he has assumed, and upon the faith of which creditors may be presumed to have acted. A man so acting
may be rightly held liable as a partner by estoppel.224
In Porter v Incell, it was observed:
No evidence of intention or knowledge of the consequences of his acts and conduct is necessary to make the apparent
parties liable.225
There can, of course, be no holding out to a person who already knows the real facts, as for example by
inspection of the register in the case of a firm registered under chapter VII of the present Act.226
A minor does not incur liability by holding himself out as a partner. If a minor admitted to the benefits of
partnership holds himself out as a partner on his attaining majority, he will incur liability under this provision.227
His option to elect to become or not to become a partner by giving a public notice as provided in section 30(5)
will not affect any liability, which he may incur by projecting himself to be a partner within the period of six
months of his attaining majority.228 The question of holding out by such person will not arise after the said
period of six months because if he does not notify by a public notice, that he has elected not to become a
partner, he shall become a partner on the expiry of the said six months.229
A person who merely holds himself out as willing to become a partner does not incur any liability under this
provision.230 The partners, in a suit for recovery, were found to be holding out when they did not enter the
witness box to explain letters and account books showing them as partners thereby prompting the court to
return a finding of existence of a partnership firm.231
[s 28.2] PROOF OF “HOLDING OUT”
Giving credit to a firm is, in effect, the same thing as giving credit to all of the persons believed by the creditor to
be its members. It is indeed a question of fact in each case whether credit was given on the faith of the
representation. However, when the representation and the creditor’s knowledge of it are proved, the remaining
inference that it was so given is all but inevitable. As the liability depends on estoppel and not on any contract
between the apparent partners it is immaterial what the agreement between them, if any, may really be.
An estoppel of this kind (or of any kind) cannot result from the mere unauthorised act of a third person, such as
the exhibition by a secretary of a list of intending shareholders.
It was observed in Fox v Clifton, (1830) 6 Bing 776, p 794 : 31 RR 536, p 545:
The holding one’s self out to the world as a partner, as contradistinguished from the relation of partnership, imports at
least voluntary act of the party so holding himself out. It implies the lending of his name to the partnership, and is
altogether incompatible with the want of knowledge that his name has been so used.
The mere use of name of a person in the firm name is not sufficient to foist that person with the liability on the
doctrine of holding out.232 On the other hand, there need not be any direct communication between the creditor
and the apparent partner, and the latter need not be mentioned by name if he is sufficiently identified by
description as one of the parties interested, or the like.233
It will not be overlooked that facts capable of being used to establish a case of liability under this section will
often be relevant to show that a partnership really did exist; and, as the Evidence Act,234 declares when persons
are shown to have acted as partners, the burden of proof is on those who say that they were not partners. This
is not estoppel, but a matter of commonsense inference. The question whether the defendant has or has not
held himself out to the plaintiff as a partner would seem to be a mixed question both of law and fact.235
The estates of insolvent persons who were ostensible partners may have to be administered in bankruptcy as if
they had been real partners.236
[s 28.3] HOLDING OUT BY ACQUIESCENCE

Allowing oneself to be represented, as a partner is a particular case of leading others to believe that one is a
partner. There is nothing to show how much more than passive assent is signified by “knowingly permits”, and
the same remark applies to the corresponding words “knowingly suffers” in the English Act, section 14. It can
hardly be the law that, if A hears a report that Z is representing him as a partner in X & Co, he becomes bound
at his peril to notify to the world that he is not. However, when there is an amount of silence, in the face of
known persistent representations made to persons likely to be misled, it may be good evidence of consent. All
that can be said in general terms is that prudent men will rather use a little abundant caution in due season than
run the risk of much more trouble at a later time. In one case,237 the words “knowingly suffers” in the English Act
fell to be construed. The continuing partner contrary to express direction continued to use the old notepaper of
the firm, and it was held that the retiring partner had not thereby permitted himself to be represented as a
partner. The fact that the retiring partner had been negligent or careless in not seeing that all the notepaper had
been destroyed when he left, did not amount to permitting himself to be represented as a partner. It would be
otherwise if the retiring partner authorised the use of such notepaper or documentation.
In practice, questions of this kind arise mainly in the case of a deceased or retired member’s name being
continued in the firm. Since our law does not, in any way, require the style of a firm to correspond with the
names of actual partners as can be seen in see notes to section 12 above, the presence of a particular name is
of itself no representation that any person bearing that name is in fact a partner. It has long been settled that
the continuance of a deceased partner’s name will not make his estate liable for partnership debts contracted
after his death. However, a living retired partner may be exposed to risk when customers of the firm who have
no notice by a change of style or otherwise of his retirement may go on dealing with the firm on the faith of his
being a member as can be seen in Contract Act, 1872 (section 264 and section 36 of the English Act). In
Bishop v Tudor Estates, (1952) CPL 807, where the Registrar of Business Names was not informed about the
dissolution of the firm by a former partner, he was held liable as a partner to a subsequent creditor of the other
former partner who continued the business because the registration certificate showed both the names as
partners. It is therefore prudent and usual to notify customers of changes in the constitution of the firm. No
creditor, however, can hold a retired partner liable whom he did not know to be a partner before the change in
the firm, and who had ceased to be a partner in fact when the credit was given. Thus a “dormant partner”, ie,
one not generally known to be such, “may retire from a firm without giving notice to the world”.238
Accurately speaking, in the case of a retiring partner the representation that he is still a member of the firm is
not made by others and consented to by him, but is his own; more often than not, credit given on the faith of his
being a partner is so given not because the other partners say anything, but because he has said nothing.
Indeed, the mere presence of a particular name in the firm has very little to do with the matter, but the
continued presence of a name gives no warning that some member of that name has died or retired; and the
disappearance of such a name is some warning. A retired member of a firm with an impersonal name might be
liable to a customer who had known him to be a member.239 Where, after the death of a partner the business is
carried on by a surviving partner a subsequent acknowledgement or part payment of a debt incurred before the
death does not bind the legal representatives of the deceased partner240.
[s 28.4] NOT APPLICABLE TO TORTS
The doctrine of “holding out” does not apply to liability for civil wrongs, as it rests entirely on credit having been
given to the person whom it is sought to make liable. One man is not answerable for another’s wrongful acts
merely because that other is supposed to be his servant. Ostensible employment, if one may use the term, is
material only so far as it tends to prove real employment.241
[s 28.5] ESTOPPEL DISTINCT IN KIND FROM ACTUAL AUTHORITY
It is of some importance to observe that the liability of a former partner to creditors who have no notice of his
retirement rests wholly upon the apparent continuing authority of the other partners to bind him by their acts.
The principle per Lord Blackburn is:
Where a person has given authority to another (it is not peculiar to partnership), the authority being such as would
apparently continue, he is bound to those who act upon the faith of that authority, though he has revoked it, unless he
has given the proper notice of the revocation.242
Hence the liability, being by estoppel, is quite different from that of the actual partners, and the ex-partner is not
a joint debtor with them. The creditor may be entitled to sue, at his choice, the members of the old or the
members of the new firm. He cannot sue them all together.243
221 Quarman v Burnett, (1840) 6 M&W 509 : 55 RR 725, per B Parke.

222 Evidence Act, 1972, section 115: “When one person has by his declaration, act, or omission intentionally caused or
permitted another person to believe a thing to be true, and to act upon such belief, neither he nor his representative
shall be allowed, in any suit or proceeding between himself and such person or his representative, to deny the truth of
that thing.” Sarat Chandra Dey v Gopal Chandra Laha, (1892) 20 Cal 296 : 19 LR IA 203, which is the leading case on
the subject. Hudgell Yeates & Cov Watson, [1978] 2 All ER 363; Saratchandra v Gopalchandra, (1893) ILR 20 Cal 296
(PC).
223 Dickinson v Valpy, 10 B&C 128, p 140 : 34 RR 348, p 355. Harnamdas v Firm of Mayadas Laxmichand, AIR 1925 Sind
310, p 313; Snowwhite Food Products Pvt Ltd v Sohanlal Bagla, IR 1964 Cal 209; Maurice Mayadas v W Morley, AIR
1925 Cal 937, p 939; Periakaruppan v TS Subbarama Ayyar, AIR 1943 Mad 190.
224 Mollwo, March & Co v Court of Wards, (1872) LR 4 PC 435.
225 (1905) 10 Cal WN 313, p 320.
226 Central United Bank Ltd v BA Venkatarama Naidu, AIR 1963 Mad 302.
227 Meenakshi Achi v PSM Subramanian Chettiar, AIR 1957 Mad 8 (DB).
228 See section 30(9) below.
229 Proviso to section 30(5); compare the ratio of Goode v Harrison, (1821) 5 B & Ald 147—if a minor is a partner and
known to beso, he must, when he comes of age, if he wishes to avoid liability, disaffirm the partnership and give notice
that he has ceased to be a partner; Lindley on Partnership, 15th Edn, pp 123–4.
230 Floydd v Cheney and Cheney v Floydd, [1970] Ch 602, per Meggary J.
231 Sarvaraya Textiles Ltd v N Rajagopal & Co, AIR 2005 NOC 571 (AP).
232 Nemchand v Gurdayal, AIR 1925 Oudh 451; Tulsidas Amanlal v Lyon Lord & Co, AIR 1925 Sind 225.
233 Martyn v Gray, (1863) 14 CBNS 824 : 135 RR 905; for a case where there was insufficient evidence to show “holding
out”, see Swiss Air Tpt Co Ltd v Palmer, (1976) 2 Lloyd’s Rep 604.
234 (1 of 1872), section 109; Bharat Spg and Wvg Co v Manilal, (1935) 37 Bom LR 826 : 156 IC 4 : AIR 1935 PC 175.
235 Spicer (Keith) Ltd v Mansell, (1970) 1 WLR 333, p 335 : [1970] 1 All ER 402; Lindley on Partnership, 15th Edn, pp 115–
6.
236 Ex p Hayman, (1878) 8 Ch D 11.
237 Tower Cabinet Co Ltd v Ingram, [1949] 1 All ER 1033, p 1036; Jackson v White and Midland Bank, (1967) 2 Lloyd’s
Rep 68, per Park J.
238 Heath v Sansom, (1882) 4 B & Ald 172, p 177 : 38 RR 237, p 242.
239 Carter v Whalley, (1830) 1 B & Ald 11 : 35 RR 199, where the firm was “the Plas Madoc Colliery Co” proof of “holding
out” is, no doubt, less easy in such a case; and in this case it failed.
240 Venkatasubbamma v Subba Rao, AIR 1964 AP 462.
241 Smith v Bailey, [1891] 2 QB 403.
242 Scarf v Jardine, [1882] 7 AC 345 , p 356.
243 Lord Blackburn in Scarf v Jardine, [1882] 7 AC 345 , p 356.
End of Document
[s 29] Rights of transferee of a partner’s interest—.

Parties
(1) A transfer by a partner of his interest in the firm, either absolute or by mortgage, or by the creation by
him of a charge on such interest, does not entitle the transferee, during the continuance of the firm, to
interfere in the conduct of the business, or to require accounts, or to inspect the books of the firm, but
entitles the transferee only to receive the share of profits of the transferring partner, and the transferee
shall accept the account of profits agreed to by the partners.
(2) If the firm is dissolved or if the transferring partner ceases to be a partner, the transferee is entitled as
against the remaining partners to receive the share of the assets of the firm to which the transferring
partner is entitled, and, for the purpose of ascertaining that share, to an account as from the date of the
dissolution.
This follows section 31 of the English Act with verbal variations that are not material. The provision is based on
one of the fundamental principles of partnership law that no person may be introduced as a partner without the
consent of all existing partners, expressly recognised by section 31(1) of this Act. There is, however, no
particular mode or time for giving that consent. If three persons enter into partnership by a contract which
provides that on one retiring, one of the remaining two, or even a fourth person who is not a partner at all, shall
name the successor to take the share of the one retiring, it is clear that the new partner would come in as
entirely by consent of the other two as if they had adopted him by name.244
Section 29 shows that a partner can transfer his interest in the firm either absolutely or partially. He has also the
right to get the value of his share in the net assets of the firm after the accounts are settled on dissolution. All
these rights of a partner show that he has got a marketable interest in all the capital assets of the firm including
the goodwill asset even during the subsistence of the partnership. This interest is property within the meaning
of section 2(15) of the Estate Duty Act, 1953.245 The section only regulates the rights of a transferee of a
partner of his interest in the firm.246 The case would be different if the property co-owned by a partner, but being
used in a firm, is sold by the legal heirs of such partner.247
On a bare perusal of the said section it is crystal clear that a transferee of a partner’s interest in the firm cannot
have a right to interfere in the conduct of the business, but he can have a limited right to receive the share of
profits of the transferring partners during the continuance of the firm. Even if the other partners of the firm are
managing the business in a hopelessly bad manner, the transferee cannot do anything. Up to the time of
dissolution of the firm, his right is limited right to get profits which the transferor partner is entitled to. A right to
get share in the properties of the firm or to have an account will commence only from the date on which the firm
is dissolved. The logic behind the section is that a partnership is founded upon trust and confidence which the
partners of the firm have in each other. A person would never make another person his agent, unless he has
full faith in the person. Only for this reason, without consent of all the partners, an outsider cannot be admitted
to partnership. If an assignee or a transferee of a partner’s interest is given a right to do business on behalf of
the firm, as stated hereinabove, he acts on behalf of the firm and thereby he acts on behalf of other partners as
an agent of other partners. If such a thing is permitted, a person or a principal would have an agent in whom he
may not have any trust. Due to this reason, section 29 prohibits a transferee of a partner’s interest to do
business on behalf of the firm.248 Even as regards profits, it is the partner and partner alone who is entitled to
the profits. A stranger, even if he were an assignee, has and can have no direct claim to the profits.249
Whether a partner’s interest is transferred before, or after, dissolution of the firm, the result is the same.250
However, a transferee can file for specific performance of agreement for sale of share of a retired partner since
a partner, after retirement, can sell his share.251 In a case where, by a composite deed, the widow of the partner
hypothecated her husband’s share in the firm as a security for the debt and also conferred power on the
mortgagees to get themselves impleaded in the suit for dissolution of the firm, which was already pending, for
satisfaction of their debt, the court held that the mortgagees had a distinct right under this provision to recover
the debt due to them under the hypothecation deed even though two suits filed by them on the strength of the
mortgage were dismissed. The right conferred under the hypothecation deed amounted to an equitable
assignment of the share of surplus assets of the firm, if any, which the heirs of the deceased partner would, on
proper liquidation of the affairs of the firm, and ascertainment of the amounts divisible amongst the partners, be
entitled to.252 This section deals only with voluntary transfer of his share by a partner and does not, in terms,
apply to any involuntary transfer, but the omission may reasonably be supplied by the application thereto of the
principles contained in this section.253 For purposes of section 17, sub-clause (1) of the Registration Act, the
interest of the partner in the immovable or movable assets of the partnership is movable property and does not
require registration.254
Any partner or partners who objects to the transfer can sue for dissolution.255 This Act does not mention the
transfer of a share amongst the causes of dissolution. Therefore, transfer will not, by itself, operate as
dissolution. It is apprehended that transfer by a partner, of his share, is no more than a circumstance enabling
the court, if it deems fit, to decree a dissolution on the ground that it is just and equitable to do so under clause
(g) of section 44.256
As between the transferor and the transferee, the latter must indemnify the former against the liabilities of the
firm,257 and he must accept as part of the conduct of the business any agreement made in good faith between
the partners for payment of salary to any of them for service rendered to the firm.258 However, he is entitled to
the vendor’s actual share and is not bound by any contract between the partners for valuing and dealing with
it,259 nor by any account taken in an arbitration between them; and an arbitration clause in the articles does not
affect his right to a judicial account260. The transferee has no direct claim to the profits, which are received in
the first instance by the transferor.261 When a transferee pays off a partnership debt without the consent of the
other partners, he is not entitled to contribution from them.262 He neither interferes in the conduct of the
partnership business, nor requires accounts or inspects the books of account;263 but after dissolution he is
entitled, as against the remaining partners, to demand accounts as from the date of the dissolution, and
payment of the share of the partnership assets to which the transferor would be entitled.264 He is not entitled to
the share of the transferor in specie. The phrase “assets of the firm” in clause (2) means nothing else but the
amount that remains after meeting debts and liabilities of the partnership out of sale proceeds of the property
belonging to the partnership and other amounts in the hands of the partnership.265 Although a benamidar may
be entitled to receive profits from the other partners yet for income tax purposes, it does not mean that it is the
benamidar who alone can be assessed in respect of the income received by him. When a sub-partnership is
entered into, the partner changes his character vis-à-vis the sub-partners although the other partners in the
original partnership are not affected. In such a case, the sub-partnership creates a superior title and diverts the
income before it becomes the income of the partner.266
In a suit for dissolution of partnership and rendition of accounts of a firm, the original partners are necessary
parties without whom the suit cannot be instituted.267
A receiver appointed at the instance of a transferee is in no better position than the transferee himself, and is
not entitled to ask for accounts.268 The transferee of the interest of a partner is not bound by a settlement of
accounts of the partnership made behind his back after the date of the transfer.269 Where a cinema licence was
granted to the partnership firm and sale-deed was executed conveying the interest of a partner in the firm, it
was held that the condition of the licence imposing prohibition against assignment of licence or the licensed
premises without permission of the licensing authority was not violated as the interest created by the licensee
did not permit the transferee to exhibit the films in the licensed premises. Until the partnership is dissolved, no
question of any transfer of a licensed premises enabling the transferee to exhibit the films in the licensed
premises as contemplated in the condition would arise, because right of the transferee to share the assets of
the firm will arise only when the firm is dissolved or the transferring partner ceases to be a partner.270
[s 29.1] ASSIGNMENT OF SHARE AND SUB-PARTNERSHIP

There is a clear distinction between a case where a partner of a firm assigns his share in favour of a third
person and a case where a partner constitutes a sub-partnership with his share in the main partnership.
Whereas in the former case, in view of section 29(1), the assignee gets no right or interest in the main
partnership, except, of course, to receive that part of the profits of the firm referable to the assignment and to
the assets in the event of dissolution of the firm, but in the latter case, the sub-partnership acquires a special
interest in the main partnership.271
244 Lovegrave v Nelson, (1834) 3 M&K 1; Byrne v Reid, [1902] 2 Ch 735; Ehrmann v Ehrmann, (1894) 72 LT (NS) 17.
245 Controller of Estate Duty v Mrudula Nareshchandra, 1986 (Supp) SCC 357, para 22.
246 Behram Nowrosji Gamadia v Babli Samrathmal Seth, 2017 SCC OnLine Bom 9413 : (2018) 2 AIR Bom R 59.
247 MV Karunakaran v Krishan, (2009) 17 SCC 334. It was held that the heirs and legal representatives can transfer the
property at least to the extent of their own share. In this case, upon death of one of the two partners and consequent
dissolution of the firm, the legal heirs of the deceased partner sold their share of the property, which was only used by
the firm, but co-owned by the deceased. Meanwhile, in execution of a money decree in favour of a firm’s creditor, the
said property was sold in auction. The Supreme Court held that the purchaser from the legal heirs would be entitled to
the property.
248 Rajnikant Hasmukhlal Golwala v Natraj Theatre, AIR 2000 Guj 80, p 86; Sachin Tantia v Registrar of Firms, 2012 SCC
OnLine Mad 1166.
249 KA Ramachar v CIT, AIR 1961 SC 1059, para 7
250 Public Trustee v Elder,[1926] Ch 266. The case was peculiar; the transfer was by operation of law consequent on war:
the majority of the partners in a firm became enemies, and their interests in the firm were duly vested in the Public
Trustee after the end of the war. Such a compulsory transfer puts the official in no better position than any other
assignee, and accordingly the Public Trustee could not sue for an account of what was due to the ex- enemy partners
without joining them as plaintiff’s: Public Trustee v Elder, [1926] Ch 776 (CA); Raj Lal v Rashilla Ram, AIR 1951 Punj
362.
251 Kulwant Singh v Makhan Singh, AIR 2003 P&H 142.
252 Ouseph v Porinchu, (1978) ILR 1 Ker 398 : AIR 1978 NOC 217 (Ker).
253 Ajudhia Pershad v Sham Sunder, (1947) Lah 417 : AIR 1947 Lah 13; Lenkideswara Prabhu Ravindranatha Prabhu v
Surendranatha Prabhu Sudhakara Prabhu, AIR 1985 Ker 265, p 271.
254 Addanki Narayanappa v Bhaskara Krishnappa, AIR 1966 SC 1300; Ajudhia Pershad Ram Pershad v Sham Sunder,
AIR 1947 Lah 13.
255 The firm is not automatically dissolved; this is now implied in section 29; and the law was already so; Dhanaji Jhelaji v
Gulabchand Pana, (1924) 87 IC 812 : AIR 1925 Bom 347 : 27 Bom LR 409; Juggut Chunder v Rada Nath, (1884) 10
Cal 669
256 Pollock on Partnership, 15th Edn, p 77.
257 Dodson v Downey, [1901] 2 Ch 620.
258 Re Garwood’s Trusts, Garwood v Paynter, [1903] 1 Ch 236; see article entitled Partnership: Equitable Execution by H E
Markson, (1981) 125 SJ 109.
259 Watts v Driscoll, [1901] 1 Ch 295 (CA).
260 Bonnin v Neame, [1910] 1 Ch 732 : 70 LJ Ch 388; Shayler v Woolf, [1946] Ch 320.
261 Ramachar v CIT, AIR 1961 SC 1059.
262 Ramprasad Singh v Shivnandan Mishra, AIR 1963 Pat 149.
263 Venkideswara Prabhu Ravindranatha Prabhu v Surendranatha Prabhu Sudhakara Prabhu, AIR 1985 Ker 265, p 271.
264 Mangilal v Bhanwarlal, AIR 1963 Raj 153; Addanki Narayanappa v Bhaskara Krishnappa, AIR 1966 SC 1300; Reddi
Veerraju v Chittori Lakshminarasamma, AIR 1971 AP 266.
265 Bhola Nath v Kaso Devi, AIR 1951 All 601.
266 Murlidhar Himatsingka v CIT Calcutta, AIR 1967 SC 383.
267 Mathra Singh v Arjun Singh, AIR 1979 P&H 40, pp 42, 43.
268 Mistry Goa Petha v NH Moos, (1931) 10 Pat 792 : 133 IC 40 : AIR 1931 Pat 312; Mulchand v Shamdas, (1941) 194 IC
380 : AIR 1941 Sind 73.
269 Hugh Stevenson & Sons v Aktiengesellschaft etc, [1918] AC 239; Veerappa Chetty v Muthiah Chetty, (1929) 52 Mad
509 : 121 IC 498 : AIR 1929 Mad 627.
270 Kuppannagari Sreeramamurthy v Pydi Anda Rao, AIR 1985 AP 336.
271 CIT v Sunil J Kinariwala, (2003) 1 SCC 660; Sachin Tantia v Registrar of Firms, 2012 SCC OnLine Mad 1166 : LNIND
2012 MAD 1198.
End of Document
[s 30] Minors admitted to the benefits of partnership—.

Parties
(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 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 accounts272 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:
Provided that all the partners acting together or any partner entitled to dissolve the firm upon notice
to other partners may elect in such suit to dissolve the firm, and thereupon the court shall proceed
with the suit as one for dissolution and for settling accounts between the partners, and the amount
of the share of the minor shall be determined along with the shares of the partners.
(5) At any time with 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 notice273
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 or 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,—

(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.
Minors have always enjoyed a protective patronage from the law and the courts. As regards Partnership Act,
the salutary provision is contained in section 30.
Section 30 lays down that a minor cannot become a partner, though with the consent of the adult partners, he
may be admitted to the benefits of partnership.274 Any document which goes beyond this section cannot be
regarded as valid.275 This section corresponds to sections 247 and 248 of the Contract Act, 1872 but makes
several points explicit which were left undefined by its framers. The specification of a time-limit in sub-sections
(5) and (6) is new. Although there is no serious innovation, the drafting of this section gave some trouble to both
the Special Committee and the Select Committee, as may be seen in their notes.
The Supreme Court, in Shivagauda Ravji Patil v Chandrakant Neelkanth Sadalge, AIR 1965 SC 212, para 5,
has dealt with the scope of section 30 in the following words:
Under section 30(1) of the Partnership Act, 1932 a minor cannot become a partner of a firm but he may be admitted to
the benefits of a partnership. Under subsections (2) and (3) thereof he will be entitled only to have a right to such share
of the properties and of the profits of the firm as may be agreed upon, but he has no personal liability for any acts of
the firm, though his share is liable for the same.
If during minority of the 1st respondent the partners of the firm committed an act of insolvency, the minor could not
have been adjudicated insolvent on the basis of the said act of insolvency for the simple reason that he was not a
partner of the firm. But it is said that sub-section (5) of section 30 of the Partnership Act, 1932 made all the difference
in the case. Under that sub-section the quondam minor 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, 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. If he failed to give such a notice, he would become a partner in the said firm
after the expiry of the said period of six months. Under sub-section (7) thereof where such person becomes a partner,
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 his
share in the property and profits of the firm shall be the share to which he was entitled as a minor. Under the said two
sub-sections, if during the continuance of the partnership a person, who was admitted at the time when he was a minor
to the benefits of the partnership, did not within six months of his attaining majority elect not to become a partner, he
would become a partner after the expiry of the said period and thereafter his rights and liabilities would be the same as
those of the other partners as from the date he was admitted to the partnership.
It would follow from this that the said minor would thereafter be liable to the debts of the firm and could be adjudicated
insolvent for the acts of insolvency committed by the partners.
However, on facts, the Supreme Court held that since the partnership itself was dissolved before the minor
partner became a major, it is legally impossible to hold that he had become a partner of the dissolved firm by
reason of his inaction after he became a major within the time prescribed under section 30(5) of the Act.
Section 30 of the Act presupposes the existence of a partnership.
The legal position of a minor who is admitted to a partnership has been succinctly stated by the Privy Council in
Sanyasi Charan Mandal v Krishnadhan Banerji, AIR 1922 PC 237, pp 239-240 : [1922] ILR 49 Cal 560, p 570,
after considering the material provisions of the Contract Act, which at that time contained the provisions
relevant to the law of partnership, thus:
A person under the age of majority cannot become a partner by contract...and so according to the definition he cannot
be one of that group of persons called a firm. It would seem, therefore, that the share of which section 247 of the
Contract Act, 1872 speaks is no more than a right to participate in the property of the firm after its obligations have
been satisfied.
[s 30.1] APPLICATION OF SECTION
The High Court of Allahabad has held that when a partnership is constituted of two persons and one of them
dies, and the other admits a minor to the benefits of the business, the minor cannot enforce his rights under this
section. The section applies only where a minor is admitted to the benefits of a subsisting partnership; as can
be seen in sub-section (1).276 This section was not applied in the case of a person who had become a major
before the Act came into force.277 If a minor admitted to the benefits of partnership holds himself out as a
partner on his attaining majority he will incur liability under section 28 which is not effected by sub-sections (7)
and (8) of this section.278
[s 30.2] ADMITTED TO THE BENEFITS OF PARTNERSHIP
In India, a minor cannot make any contract at all as can be seen in section 11 of the Contract Act, 1872 as
construed by the Privy Council,279 and, therefore, cannot really be a partner.280 Where a minor is made a full
partner, the whole deed is invalid vis-à-vis all the partners and not only the minor. The deed cannot be regarded
as valid on the ground that minor can be admitted to the benefits of a partnership. The whole deed in such a
situation is invalid. The view taken by some of the High Courts that in case the minor is admitted as full partner
which is contrary to section 30 can be read to mean as giving to the minor rights as laid down by the Act has
been disapproved by the Supreme Court.281 Obviously, there cannot be a partnership consisting wholly of
minors.282 Adult members of a firm cannot be prevented from offering the benefits of partnership to a minor, but
they cannot entitle him to sue them for an account or otherwise as on a contract. Still less can a minor’s
guardian enter into a partnership on his behalf and bind his share.283 Sub-section (5) contemplates that a
guardian may have accepted the benefits of the partnership on behalf of the minor without his knowledge. The
guardian has the power to scrutinise the terms and accept the conditions and do all that is necessary to
effectuate the conferment and receipt of the benefit284. The important point, however, is that his share in the
firm’s property is subject to the firm’s debts.285
The legal position of a minor, not being a partner of the firm, has its impact on the right to file a suit for a
dissolution, as envisaged under section 44 of the Act. A suit filed by the minor for dissolution of the firm would
be incompetent.286
The scope of the words “benefits of partnership” was explained in the above decisions as including not only
profit-sharing, but in the event of dissolution, sharing the assets of the firm.
In the context of Income-tax Act, 1922, the definition of “partner” in section 2(23)287 thereof is designed to confer
equal benefits upon the minor by treating him as a partner.288 However, the Supreme Court held that it does not
render a minor a competent and full partner.289
In the context of rent control legislation, the impact of a minor being admitted to the benefit of partnership had
been considered in the decision of Allahabad High Court. The UP Urban Buildings (Regulation of Letting, Rent
and Eviction) Act, 1972 by section 12(2), created a fiction of deemed vacancy on admission of a new partner.
When a minor admitted to the benefits of a partnership becomes a major, and a new deed was executed on his
attaining majority, the court declared that no new partnership came into existence.290
[s 30.3] ON ATTAINING MAJORITY
The immunity against personal liability conferred on a minor admitted to benefits of partnership by sub-section
(3) is taken away on his becoming a partner under subsection (5) and his personal liability to third parties
relates back to the date when he was admitted to the benefits of partnership as provided in sub-section (7). In
the undermentioned case, the court held that sub-section (7) indicates that rights and liabilities of such person
becoming a partner under sub-section (5) would relate back to the date when he was admitted to the benefits of
partnership and name of such person should appear in the Register of Firms with the names of all other
persons who were partners at the time when cause of action arose to avoid the bar of section 69(2).291 Before a
creditor can take advantage of sub-section (5), it must be proved that the minor has been admitted to the
benefits of the partnership.292 If a minor becomes a partner under sub-section (5), there is no break in the
continuity of the partnership.293
It is perhaps not a very apt use of language, but it is well-established, to speak of a partner’s share as being
liable when what is meant is that his claims on the firm’s funds are subject to prior claims, and that in certain
events there may as a result, be no share at all. A partner’s share, like that of a shareholder in a company, is
not a piece of tangible property or a specific fund. It is a mere personal right to claim a certain proportion of the
divisible income, and ultimately to reclaim a certain proportion of capital, at the proper times, if and whenever it
is found that there is any profit to divide and any surplus assets to distribute.294 In fact, the word “share” in
section 247 of the Contract Act, 1872 from which sub-sections (2) and (3) of the present section cannot for this
purpose be distinguished, has been declared by the Privy Council to be no more than a right to participate in
the property of the firm after its obligations have been satisfied.295 The legal title or interest in partnership
property will, as a rule, be found to be in the partners jointly; but that is quite another matter.
A minor admitted to the benefit of partnership has the option to become a member within a period of six months
of his attaining authority.296 If he elects to become a partner, he becomes personally liable for all acts of the firm
to which he was admitted to the benefits of partnership.297
[s 30.4] HINDU MINOR’S ANCESTRAL TRADE
There is no difference in principle between the nature of the liability of an infant admitted by agreement into a
partnership business and that of one, on whose behalf an ancestral trade is carried on by his guardian. A minor
Hindu, therefore, on whose behalf such a trade is carried on, is not personally liable for the debts incurred in
such trade, but his share therein is alone liable.298 Similarity, the karta of a joint family cannot impose, on a
minor member of it, the risk and liability of a new business started by him and the other adult members.299
Moreover, a member of the family, on attaining majority, does not necessarily become personally liable for
debts contracted in the joint family business during his minority.300
[s 30.5] CRIMINAL LIABILITY
Sub-section (3) of section 30 restricts the liability of a minor to his share in the firm. A minor who is admitted as
a partner is not personally liable, for any liability or any acts of the firm, which cause any liability. In a case
arising from Kerala High Court pertaining to large-scale cheating and defrauding, it was found that three
partners of the firm were minors. Criminal proceedings against such minors were therefore quashed.301
[s 30.6] ENGLISH LAW
In England, an infant may be a partner but cannot be sued for debts of the firm during his minority, and he may,
either before or within a reasonable time after attaining full age, affirm or avoid his partnership and any
particular incidental obligations, this being the general rule as to agreements made by infants, with exceptions
which are not of much concern at this point. However, as to ascertainment of divisible profits and the settlement
of accounts, generally he is in no better position than any other partner. The results may not be widely different
from those which practically occur in India; but the initial principles being different, the English cases are not of
authority in Indian courts. Advanced students who desire to master the principles which govern the treatment of
an infant partner or reputed partner in a firm under English law will find an exposition in the judgments delivered
by a very strong court more than a century ago,302 which will be nonetheless profitable because the particular
question before that court could not be raised under the modern law of India.
272 Not “books” as in the Special Committee’s draft: the Select Committee judged that it would be dangerous to allow
anyone other than a real partner to have access to the secrets of the firm.
273 For the definition of the public notice required here and elsewhere in the Act, see section 72.
274 B Anandkumar and Co v Southern Petrochemicals Industries Corporation Ltd, 2010 SCC OnLine Mad 4254 : 2011-1-
L.W.174; Bhupinder Kaur v Davinder Kaur, 2017 SCC OnLine Del 10500.
275 CIT v Dwarkadas Khetan & Co, AIR 1961 SC 680, para 10.
276 Lachmi Narain v Beni Ram, (1931) 53 All 479 : 130 IC 704 : AIR 1931 All 327; AA Khan v Ameer Khan, AIR 1952 Mys
131; J Rajmohan Pillai v District Collector, 2016 SCC OnLine Ker 21489 : 2016(3)KLJ238 : 2016(3)KLT223 : 2016 (3)
RCR(Civil)1052 : (2016) 93 VST 397 (Ker).
277 Md Ali v Karji Kondho, AIR 1945 Pat 286 : 220 IC 217.
278 Meenakshi Achi v PSM Subramanian Chettiar, AIR 1957 Mad 8 (DB).
279 Mohori Bibee v Dhurmodas Ghose, (1903) LR 30 IA 114 : 30 Cal 539.
280 Sanyasi Charan Mandal v Krishnadhan Banerji, (1922) LR 49 IA 108 : 49 Cal 560 : 67 IC 124; Bindraban v Atma Ram,
AIR 1984 NOC 305 (Del), holding that plea of minority of a partner can be considered by court though not raised in the
written statement.
281 CIT, Bombay v Dwarkadas Khetan & Co, AIR 1961 SC 680; AR Visweswara Rao v CIT, AIR 1965 AP 1; Dharam Vir v
Jagan Nath, AIR 1968 Punj 84; Jakka Devayya & Sons v CIT, AIR 1953 Mad 315 overruled; P Vincent v CIT, AIR 1953
Mad 336 overruled; Sahai Bros v CIT, AIR 1958 Pat 177 overruled; Dwarkadas Khetan & Co v CIT, AIR 1956 Bom 321
reversed; CIT Mysore v Shah Mohandas Sadhuram, AIR 1966 SC 15; The Addl CIT v Uttam Kumar Pramodkumar, AIR
1978 All 397; Sri Ram Mohan Motor Service v CIT, 89 ITR 274 (SC)
282 Shivaram v Gourishankar, AIR 1961 Bom 136.
283 A Khorasany v C Acha, (1928) 6 Rang 198 : 110 IC 349 : AIR 1928 Rang 160 (Muslim widow); Inspector Singh v
Kharak Singh, (1928) 50 All 776 : 26 All 577 : 112 IC 881 : AIR 1928 All 403 (Hindu father); see also Rattan Chand v
Ram Kishan Murarji, (1928) 26 All LJ 777 : 114 IC 743 : AIR 1928 All 447.
284 CIT, Mysore v Shah Mohandas Sadhuram, AIR 1966 SC 15.
285 See also Jafferali Bhaloo Lakha v Standard Bank of S Africa,107 IC 453 : AIR 1928 PC 135 (appeal from E Africa;
identical enactment in Zanzibar); Sahai Bros v CIT, AIR 1958 Pat 177. Ordinarily each partner is liable as if a decretal
debt is his personal liability except in the cases of a minor whose liability is limited to his assets in the partnership. N
Ranganayakulu v J Narasimharao & Co, AIR 1971 AP 58.
286 AIR 1965 SC 212.
287 “Firm”,” partner” and “partnership” have the meanings respectively assigned to them in the Indian Partnership Act, 1932
4 (9 of 1932 ); but the expression “partner” shall also include any person who, being a minor has been admitted to the
benefits of partnership.
288 Deputy Commissioner of Income-Tax, Circle-Murshidabad v Lal Mohammed Biswas, 2012 SCC OnLine ITAT 6830 :
[2012] ITAT 6601.
289 CIT v Dwarkadas Khetan & Co, AIR 1961 SC 680, para 10.
290 1995 All 220 : (1995) All LJ 350 : 1983 All LJ 173.
291 VJ Masarwala v P Sheth & Co, (1981) 22 Guj LR 689, p 693.
292 Kunchachumma v Chalapuram Bank, AIR 1958 Ker 318.
293 Bhogilal Laherchand v CIT, Bombay, AIR 1956 Bom 411, p 413 (DB).
294 Re Sir AAD Sassovn, (1897) 21 Bom 673, pp 678–79.
295 Sanyasi Charan Mandal v Krishnadhan Banerji, (1922) LR 49 IA 108 : 49 Cal 560 : 67 IC 124.
296 Darmesh Madhusoodan Thakkar v Union Bank of India, 2007 SCC OnLine DRAT 21 : (2007) 4 BC 39 (DRAT).
297 Such a view has been earlier taken in Punjab, [1986] ITR 156 and [1989] 177 ITR 498.
298 Joykisto v Nittyanund, (1878) 3 Cal 738; Rampartab v Foolibai, (1896) 20 Bom 767, pp 777, 778; Grey v Lamond
Walker, (1913) 40 Cal 523; Sanyasi Charan Mandal v Asutosh Ghose, (1915) 42 Cal 225; Khetra Mohan v Nishi
Kumar, (1917) 22 Cal WN 488 : 45 IC 667; Sanka Krishna Murthi v The Bank of Burma, (1912) 35 Mad 692 : 11 IC 79;
Narain Das v Ralli Bros, (1915) Punj Rec No 61, p 270 : 31 IC 45.
299 Sanyasi Charan Mandalv Krishnadhan Banerji,1922 LR 49 IA 108 : 49 Cal 560 : 67 IC 124.
300 Official Assignee of Madras v Palaniappa Chetty, (1918) 41 Mad 824 : 49 IC 220.
301 Sandhya S Pillai v State, 2013 SCC OnLine Ker 17040 : LNIND 2013 KER 30467.
302 Goode v Harrison, (1821) 5 B & Ald 147 : 24 RR 307.
End of Document
Chapter 5 Incoming and Outgoing Partners

Act, 8th ed > The Indian Partnership Act, 1932 > Chapter 5 Incoming and Outgoing Partners
CHAPTER 5 Incoming and Outgoing Partners

Chapter V of the Act, as the Special Committee pointed out, is novel in form. It collects in one body the rules as to
the coming in of new partners and going out of existing ones, in so far as the change does not put an end to the firm
but leaves the relations between the continuing partners untouched. Men of business will welcome this
rearrangement as convenient. There is no dissolution of the firm by the mere incoming or outgoing of partners. A
partner can retire with the consent of the other partners and a person can be introduced in the partnership by the
consent of the other partners. The reconstituted firm can carry on its business in the same firm’s name till
dissolution.1
1 CIT v AW Figgis & Co, AIR 1953 SC 455, para 7.
End of Document
[s 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.
[s 31.1] SUB-SECTION (1)
Sub-section (1) corresponds to the Contract Act, section 253, sub-section (6), and section 24, sub-section (7) of
the English Act. The reason underlying this provision is that when persons enter into a contract of partnership,
their intention ordinarily is that a partnership shall exist between themselves and themselves alone. The mutual
confidence reposed by each in the other is one of the main elements in the contract, and it is obvious that
persons may be willing enough to trust one another, and yet be unwilling to place the same trust in anyone
else. If, therefore, a partner dies, his executors or devisees have no right to insist on being admitted into
partnership with the surviving partners, unless some agreement to that effect has been entered into by them.2
This does not mean that a partner’s transfer of his interest in the property or profits of the firm is wholly
ineffectual.3 Transferee rights acquired by such a transaction come under section 29.
[s 31.2] INTRODUCTION OF PARTNERS BY AGREEMENT
Express power, for a senior or principal member of a firm, to introduce one or more new partners, named or not
under agreed conditions, is in fact constantly given by partnership articles. A person duly nominated under such
a power acquires rights in the partnership property which the court will enforce by way of appropriate specific
relief4 though it cannot enforce an agreement to enter into partnership, because the foundation of partnership is
mutual confidence, which the court cannot supply where it does not exist.5 The consent of all existing partners
is required to the introduction of a new partner so that the firm may work harmoniously.6
[s 31.3] NOMINATION OF SUCCESSOR
In the case of a power to nominate a successor on death of a partner, it is necessary for its execution that there
should be “a specific direction in that behalf either in express terms, or, at any rate, by a specific disposal of the
deceased partner’s interest in the firm.” The will of a deceased partner, making a general bequest of his
property, does not operate as an exercise of such a power.7 It may be pursuant to the wishes or directions of
the deceased partner that the surviving partner may enter into a new partnership with the heir of the deceased
partner, but that would constitute a new partnership. In this light section 31 falls in line with section 42 of this
Act. That section only recognises the validity of a contract between the partners to introduce a third party
without the consent of all the existing partners; it presupposes the subsistence of a partnership and it does not
apply to a partnership of two partners which is dissolved by the death of one of them, for in that event there is
no partnership at all for any new partner to be induced into it without the consent of others.8
Though a member of a joint Hindu family cannot sue for an account of the profits of a partnership which is
alleged to be joint family property and for an award to him of his share therein,9 he is entitled to an injunction if
he is excluded from the management of the family business.10 However the relief in such a case is granted not
on the specific rules as to the law of partnership, but upon the general principle that one member of an
undivided Hindu family cannot be ousted by others from any item of family property.11
An agreement among the members of a firm, whereby one of them acquires the whole interest in the business,
is not of course the introduction of a new partner. Such an agreement may raise various questions of fact and
construction according to the circumstances.12 Incidentally, it has been decided, if a decision was necessary
that there is no general rule of law forbidding A, a partner with B and C, to agree with B for the purchase of his
interest without consulting C.13
A bare reading of sub-section (2) makes it abundantly clear that a person who is introduced as a partner into
the firm does not by reason only of such introduction become liable for any act of the firm that was done before
he became a partner.14 Sub-section (2) replaces the second branch of section 249 of the Contract Act, and
corresponds to section 17, sub-section (1), of the English Act. Sub-section 31(2) is expressed in negative terms
and it does not necessarily follow from that section that a new partner becomes automatically liable for the
debts contracted after he became a partner.15 The words “liable for any act of the firm” are wider than “liable to
creditors of the firm”, which is the language of the Contract Act, but make no difference in the law, for no one
ever supposed that an incoming partner became liable for antecedent liabilities independent of contract, merely
by his entry into the firm. “The clause makes no provision for the liability of the new partner for future debts of
the firm, as this is covered by the general provision of clause 25” (note of the Special Committee). In order to
render an incoming partner liable to the creditors of the old firm, there must be some agreement, express or
tacit, to that effect entered into between him and the creditors, and founded on some sufficient consideration. If
there be any such agreement, the incoming partner will be bound by it, but his liabilities in respect of the old
debts will attach by virtue of the new agreement, and not, per se by reason of his having become a partner.16
[s 31.5] LIABILITY OF A NEW PARTNER UNDER INCOME TAX LAW
In Nandlal Sohanlal v CIT, AIR 1977 P&H 320, pp 325, 326, 328 (FB), the majority expressed the view that if
one of the partners dies or an additional partner is introduced in a partnership, a new partnership comes into
existence if the case is viewed strictly in accordance with the provisions of the Indian Partnership Act, but the
Income-tax Act, 1961 makes a thorough departure from those concepts and expressly provides that such
changes would ensure continuity of the firm as a unit of assessment. It was observed that once it is held that a
partnership firm is a continuing entity and a person for the purpose of framing an assessment under the
Income-tax Act, it makes no difference whether change in the constitution of the firm has been brought about
either by virtue of sections 31 or 32 of the Act or by virtue of sections 41 or 44 of the Act. It may be borne in
mind that though in the Income-tax Act, 1961 the expressions “firm”, “partner” and “partnership” have the
meanings respectively assigned to them under this Act, that is made subject to the context of the provisions
made in that Act and it would be hazardous to view these expressions occurring in the Income-tax Act, 1961
out of their context and merely in light of the provisions of this Act. It is obvious that where the provisions of the
Income-tax Act, 1961 are clear, resort cannot be had to the provision of another statute like the Act. Therefore,
the question of the liability of the new partner for the purpose of assessment under the Income-tax Act, 1961
would be governed by the special provisions made therein, such as in section 187 rather than the general rule
provided in sub-section (2). In fact, there is no conflict between the provisions of section 187(1) of the Income-
tax Act, 1961 and the provisions of the Act, when one bears in mind the basic concept underlying the provisions
of section 187, viz, the continuity of the firm as an entity in the eye of law.17 The legislature has made special
provisions applicable to firms relating to changes in their constitution, succession and dissolution in sections
187, 188 and 189 of the Income-tax Act. This exercise was unnecessary, if these expressions were to be
construed only according to the existing general law. Therefore, the expression “change in Constitution of a
firm” occurring in section 187 of the Income-tax Act, 1961 would include even cases of dissolution where the
firm is reconstituted with at least one of the old partners together with incoming partners and the business is
continued.18
[s 31.6] NOVATION—ASSUMPTION OF LIABILITY BY A NEW PARTNER FOR EXISTING DEBTS OF THE

OLD FIRM
While section 31 does not by itself make a newly inducted partner liable for the debts of partnership to which he
is inducted, in the absence of any statutory or other provision against such a partner taking over any such
liability, it will be permissible for the partner to take over such a liability.19
Novation is the technical name for the contract of substituted liability, which is, of course, not confined, to cases
of partnership. As between the incoming partner and the creditor, the consideration for the undertaking of the
liability is the change of the creditor’s existing rights.20 New partners who were not parties to an agreement
between the original partners may, by conduct, become bound by the terms of that agreement. The general
principle, in this connection, is that it is always open to the parties, on admitting a new partner, to agree,
express or implied, to a novation of the existing partnership, with suitable variations so as to make the terms of
former partnership applicable to the enlarged partnership.21 It would, however, be a question of fact and
inference whether the parties have so conducted themselves as to adopt, express or implied, the terms or any
of them of the former partnership agreement, but in the absence of any such conduct, the general law will apply
and the old partnership will be totally abrogated in favour of a new partnership at will.22
[s 31.6.1] Conditions for Assumptions of Liability
The new firm—including the new partner who has joined it—may agree by way of novation to assume liability
for existing debts of the old firm, and creditors may agree to accept the new firm as their debtor and discharge
the old one. In such cases the creditor’s consent is necessary.
To determine whether an incoming partner has become liable to an existing creditor of the firm, two questions
have to be considered. First, whether the new firm has assumed the liability to pay the debt; and second,
whether the creditor has agreed to accept the new firm as his debtors, and to discharge the old partnership
from its liability.23 A creditor must prove both the above conditions in order to hold the new firm liable for his
debts.24
[s 31.6.1.1] Mere Agreement Between Partners Cannot Operate as Novation
An agreement between the old partners and the incoming partner that he shall be liable for existing debts will
not, of itself, give the creditors of the firm any right against him; for it is the rule of modern English law (though it
was formerly otherwise in England, and now is, to some extent, in several American states) that not even the
express intention of the parties to a contract can enable a third person for whose benefit it was made to enforce
it. This rule of English law is followed in India also.25 An incoming partner is liable, however, for new debts
arising out of a continuing contract made by the firm before he joined it; as where the old firm had given a
continuing order for the supply of a particular kind of goods.26
In 1901, the House of Lords decided, on appeal from Scotland, a curious case in which two of the three
partners, who as trustees were creditors and as members of the firm debtors for money left in the business,
purported to effect a novation and release the third partner; this was nothing but a fraudulent breach of trust,
and the third partner remained liable. As observed in Smith v Patrick:27
A power to lend to a firm consisting of certain individuals does not authorise a loan to a firm differently constituted
whether including more individuals or less.
There is, in law, nothing to prevent a firm from stipulating with any creditor from the beginning that he shall look
only to the members of the firm for the time being; the term novation, however, is not properly applicable to
such a case.28
As to novation in general, section 62 of the Contract Act, 1872 can be referred to.29
2 Lindley on Partnership, 15th End, p 538.

3 Mulidhar Himatsingka v CIT, Calcutta, AIR 1967 SC 383.
4 Byrne v Reid, [1902] 2 Ch 735 (CA).

5 Satyanarayanamurthi v Gopalan, (1939) 2 Mad LJ 279 : 186 IC 57 : AIR 1939 Mad 891.
6 Meenakshi Achi v PSM Subramaniam Chettiar, AIR 1957 Mad 8, p 11 (DB).
7 Bachubai v Shamji, (1885) 9 Bom 536, p 554.
8 CIT v GS Mills, AIR 1966 SC 24, p 27; Nandlal Sohanlal v CIT, Patiala, AIR 1977 P&H 320; in context of sections 187
and 188 of the Income Tax Act, 1961.
9 Pollock and Mulla, Joint Hindu Family Firm, 6th Edn, pp 678–9.
10 Ganpat v Annaji, (1898) 23 Bom 144.
11 Anant v Gopal, (1894) 19 Bom 269; Ramchandra v Damodhar, (1895) 20 Bom 467.
12 Cassels v Stewart, [1881] 6 AC 64 ; Heath v Sansom, (1832) 4 B & Ald 172 : 28 RR 237.
13 Ibid.
14 BM Devaiah v Canara Bank, AIR 2003 Kant 143, para 10.
15 British Homes Assurance Corpn Ltd v Paterson, [1902] 2 Ch 404 which shows that an incoming partner will not be
liable for the acts of his co-partner even after he has joined the firm to a person who has dealt solely with the old
partner and refused to deal with the new firm.
17 Addl CIT v Vinayaka Cinema, AIR 1978 AP 51, p 65 (FB); overruling Addl CIT v Visakha Flour Mills, 1977 Tax LR 41
(AP); which was followed by the majority judgment in Nandlal Sohanlal v CIT, AIR 1977 P&H 320 (FB); Addl CIT
Gujarat v Harjivandas Hathibhai, (1976) Tax LR 1107 Guj (DB).
18 Girdharilal Nannelal v CIT, Bhopal, Madhya Pradesh, AIR 1984 NOC 95 (MP) (FB).
19 BM Devaiah v Canara Bank, AIR 2003 Kant 143, para 10.
20 PD Sarma v Phanindra Nath Mukherjee, (1931) 35 Cal WN 593.
21 Zamicoff v Lundy, (1970) 9 LR (3d) (Ontario CA) a Canadian case cited in Lindley on Partnership, 15th Edn, p 139.
23 Rolfe v Flower, (1865) LR 1 PC 38 : 3 Moo PCNS 380 : 16 ER 145 : 146 RR 104.
24 Meenakshi Achi v PSM Subramanian Chettiar, AIR 1957 Mad 8, p 12 (DB); Commr of Wealth Tax, Kanpur v Padampat
Singhania, (1981) Tax LR 683, p 688 (All) (DB).
25 Russa Engg Works v Kanara Tpt Co, (1926) 41 Mad 930 : 98 IC 257 : AIR 1926 Mad 1138; Madho Prasad v Gouri
Dutt, (1939) 183 IC 179 : AIR 1939 Pat 323; Pollock and Mulla, Contract Act, 9th Edn, pp 25–26.
27 [1901] AC 282, p 294 per Lord Davey “There was clearly no consideration for the discharge”; Lindley on Partnership,
15th Edn, p 410, note 49
28 This is involved in Hort’s case and Grain’s case, (1875) 1 Ch D 307, p 322, per James LJ Lindley on Partnership, 15th
Edn, p 415, note 69.
29 Pollock and Mulla, Contract Act, 9th edn, pp 436–40.
End of Document
[s 32] Retirement of a partner.—

(1) A partner may retire,—

(a) with the consent of all the other partners,
(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.
(2) A retiring partner may be discharged from any liability to any third party for acts of the firm done before
his retirement by an agreement made by him with such third party and the partners of the reconstituted
firm, and such agreement may be implied by a course of dealing between such third party and the
reconstituted firm after he had knowledge of the retirement.
(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 notice30 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.
[s 32.1] RETIREMENT OF A PARTNER—SUB-SECTION (1)
Section 32(1) deals with the retirement of a partner (a) with the consent of the other partners; (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 of his partners of his intention to retire.31
Sub-section (1) is new in form, though not in substance. Sub-sections (2) and (3) correspond to section 17,
sub-sections (3) and (2), of the English Act; the order of those sub-sections is transposed and the present sub-
section (3) gives, in a different wording, the effect of section 36, sub-section (1), of the English Act.
The Select Committee thought that they were departing to some extent from English authority in the terms of
this section, but the variance is so little more than verbal that it is not worth discussing. In any case, the present
Act speaks for itself, and the section is clear.
A partner is said to retire when he ceases to be a member of the firm without bringing to an end the subsisting
relations between the other members, or between the firm and third parties. The term “does not cover the case
where a partner withdraws from a firm by dissolving it, which should properly be referred [to] as a dissolution
and not as a retirement” (note of the Special Committee). Retirement of a partner from a firm does not dissolve
it. It does not determine partnership inter se between all the partners. It only severs the partnership between the
retiring partner and continuing partners, leaving the partnership amongst the latter unaffected and the firm
continues with the changed constitution comprising the continuing partners.32 A retirement with the consent of
all the other partners can be effected without dissolution.33 Though the right to retire from the partnership is also
recognised in the said Act, but it is not an indefeasible right that the moment the partner shows his intention to
retire, the partnership would automatically stand dissolved.34
The Supreme Court has held in Erach FD Mehta v Mintoo FD Mehta, (1970) 2 SCC 724 that when the
partnership consists of only two partners, retirement of one partner leads to the dissolution of the firm.35
This provision provides for the mode of the retirement of a partner but there is no further requirement that it can
be effected only by a written document. In absence of such a requirement, even by oral consent partners of the
firm can agree for the retirement of a partner.36 Once a partner retires, the legal heirs, upon the demise of such
retired partner, cannot claim partnership.37
The law, as now settled with regard to retiring partners, may be viewed as a compromise between the strict
doctrine of English Common Law, which refuses to see anything in the firm, but a collective name for
individuals carrying on business in partnership, and the mercantile usage which recognises the firm as a distinct
person or quasi-corporation.38 This point of view may help to explain why the rules have to be laid down
separately and in detail.
The express agreement contemplated in sub-section (1)(b) is of a kind that frequently occurs in a partnership
article. It is open to intending partners, when they are settling the constitution of the firm, to make such
provision as they please both for the retirement of members and for the admission of new members. A partner
retiring in accordance with the terms of the articles, and observing those terms, is exercising a right acquired by
him under the original contract of partnership, and has no need to seek any further consent. The Supreme
Court in Vishnu Chandra v Chandrika Prasad,39 held that the expression “if any partner wants to dissociate from
the partnership business”, in a clause of the partnership deed which was being construed, comprehends a
situation where a partner wants to retire from the partnership. The expression clearly indicated that in the event
of retirement, the partnership business will not come to an end. Such provision conferred a right on the partner
to retire from the partnership as envisaged by section 32(1)(b). Mere retirement of a partner, who was the
tenant of the premises in which the partnership business was carried out, would not result in assignment of the
tenancy rights in favour of the remaining partners even though the retiring partner ceases to have any right, title
or interest in the business as such.40
[s 32.2] SEPARATION OF RETIRING PARTNER’S SHARE
Section 32 provides for retirement of a partner but there is no express provision in the Act for the separation of
his share and the intention appears to be that it would be determined by agreement between the parties.41
[s 32.3] PARTNERSHIP AT WILL: TACIT DISSOLUTION
A partner in a partnership, at will, cannot retire except by giving a notice in writing under sub-section (1)(c) of
this section.42
An intention to dissolve a firm may be inferred from circumstances showing that a partner has, in fact,
abandoned his interest in the business. No positive rule can be formulated to define what evidence will be
sufficient. It is a matter of inference from the facts in each case whether a partner’s interest has, or has not,
been abandoned either by overt acts or passively.43
[s 32.4] LIABILITY OF OUTGOING PARTNER—SUB-SECTION (2)
Purpose of section 32 is to protect interest of third parties, particularly creditors of the firm.44 The retirement of
petitioner from the partnership firm will not absolve him from his liability to pay the dues to the partnership firm
which accrued when he was a partner45 that is with respect to pre-retirement transaction or liability.46 To invoke
section 32, it must be established that the firm had incurred liability towards a creditor, before the retirement
and such retirement took place without the consent and express or tacit approval by the creditor.47 Sub-section
(2) and (3) do not control the operation of sub-section (1) but rather deal with the liability of a retiring partner as
a consequence of not issuing a public notice. By this provision, at best further financial interest may be created
in favour of the retiring partner but in no way interest in the partnership business and/or in its assets and
properties can be created in favour of the retiring partner.48
Under sub-section (2) of section 32, the liability of the retiring partner as against third party would be discharged
only if there is an agreement made by the retiring partner with the third party and the partners of the
reconstituted firm.49 Of course, an agreement could be implied by the course of dealing between such third
party and the reconstituted firm, after retirement of a partner. There is no a priori presumption to the effect that
the creditors of a firm do, on the retirement of a partner, enter into an agreement to discharge him from liability.
An adoption by the creditor of the new firm as his debtor does not by any means necessarily deprive him of his
rights against the old firm especially when the creditor is not a party to the arrangement, and then there is no
fresh agreement between the creditor and the newly constituted firm. After the creditor has taken a new security
for a debt from a continuing partner, it may be a strong evidence of an intention to look at only the continuing
partner for the payment due from the firm.50 A suit by a third party against a firm through an erstwhile managing
partner is maintainable in absence of an agreement as required under section 32(2).51 While dealing with the
question as to whether an erstwhile partner is liable to pay the tax arrears due from the partnership firm
pertaining to the period when he was a partner, the Supreme Court, while taking note of section 25, held that if
a continuing partner is liable to pay the tax due from the firm relating to the period when he was a partner of the
firm, there is no reason, in principle, to hold that the said liability ceases merely because a partner has ceased
to be partner subsequent to the said period.52 Unless he is discharged by novation, as explained in the notes to
section 31, a partner who retires does not thereby cease to be liable for the firm’s liabilities incurred before his
retirement. Outgoing partner is not absolved of his liability incurred at the time when was a partner.53 No partner
can get himself absolved from the liability towards the creditor of the firm by resorting to the simple expedient of
retiring from the firm after it becomes indebted to the creditor. He would have to satisfy the court that after the
notice of retirement, the creditor acquiesced in that position, and agreed to get his dues satisfied from the
reconstituted firm.54 A partner of a firm that has infringed a trademark is liable even though he had retired
before the suit for damages was filed.55 He remains liable until the partnership affairs are wound up or such
liabilities are discharged and this is so although he may be only a sleeping partner.56 The Act makes no
provision for the separation of the share of a retiring partner; it may be intended to leave this to be dealt with by
agreement between the partners.57
In Kamutala Laxminarayana v Firm Laxmi Venkata Satyanarayana, (1988) 2 Andh LT 780, the Andhra Pradesh
High Court held that the proviso to section 45 has no application to a dissolution simpliciter. “When it is
dissolution simpliciter, it is not retirement and the proviso cannot operate in favour of such retiring partner
dispensing with public notice on the ground that the third party who is dealing with him has no knowledge of his
partnership of the firm”. In this case, the view of the Calcutta High Court in Juggilal v Sew Chand, AIR 1963 Cal
505 was followed.
The effect of the numerous cases under the corresponding English law with regard to liability of an outgoing
partner can be summed up58 as follows:
(a) An express agreement by the creditor to discharge a retired partner and to look only to a continuing
partner would not be void on the ground of want of consideration.
(b) The creditor is not necessarily deprived of his rights against the old firm when he adopts the new firm
as his debtor. The creditor may as well expressly reserve his rights against the old firm.
(c) A person who was not known to the creditor to be the member of the old firm does not stand
discharged when the new firm is accepted as a debtor.
(d) The fact that a creditor has taken from a continuing partner a new security for the debt due from him
and a retired partner jointly, is a strong evidence of an intention to look only to the continuing partner
for payment.
(e) When a creditor assents to a transfer of his debt from an old firm to a new firm, and goes on dealing
with the latter for many years, making no demand for payment against the old firm, the court having
regard to all the circumstances of the case can infer a discharge of the old firm.
(f) If a creditor has notice of an agreement between the late and continuing partners, whereby the late
partner has become a surety as between himself and the continuing partners, and subsequently deals
with the continuing partners in such a way as to prejudice the rights of the late partner against them
without his consent, the late partner will be discharged.
[s 32.5] PUBLIC NOTICE—SUB-SECTION (3)
The liability of a partner can ordinarily be only for the acts and omissions of the partners during the subsistence
of the firm. When a partner retires, it is logical that his liability should come to an end. However, there is another
factor relevant in totally excluding him from post-retiral liabilities of the continuing firm. The public should be
protected against an important event like the retirement of a partner of a firm who might have influenced them
in dealing with the firm itself. A public notice is insisted upon under sub-section (3), for the retiring partner to
insulate himself from post-retiral liability.59 Therefore, with regard to any post-retirement transaction or liability
also such quondam partner will continue to be liable until public notice in the manner provided under section 72
of the Act is given of his retirement, in view of section 32(3) of the Act which is enacted on the well known
principle of holding out.60
Public notice is visualised in the context of dissolution of a firm. Some exceptional situations are carved out by
the proviso. Death or insolvency of a partner are the first two exceptions, whereas the third one is of a partner
who not having been known to the person dealing with the firm to be a partner, retires from partnership.
In view of proviso to sub-section (3) the absence of a public notice will not entitle third parties, who in fact know
of the retirement, to sue a retired partner in respect of liabilities arising after the retirement.61 Where no public
notice is given but there is individual notice of retirement of a partner to the concerned third party, it can be said
that the third party deals with the remaining partners without knowledge that retiring partner is still a partner
within the meaning of the proviso to section 32(3). The burden in such a case will be on the retired partner (who
wants to avoid the liability) to show that such third had dealt with the firm without knowing that such retired
partner was a partner of the firm.62 This proviso really engrafts the same legislative intention, which was
discernible in old section 264 of the Contract Act.
30 See section 72 below

31 MOH Uduman v MOH Aslum, (1991) 1 SCC 412, para 12; Asha Agarwal v Arvind and Co Kaimganj, 2014 SCC OnLine
All 15820 : (2015) 127 RD 226 : (2015) 109 ALR 10 : (2015) 1 All LJ 721 : (2015) 148 AIC 948.
32 Pamuru Vishnu Vinodh Reddy v Chillakuru Chandrasekhara Reddy, (2003) 3 SCC 445, p 452; Columbia Holdings
Private Limited v SSP Developers Pvt Ltd, 2016 SCC OnLine Del 4433 : (2016) 159 DRJ 81; Kanagammal v Theatre
Abirami Partnership Concern, 2009 SCC OnLine Mad 1124 : 2009-3-L.W. 900; Halima Bai v Sparkle-Ads-Firm, 2014
SCC OnLine Mad 503 : 2014-4-L.W.235 [Held, use of the word “retire” in section 32 of the Act is confined to cases
where a partner withdraws from a firm and the remaining partners continue to carry on the business of the firm without
dissolution of partnership as between them.]
33 Chillakuru Mohan Reddy v Pamuru Rama Subba Reddy, AIR 1985 NOC 134 (AP).
34 Sarkhel Enterprise v Jagannath Maity, 2015 SCC OnLine Cal 7018 : 2017(2) CHN (CAL) 47.
35 (1970) 2 SCC 724; See also, G Sathyan v B Vasudevan, 2016 SCC OnLine Mad 9905 : (2017) 1 CTC 553 : (2017) 1
Mad LJ 161; Prakash Chand v Bhanwar Lal, 2009 SCC OnLine Raj 5415 : (2009) 4 RLW 3419 : 2010 AIHC (NOC 324)
98 : (2009) 5 WLC 633.
36 Ramesh Chand Bihari Lal Bajaj v Ravindra Kumar, 2012 SCC OnLine Raj 3679 : 2013 (4) RLW 3029 (Raj).
37 Usha Gopirathnam v PS Ranganathan, 2008 SCC OnLine Kar 32 : (2008) 5 Kant LJ 220 : (2008) 3 AIR Kant R 291.
38 CIT v AW Figgis & Co, AIR 1953 SC 455, para 7.
39 AIR 1983 SC 523; Columbia Holdings Private Limited v SSP Developers Pvt Ltd, 2016 SCC OnLine Del 4433 : (2016)
159 DRJ 81.
40 Kusum Bhimrao v Javahar Lalchand, AIR 1982 Bom 245, p 248.
41 Pamuru Vishnu Vinodh Reddy v Chillakuru Chandrasekhara Reddy, (2003) 3 SCC 445, p 452.
42 Banwarilal v Roop Kishore, (1945) All 520 : AIR 1945 All 332.
43 Moung Tha Huyin v Mah Thein Myah, (1900) 28 Cal 53 : LR 27 IA 189; Sudarsanam v Narasimhulu, (1901) 25 Mad
149, p 164.
44 Kolor Syama Raju v Venkateshwara Mahal, 2006 SCC OnLine AP 579 : (2006) 6 ALD 278.
45 K Kandasamy v Tamil Nadu Industrial Investment, Corporation Limited, 2015 SCC OnLine Mad 3801; Manoj Shetty v
Ritesh Shetty, 2016 SCC OnLine Bom 15186.
46 Ram Bhat v Leelaram Shevaram, 2006 SCC OnLine Ker 423.
47 Kolor Syama Raju v Venkateshwara Mahal, 2006 SCC OnLine AP 579 : (2006) 6 ALD 278.
48 Gaur Karuna Dey v Nemai Dey, 2008 SCC OnLine Cal 263 : (2008) 3 CHN 590 : (2008) 2 Cal LT 537.
49 Sandeep Gupta v Punjab National Bank, 2016 SCC OnLine Del 388 : (2016) 228 DLT (CN) 5; G Chandra Sekhar Rao
v State Bank of Hyderabad, 2013 SCC OnLine AP 643 : (2013) 5 ALD 447 (DB) : (2014) 1 ALT 50 (DB); PPM
Sankaralinga Nadar Sons v D Rajkumar, 2008 SCC OnLine Mad 749 : 2009-2-LW 404; Sonba v Sunil, 2018 SCC
OnLine Bom 613 : 2018(3)ABR491 : 2018(5)BomCR204 : 2018 (6) MhLJ 368; BR Nagaraj v K Thippeswamy, 2013
SCC OnLine Kar 63; Satish Kumar Jhunjhunwala v UOI, 2013 SCC OnLine Del 4116 : ILR (2014) I DELHI 58.
50 Syndicate Bank v RSR Engineering Works, (2003) 6 SCC 265, paras 6 and 9; Dorling Kindersley (India) Pvt Ltd v
Sanguine Technical Publishers, 2013 SCC OnLine Del 2319 : 2013 (3) ArbLR 52 (Delhi) : 2013 (56) PTC 40 (Del).
51 Rollon Steels v AP TRANSCO Ltd, 2013 SCC OnLine AP 598 : (2013) 5 ALD 217 (DB).
52 ITO (III) v Arunagiri Chettiar, (1996) 9 SCC 33.
53 MA Parathasarathy v Bank of Baroda, AIR 2007 NOC 311 (Kar).
54 See also Vinaitheethal Achi v Chidambaram Chettiar, AIR 1972 Mad 238; Syndicate Bank v RSR Engineering
WorksILR, 1994 Kar 1095; KJ George v State Bank of Travancore, AIR 2002 Ker 214.
55 Thomas Bear & Sons v Rulia Ram, (1934) 148 IC 763 : AIR 1934 Lah 625.
56 Court v Berlin, [1897] 2 QB 396 (CA).
57 Ajudhia Pershad v Sham Sunder, (1947) Lah 417 : AIR 1947 Lah 13. Liability of retiring partner in absence of public
notice or retirement, extent, liability does not extend to his being liable to be adjudicated as insolvent for the act of the
firm at a subsequent date. AMS Veerappa Chettiar v Kalidass Chettiar and Sons, AIR 1974 Mad 150.
59 See PPM Sankaralinga Nadar Sons v D Rajkumar, 2008 SCC OnLine Mad 749 : 2009-2 L.W.404; Vijay Kumar v
Kahlon Traders, 2010 SCC OnLine P&H 1587; Meera Raju v State Bank of Travancore, 2012 SCC OnLine Mad 3580 :
2012-4-L.W. 873; Kamangar and Company v AL Byahatti and Sons, 2011 SCC OnLine Kar 22 : ILR 2011 KAR 1576; B
Narashimha Rao v T Raghavalu Naidu, 2007 SCC OnLine Mad 404 : 2007-3-L.W. 1009; C Assiamma v State Bank of
India, 1989 SCC OnLine Ker 327 : AIR 1990 Ker 157 : (1990) 1 KLT (SN 12) 11 : (1990) 1 KLT (SN 19) 18 : (1992) 74
Comp Cas 139.
60 Ram Bhat v Leelaram Shevaram, 2006 SCC OnLine Ker 423.
61 Central United Bank Ltd v Venkatarama Naidu, AIR 1963 Mad 302; applying Jarvis v Hemmings, [1912] 1 Ch 462;
Thummala Ram Rao v Chodagam Venkateswara Rao, AIR 1963 AP 154. In order to avoid liability, however, public
notice should be given PV Gandhi v Geetanjali, AIR 1973 Mad 115; Jani Nautamlal Venishankar v Shri Vivekanand
Coop Housing Society Ltd, AIR 1986 Guj 162, pp 171, 172.
62 Ibid.
End of Document
[s 33] Expulsion of a partner.—

(1) A partner may not be expelled from a firm by any majority of the partners, save in the exercise in good
faith of powers conferred by contract between the partners.
(2) The provisions of sub-section (2), (3) and (4) of section 32 shall apply to an expelled partner as if he
were a retired partner.
[s 33.1] EXPULSION OF PARTNER: SUB-SECTION (1)
The operative part of this section is equivalent to the Contract Act, section 253, subsection (9), and section 25
of the English Act. Expulsion is a drastic step. The scope and manner to expel a partner is not provided in the
Act and would be controlled by the partnership agreement. The partners may decide that the power is conferred
on one or more of them or majority or all of them and is exercised on certain grounds or for certain reasons and
in certain circumstances and no other.63
Where the terms of partnership confer power to expel a partner, its exercise will not be in good faith unless it is
done with an honest view in the interests of the firm, and with notice to the partner affected and an opportunity
of being heard.64 Where other partners had merely sent a telegram qua expulsion of a partner, the same was
found to be lacking in good faith.65 Even an express provision in the articles dispensing the majority from giving
reasons for their decision will not dispense them from the duty of acting in good faith.66 An irregular expulsion is
wholly without effect; it is like a conviction reached without jurisdiction. The partner whom the majority purports
to expel does not cease to be a partner, and his proper remedy is to claim reinstatement in his right,67 not to
sue for damages which, since he has not ceased to be a partner, he cannot have sustained.68
Partnership articles may confer power to determine the partnership for certain causes, such as dissatisfaction
with the conduct of the business. Such powers are not like expulsion clauses; they are options to determine,
exercisable at the discretion of the parties to whom they are given. Such clauses are, however, always
construed strictly and expulsion under them would be effectual only when the expelling partners have acted
with perfect good faith.69 An expulsion the motive of which is really to get an undue advantage over the partner
who is expelled by purchasing his interest on terms unfavourable to him will not be justified under such clause.
If power is given to determine the partnership by notice for breach of the articles, with a provision for arbitration
if the breach is denied, a notice to dissolve, being only preliminary to arbitration if required, need not specify the
breaches complained of.70
In a case where a partner issued letters to the bankers to stop payment of cheques of the firm unless signed by
him and thereby dislocated the business of the firm, his expulsion by the other partners, under the clause
justifying expulsion on the ground of any misconduct, was held to be valid and not wanting in good faith.71
Particular kinds of misconduct may be specified as causes either of expulsion or of optional dissolution. If
necessary, the court must decide according to the ordinary rules of construction whether the facts proved or
admitted come within the description.72
Sub-section (2) appears to be new as an express declaration that the incidental consequences of leaving a firm
by expulsion are the same as those of uncontentious retirement. Even if it is a piece of abundant caution, it is
properly added.
63 Mahendra N Thakkar v Yogendra N Thakkar, 2008 SCC OnLine Bom 772 : (2008) 6 Bom CR 775 : 2008 Supp (2) Arb
LR 433; S Vel Aravind (Dr) v Dr Radhakrishnan, 2018 SCC OnLine Mad 1037 : (2018) 4 Mad LJ 468.
64 Reported authorities are no longer necessary, but may be instructive as exposition; Const v Harris, (1823) T&R 496, p
525 : 24 RR 108, p 132; Barnes v Young, [1898] 1 Ch 414.
65 Ram Saran Dass v Ram Piari, 2011 SCC OnLine P&H 6315.
66 Blisset v Daniel, (1853) 10 Ha 493 : 90 RR 454.
67 Ibid.
68 Wood v Wood, (1874) LR 9 Ex 190. It might be actionable as a libel to publish an assertion that a partner was expelled
or that he had ceased to be a member of the firm.
69 Russell v Russell, (1880) 14 Ch D 481 ; Ebrahim v Westbourne Galleries Ltd, [1973] AC 360; Peyton v Mindham,
(1972) 1 WLR 8.
70 Green v Howell, [1910] 1 Ch 495 (CA); correcting adictum in Barnes v Youngs,[1898] 1 Ch 414.
71 Ganesh Chandra v Gopal Chandra, AIR 1976 Cal 459, p 464.
72 Clifford v Timms,[1908] AC 12 (“professional misconduct” in a firm of dentists); Carmichael v Evans, [1904] 1 Ch 486
(“flagrant breach of duty” includes conviction for fraud).
End of Document
[s 34] Insolvency of a partner.—

(1) Where a partner in a firm is adjudicated an insolvent he ceases to be a partner on the date on which
the order of adjudication is made, whether or not the firm is hereby dissolved.
(2) Where under a contract between the partners the firm is not dissolved by the adjudication of a partner
as an insolvent, the estate of a partner so adjudicated is not liable for any act of the firm and the firm is
not liable for any act of the insolvent, done after the date on which the order of adjudication is made.
[s 34.1] DATE OF ADJUDICATION
This section supersedes the less explicit provision of the Contract Act, section 254, sub-section (2); section 33,
sub-section (1) of the English Act. The effect of the provision as to date, which is new, must be carefully noted
with regard to the general law of insolvency. Within the extent of the Presidency Towns Insolvency Act, 1909,
insolvency relates back, under section 51, to the earliest act of insolvency within three months before the
petition. In cases governed by the Provincial Insolvency Act of 1920, it relates back to the date of the petition.
Under the present section, an insolvent partner ceases to be a partner on neither of these dates, but on the
date of the order of adjudication. An adjudication order is made on the date when it is pronounced and not on
the date when it is signed and sealed.73 A receiver of the insolvent’s property merely becomes a tenant in
common along with the others and cannot claim exclusive possession of the assets of the partnership.74
Before this Act, the partnership was not automatically dissolved, but there was ground for dissolution at the suit
of the other partners. The section provides a useful simplification.75 Apparently, the insolvent partner’s authority
as a member of the firm continues down to the date of adjudication. Sub-section (2) is equivalent, in part, to
section 36, sub-section (3), of the English Act. If only one partner becomes insolvent, his authority is at an end,
and his estate cannot be made liable for the subsequent acts of his solvent co-partners. At the same time, if
notwithstanding the insolvency of one partner the others hold themselves out as still in partnership with him,
they will be liable for his acts, as if he and they were partners; and although the estate of an insolvent partner
does not incur liability for acts of the other partners done since the bankruptcy, yet the solvent partners have
power to bring the partnership transactions to an end and to dispose of the partnership property.76 In Thomason
v Frere, (1809) 10 East 418, it was determined that the endorsement of a partnership bill, by two out of three
partners, conferred no title on the endorsee, the endorsement having been made after the endorsers had
committed acts of bankruptcy. When a partner becomes bankrupt, all his authorities to bind the firm by dealings
in the ordinary course of business are deemed to have been determined by the act of bankruptcy. However, the
same liability as in case of holding out attaches to any person who represents himself or knowingly suffers
himself to be represented as a partner of an insolvent. Thus, a solvent partner would be liable to a bona fide
holder of a bill fraudulently accepted in the name of the firm by a copartner who had previously committed an
act of insolvency.77
The following illustration is taken from Pollock on Partnership:
A is a partner with other persons in a bank. A dies, and the survivors continue the business under the same name.
Afterwards the firm becomes in solvent. A’s estate is liable to customers of the bank for balances due to them at A’s
death, so for as they still remain due and for other partnership liabilities incurred before A’s death,78 but not for any
debts contracted or liabilities incurred by the firm towards customers after A’s death.79
As already noticed in the context of section 4, insolvency of a firm may be brought about by the acts of one
partner acting under his implied or express authority even though the other partners may not themselves have
done any act of solvency. It is necessary to examine the offending acts known whether the persons concerned
had acted as the agent of the firm and whether the act of insolvency is attributed to the firm. Once the firm is
adjudged insolvent, no partner can escape the consequences, unless protected otherwise as in Lakshmana
Sah v PB Kasiah, (1994) 1 Mad LJ 5.
There is no conflict between sections 43 and 44 of the Act as regards dissolution proceedings open to a party
under the Act. In the case of a partnership at will, a notice will suffice for effecting dissolution. Section 44 is not
comprehensive as regards grounds on which dissolution can be sought for through a suit. The right under
section 43, however, does not operate as a bar to the suit under section 44.80
A contention that the wide arbitration clause in a partnership deed which takes in proceedings for dissolution in
the face of decisions in Ram Singh v Ram Chand,81 was repealed in the above case.
73 Blount v Whitley, (1899) 79 LT 635 : 6 Man 48; Re Bodry, (1870) 5 Ben LR 309.
74 Lakshminarayan Sawalaram v Dwarka Prasad Rudmal, AIR 1964 MP 55.
75 Nichalsingh Mahtarsingh v Vishenji Goverdandhas, 106 IC 54 : AIR 1928 Sind 71.
77 Lacy v Woolcott, (1823) 2 D&R 458; Lindley on Partnership, 15th edn, p 834.
78 Devaynes v Noble, (1816) 1 Mer 529 : 15 RR 151; Sleech’s case, (1816) 1 Mer 539 : 15 RR 155; Clayton’s case,
(1816) 1 Mer 572 : 5 RR 161.
79 Fifteenth edn, at pp 95–96; Brice’s case, (1816) 1 Mer 622 : 15 RR 171.
80 ACR Ramanathan Naidu v B Subbarami Reddy, (1994) 1 Andh LT 88.
81 AIR 1924 PC 2; CIT Bombay v Nanalal Gandala, AIR 1960 SC 1147; Michael Golodetz v Serajuddin, AIR 1963 SC
1044; Erach FD Mehta v Minoo FD Mehta, AIR 1971 SC 1653 : (1979) 1 Andh LT 380; Muthuvarapu Venkateshwara
Rao v Dr N Subbarao, (1984) 1 Andh LT 326.
End of Document
[s 35] Liability of estate of deceased partner.—

[s 35] Liability of estate of deceased partner.—

Where under a contract between the partners the firm is not dissolved by the death of a partner, the estate of a
deceased partner is not liable for any act of the firm done after his death.
This is one of the cases included in section 36, sub-section 3, of the English Act. As to the case of the firm
being dissolved, the general provisions for the effect of dissolution in section 47 below can be referred to.
Notice of death is not requisite to prevent liability from attaching to the estate of a deceased partner, in respect
of what may be done by his co-partners after his demise.82
In the case of liabilities of the firm which have arisen after A’s death, it makes no difference that at the time
when the partnership liability arose the customer believed A to be still living and a member of the firm.83
82 Friend v Young, [1897] 2 Ch 421.

83 Houlton’s case, (1816) 1 Mer 616 : 15 RR 169, the judgment itself in this case is not reported; but it appears by the
marginal note and the context that it followed Brice’s case. The authority of Houlton’s case is not affected by anything in
the English Act, Friend v Young, [1897] 2 Ch 421, 428 : 66 LJ Ch 737.
End of Document
[s 36] Rights 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
(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 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.
This section is founded substantially on the English authorities on the disposal of goodwill. The rules, although
a large proportion of the decisions which established them were in fact on partnership affairs, are not confined
to cases where the business has been carried on in partnership. For this reason, presumably, they were not
dealt with either in the Contract Act, 1872 or in the English Act. The Special Committee described the rules
here enacted as “a statement of the chief judicial rulings on the subject of the sale of goodwill, narrowed to the
particular application where a partner sells, or is deemed to sell, his share of the goodwill to his fellow
partners”.84
[s 36.1] GOODWILL
The nature and incidents of goodwill are discussed in the notes to section 14, and the rights arising on
dissolution under section 55.
[s 36.2] GOODWILL IN CONNECTION WITH USE OF THE FIRM NAME
Since reputation attaches to the business name, the right to continue the use of partnership name is of great
importance.85 This right may be acquired separately from the goodwill in general. Subject to the questions
which arise when that name includes in it the names or all or some of the former partners, this right is governed
by principles similar to those applicable to the goodwill.86 The right of an outgoing partner not to be exposed to
risk by having his name continued in a business must not be ignored and where his name is part of the name of
the firm, he would, in absence of an agreement to the contrary, be entitled to restrain his late co-partners from
using the old name and thereby continually exposing him to risk. Such right is, however, purely personal and
does not devolve either on his executors or on his trustee in bankruptcy, for they would not be exposed to
risk.87 Further, section 36(1) allows a contract to the contrary.88
[s 36.3] RIGHTS AND DUTIES OF VENDOR AND PURCHASER OF GOODWILL

Where the goodwill of a business, whether carried on in partnership or not, is sold, the rights and duties of the
vendor and purchaser are determined by the following rules, in the absence of any special agreement excluding
or varying their effect:
(a) The purchaser alone may represent himself as continuing or succeeding to the business of the
vendor.89
(b) The vendor may, nevertheless, carry on a similar business in competition with the purchaser, but not
under the name of the former firm, or so as to represent himself as continuing or succeeding to the
same business.90
(c) The vendor may publicly advertise his business, but may not canvass the customers of the former
firm,91 even if they on their own, choose to continue to deal with him;92 and he must not use the name
of the old firm so as to represent that he is continuing, not merely a similar business, but the same
business: “You are not to say, I am the owner of that which I sold”.93 Probably the purchasers of the
business might successfully object even to his carrying on a competing business in his own name
alone, if that name had been used as the name of the late firm and had become part of its goodwill.94
This extends to a vendor’s executor carrying out a contract for the sale of goodwill.95 It does not matter
that the executor has no discretion as to selling.
(d) The sale carries the exclusive right to use the name of the former firm,96 subject to this qualification,
that the purchaser may use the vendor’s name only “so long and so far as he does not by so doing
expose him to any liability”;97 whether there is any substantial risk is a question of fact.98 It also carries
the benefit of any covenant by a partner not to carry on a competing business for a fixed term.99 The
purchaser has the right to trade as the vendor’s successor, but not to hold out the vendor as still in the
business and personally answerable.100
A purchaser of “assets” without any restrictive terms, or a partner retaining the “assets” on dissolution, is
entitled to the goodwill, with its incidental rights.101 The effect of special terms, if any, must be considered in
each case as they occur.102
Illustrations
(a) A, B and C have carried on business in partnership under the firm name of A & Co. A retires from the
firm on the terms that the other partners purchase his interest in the business and goodwill, and D is
taken in as a new partner. B, C and D continue the business under the firm of “B, C and D, late A &
Co.” A may set up a similar business of his own next door to them, but not under the firm name of A &
Co.103
(b) One of several persons carrying on business in partnership having died, the affairs of the partnership
are wound up by the court, and a sale of the partnership assets, including the goodwill, is directed. The
goodwill must not be valued on the supposition that any surviving partner, if he does not himself
become the purchaser, can be restrained from setting up the same kind of business on his own
account,104 for “no Court can prevent the late partners from engaging in the same business, and
therefore the sale cannot proceed upon the same principles as if a Court could prevent their so
engaging”.105
[s 36.4] AGREEMENTS IN RESTRAINT OF TRADE— SUB-SECTION (2)
The second and third exceptions to section 27 of the Contract Act, 1872 are superseded by this section and are
accordingly repealed by section 73 below. As to agreements in restraint of competition after dissolution of the
firm, sections 54 and 55 below can be referred to.106
Where a particular restriction exceeds reasonable limits, it will be void unless, as a matter of construction, that
part of the restriction, which is reasonable, can be severed from the remainder. Such severance is only
available if it is possible to apply, the so-called “blue pencil” test, ie, that the offending part can be expunged
without altering the sense of the provision, and without changing the remaining part thereof.107 If particular
restrictions are interdependent, upon any one part being found invalid, the remainder may suffer a like fate.108
In deciding whether an excessive restriction is severable as to the excess, the court will have regard to the
severability not only of the restriction itself, but also of the consideration given for.109
The onus to prove reasonableness of the restrictions is on the party which pleads that they are reasonable. The
condition in an agreement that the outgoing partner would not carry on the same kind of business in the
adjoining premises was reasonable and binding on the transferees of the retiring partner and can be enforced
against them.110
84 In the following sentence of the note, 57 is a misprint for 37.

85 Maxim’s Ltd v Dye, (1977) 1 WLR 1155.
87 Sections 28 and 34 to be referred to.
88 Pranab Modak v Tapas Modak, 2018 SCC OnLine Cal 4252 [Though this case refers to section 36(1), it is more closer
to section 55(1) as it concerns use of shop name by one of the partners after dissolution of partnership upon death of
one of the partners.]
89 Churton v Douglas, (1859) Johns 174, 70 ER 385 : 123 RR 56. However, the vendor’s wife, having separate estate,
cannot be restrained from carrying on a competing business on her own account and in her own name; Smith v
Hancock, [1894] 3 Ch 377 (CA), dissenting Kay LJ.
90 Ibid.
91 Trego v Hunt, [1896] AC 7 : 65 LJ Ch 1, where the House of Lords restored the authority of Labouchere v Dawson,
(1872) LR 13 Eg 322, against the Court of Appeal. A partner who has been expelled under a provision in the articles is
not restrained from carrying on, the same business on his own account, or soliciting customers of the old firm, Dawson
v Beeson, (1882), 22 Ch D 504. Similarly a bankrupt as in Walker v Mottram, (1881) 19 Ch D 355 and a debtor who has
assigned his business and goodwill for the benefit of creditors, Farey v Cooper, [1927] 2 KB 384 are not vendors for the
purpose of the rule.
92 Curl Bros v Webster, [1904] 1 Ch 685.
93 Churton v Douglas, (1859) Johns 174, p 193 : 70 ER 385 : 123 RR 67.
94 Ibid. As to the right to the exclusive use of a trade name, see notes to section 4.
95 Boorne v Wicker, [1927] 1 Ch 667.
96 Levy v Walker, (1879) 10 Ch D 436; Re David and Matthews, [1899] 1 Ch 378.
97 Thynne v Shove, (1890) 45 Ch D 577, p 582.
98 Burchell v Wilde, [1900] 1 Ch 551; Townsend v Jarman, [1900] 2 Ch 698.
99 Townsend v Jarman, [1900] 2 Ch 698.
100 Thynne v Shove, (1890) 45 Ch D 580 ; Churton v Douglas, (1859) Johns 174, p 190 : 70 ER 385, p 391.
101 Jennings v Jennings, [1898] 1 Ch 378.
102 Pearson v Pearson, (1884) 27 Ch D 145, not overruled on this point.
103 Churton v Douglas, (1859) Johns 174 : 70 ER 385.
104 Hall v Barrows, (1863) 4 DJ & section 159, 46 ER 877 : 146 RR 254.
105 Lord Eldon’s decree in Cook v Collingridge, (1825) 27 Beav 456 : 54 ER 180 : 23 RR 767. See, on the position of a
purchaser of goodwill and the principles of valuation, per Romer J Re David and Matthews, [1899] 1 Ch 378.
106 FL Smidth Pvt Ltd v Secan Invescast (India) Pvt Ltd, 2013 SCC OnLine Mad 389 : 2013 (1) CTC 886 [The Act makes
provisions, sections 36(2), 55(3), for enabling partners to impose convenants of restraint of trade in certain cases.]
107 T Lucas & Co v Mitchell, [1974] Ch 129; Macfarlane v Kent, (1965) 1 WLR 1019; Scourer v Seymour Jones, (1966) 1
WLR 1419.
108 Amoco Australia Pty Ltd v Rocca Bros Motor Engg Co, [1975] AC 561.
109 Putsman v Taylor, [1927] 1 KB 241 .
110 Hukmi Chand v Jaipur Ice & Oil Mills, AIR 1980 Raj 155, p 165; Sohanlal v Aminchand & Sons, AIR 1973 SC 2572.
End of Document
[s 37] Right of outgoing partner in certain cases to share subsequent

profits.—
[s 37] Right of outgoing partner in certain cases to share subsequent

profits.—
Where any member of a firm has died or otherwise ceased to be a partner, and the surviving or continuing
partners carry on the business of the firm with the property of the firm without any final settlement of accounts
as between them and the outgoing partner or his estate, then, in the absence of a contract to the contrary, the
outgoing partner or his estate is entitled at the option of himself or his representatives to such share of the
profits made since he ceased to be a partner as may be attributable to the use of his share of the property of
the firm or to interest at the rate of six per cent. per annum on the amount of his share in the property of the
firm:
Provided that where by contract between the partners an option is given to surviving or continuing partners to
purchase the interest of a deceased or outgoing partner, and that option is duly exercised, the estate of the
deceased partner, or the outgoing partner or his estate, as the case may be, is not entitled to any further or
other share of profits; but if any partner assuming to act in exercise of the option does not in all material
respects comply with the terms thereof, he is liable to account under the foregoing provisions of this section.
[s 37.1] RIGHT OF OUTGOING PARTNER TO SHARE SUBSEQUENT PROFITS
Section 37 deals with rights of outgoing partners.111 The section lays down the substantive law relating to the
liability of a surviving partner who without a settlement of accounts with the legal representatives of the
deceased partner utilises the assets of the partnership for continuing the business.112
Although the principle applicable to such cases is clear but at times some complicated questions arise when
disputes are raised between the outgoing partner or his estate on the one hand and the continuing or suviving
partners on the other in respect of subsequent business. Such disputes are to be resolved keeping in view the
facts of each case having due regard to section 37113. Where the arbitrator had granted interest at the rate of
nine percent, the Supreme Court directed that the same would be reduced to six percent in view of section
37.114
This section is all but identical with section 42 of the English Act; the variations consist in the Indian rate of
interest being named instead of the English five percent, and the omission of three unnecessary words (reading
“such share...as may be attributable,” not “as the court may find to be”). The law, as stated in this section,
prevailed in India even before this enactment,115 and section 42 of the UK Partnership Act, 1890, only gave
effect to what was the law then existing in England. This section is only a particular application of the general
equitable principle that a person, in a fiduciary position, must account to the beneficiary for profits made by him.
The general principle has been enacted in sections 88, 90 and 95 of the Trusts Act, 1882. Illustration (f ) to
section 88 of that Act is as follows:
A and B are partners. A dies. B, instead of winding-up the affairs of the partnership, retains all the assets in the
[s 37] Right of outgoing partner in certain cases to share subsequent profits.—
business. B must account to A’s legal representative for the profits arising from A’s share of the capital.
The principle of this section is applicable even when only part of the retiring partner’s assets is utilised by the
surviving partners.116 The section lays down the substantive law relating to the liability of a surviving partner
who without a settlement of accounts with the legal representatives of the deceased partner utilises the assets
of the partnership for continuing the business on his own.117 In taking an account of the profits, the surviving
partners will be entitled to be credited with a sum sufficient to recompense them for the skill and labour
employed in the conduct of the business after dissolution; and it will be open to them to prove that any portion
of the profits was obtained not by reason of the use of the partnership assets, but in some other manner.118 If
the business is sought to be continued by only one of the remaining partners it is held that he cannot claim the
benefit of section 37.119
In Barclays Bank Trust Co Ltd v Bluff,120 the partnership between a father and son as farmers was dissolved by
the death of the father. There was, however, a substantial delay in winding up the affairs of the firm. During this
period of delay, the son carried on the farming business and the value of the firm appreciated considerably. It
was held that the executor was entitled, at his option, to interest at the rate of five percent, as prescribed in the
corresponding provision of the English Act contained in section 42(1), on the father’s share of the partnership
assets or to a share of the profits accruing in the ordinary course of carrying on the business since the date of
death, i.e., profits arising from the use of the farm land and buildings, not including any capital profits which
might be realised on a sale of the land and buildings. It was held that the estate’s entitlement would not be
affected by any election to take interest, as opposed to share of profits under section 42.
Not only the substance, but the terms of the English Act being here enacted for India, all the illustrations and
comments which follow are taken, with minor alterations, from Pollock on Partnership.121 Some of the examples
may not exactly fit Indian habits or circumstances, but even these may be useful by way of analogy.
Illustrations to the First Paragraph
(a) A, B and C are partners in a manufacture of machinery. A is entitled to three-eighths of the partnership
property and profits. A becomes bankrupt whereas B and C continue the business without paying out
A’s share of the partnership assets or settling accounts with his estate. A’s estate is entitled to three-
eighths of the profits made in the business, from the date of his bankruptcy until the final liquidation of
the partnership affairs.122
(b) A and B are partners. The partnership is dissolved by consent, and it is agreed that the assets and
business of the firm shall be sold by auction. A, nevertheless, continues to carry on the business on the
partnership premises with the partnership property and capital, upon his own account. He must
account to B for the profits thus made.123
(c) A and B trade in partnership as merchants. A dies, and B continues the business with A’s capital. B
must account to A’s estate for the profits made since A’s death, but the court will make such allowance
in B’s favour as it thinks just for his skill and trouble in managing the business.124
(d) A, B and C are merchants trading in partnership under articles which provide that, upon the death of
any partner, the goodwill of the business shall belong exclusively to the survivors. A dies, and B and C
pay on account for interest to his legatees, upon the estimated value of his share at the time of his
death, but do not pay out the capital amount thereof. The firm afterwards makes large profits, but the
nature of the business and the circumstances at the time of A’s death were such that at that time any
attempt to realise the assets of the firm or the amount of A’s share would have been highly imprudent,
and would have endangered the solvency of the firm, so that A’s share in the partnership assets, if
then ascertained by a forced winding-up would have been of no value whatever. Under these
circumstances the profits made in the business after A’s death are chiefly attributable, not to A’s share
of capital, but to the goodwill and reputation of the business and the skill of the surviving partners and
A’s legatees have no claim to participate in such profits to any greater extent than the amounts already
paid or accounted for to them in respect of interest on the estimate value of A’s share.125
(e) The facts are, as in the last illustration, except that the articles do not provide that the goodwill shall
belong to surviving partners. The deceased partner’s estate is entitled to share in the profits made
since his death and attributable to goodwill in a proportion corresponding to his interest in the value of
the goodwill itself as a partnership asset. The evidence of experts in the particular business will be
admitted if necessary, to ascertain how much of the profits was attributable to goodwill.126
(f) A and B are partners, sharing profits equally, in a business in which A finds the capital and B the skill.
B dies before there has been time for his skill in the business to create goodwill of appreciable value
for the firm. A continues the business of the firm with the assistance of other skilled persons. B’s estate
is probably not entitled to any share of the profits made after A’s death.127
(g) The other facts being as in the last illustration, B, dies after his skill in the business has created a
connection and goodwill for the firm. B’s estate is probably entitled to a share of the profits made after
B’s death.128
Illustrations to the Proviso
(a) A, B and C are partners. C after selling his share in the partnership firm. A and B fail to pay the value of
the share to C as agreed to. The value of the share of C on the date of his retirement from the firm
would be pure debt from the date on which he ceased to be a partner as per the agreement entered
between the parties. C is entitled to recover the same with interest.129
(b) A, B and C are partners, under articles which provide that on A’s death B and C, or the survivor of
them, may continue the business in partnership with A’s representatives or nominees, taking at the
same time an increased share in the profits; and that, in that case, B and C or the survivor of them
shall enter into new articles of partnership, pay out in a specified manner the value of the part of A’s
interest taken over, and give certain securities to A’s representatives. B dies and soon after so does A.
C carries on the business without pursuing the provisions of the articles as to entering into new articles,
or paying out the value of the part of A’s interest which he is entitled to acquire, or giving security. C
must account to A’s estate for subsequent profits.130
(c) A, B and C are partners under articles which provide that in case of the death of any partner the value
of his share shall be ascertained as therein provided, with an allowance in lieu of profits at the rate of
five percent per annum upon his share of the capital, and that the moneys found to be due to his
executors shall be taken in full for the purchase of his share, and shall be paid out in a certain manner
by installments extending over two years. A dies. B and C ascertain the amount of his share, and pay
interest thereon to his representatives, but acting in good faith for the benefit of the persons interested,
they do not pay out the capital within two years. This delay in making the complete payment is not a
material non-compliance with the terms of the option of purchase, and B and C cannot be called upon
to account to A’s estate for profits subsequent to A’s death.131
(d) Where, as in such a case as this proviso contemplates, the partnership contract provided for
indemnifying a deceased partner’s estate against liabilities of the firm, the executors are not entitled to
call on the firm to pay off liabilities (eg, an overdraft) for which there has been no demand.132 If there is
no agreement as stated in the proviso to the section and a continuing partner takes the share of the
deceased partner at an undervalue, the representative of the deceased partner cannot compel him to
retain it at a proper valuation. His proper remedy is to have the account settled on principles enacted in
this section.133
[s 37.2] CLAIMS AGAINST SURVIVING OR CONTINUING PARTNERS AS EXECUTORS OR TRUSTEES
Several of the cases cited in these illustrations have been simplified in the statement. It often happens that a
partner in a firm disposing of his interest in it by will, and not desiring the affairs of the firm to be exposed to the
interference of strangers, makes his fellow partners or some of them his executors or trustees, or includes one
or more of them among the persons appointed to those offices. If, having done this he dies while the
partnership is subsisting, there may arise at the same time, and either wholly or in part in the same persons,
two kinds of duties in respect of the testator’s interest which are in many ways alike in their nature and
incidents, but must be nevertheless kept distinct. There is the duty of the surviving partners, as partners,
towards the deceased partner’s estate, which has just been dealt with. There is also the duty of the same
persons, or some of them, as executors or trustees towards the persons beneficially interested in that estate;
and this is determined by principles which are really independent of the law of partnership.
[s 37.3] CLAIMS DISTINGUISHED BY FURTHER ILLUSTRATIONS
The nature of these complications and the distinctions to be observed may be exhibited by some further
illustrations:
(a) A and B are partners. A dies, having appointed B as his sole executor, and B carries on the trade with
A’s capital. Here B is answerable to A’s estate, as partner, and A’s executor, if he were a person other
than B himself, would be the proper person to enforce that liability. B is also answerable, as executor,
to the persons beneficially interested in A’s estate for the improper employment of his testator’s assets.
(b) A, a trader, appoints B as his executor and dies. B enters into partnership with C and D in the same
trade, and employs the testator’s assets in the partnership business. B gives an indemnity to C and D
against the claim of A’s residuary legatees. Here C and D are jointly liable with B to A’s residuary
legatees, not as partners, but as having knowingly made themselves parties to the breach of trust
committed by B.134
(c) A, being in partnership with B and C, appoints B his executor and dies. B and C continue to employ A’s
capital in the business. B is liable, as executor, to account for the profits received by himself from the
use of A’s capital, but not for the whole profits received therefrom by the firm.135 It is not certain to what
extent B would be liable if B and C were sued together.136
(d) A and B are partners in trade. A dies, having appointed C and D his executors and authorised them to
continue his capital in the trade for a limited time. On the expiration of that time, C and D do not
withdraw their testator’s capital, but leave it as a loan to the firm; B and E, the then members of the
firm, knowing the limit of the authority given by A’s will, and knowing the fund to belong to A’s estate. B
and E are not liable to render, to the persons interested under A’s will, an account of profits since the
time when A’s capital ought to have been finally withdrawn, inasmuch as C and D themselves are
liable to A’s legatees only to make good the amount of the capital with interest.137
(e) If the other facts are as in the last illustration, but B, one of A’s executors, is himself a member of the
firm; C and D, the other executors, are still not accountable for any share of profits.138 B cannot be
charged, as executor, with a greater share of profits in respect of his testator’s capital than he has
actually received139 and it is doubtful whether he can be charged with profits at all.
(f) A, B and C are partners in a bank which is carried on upon the known private credit of the partners,
and with little or no capital. A dies, having appointed C and D as his executors. At the time of A’s
death, the debt to the bank on his private account exceeds his share in the assets. B and C take D into
partnership, and continue the business without paying out A’s share. C and D are not accountable as
executors for any share of the profits since A’s death, as A really left no capital in the business to which
such profits could be attributed, and D entered the partnership and shared the profits, not as executor
but on his own private account. In like manner, B, C and D are, probably not accountable to A’s estate
as partners.140
[s 37.4] CLAIMS MUST BE DISTINCT AND AGAINST PROPER PARTIES IN PROPER CAPACITY
In these “mixed and difficult” cases, as Lord Lindley calls them,141 it is important for persons seeking to assert
their right to an account of profits to make up their minds distinctly in what capacity and on the basis of what
duty they will charge the surviving partners, or any of them. If they proceed against executors as such for what
is really a partnership liability, if any, and without bringing all the members of the firm before the court, failure
will result.142 In a single case where one surviving partner out of several was held solely liable for the profits
made by the employment of a deceased partner’s capital by the firm there was, in fact, only a sub-partnership
between this survivor and the deceased, and it was, therefore, held that the other members of the principal firm
were under no duty to the estate of one who was not their partner at all, and were not necessary or proper
parties to be sued.143
[s 37.5] CLAIMS MUST BE FOR PROFITS ALONE, OR FOR INTEREST ALONE
Again, the right where it exists, is an alternative right to interest on the capital improperly retained in the
business or to an account of the profits made of its use; and one or other of these alternatives must be distinctly
chosen. A double claim for both profits and interest is, of course, inadmissible, and it has been laid down that a
mixed claim is equally so. “If relief can be obtained on the footing of an account of profits, it must be an account
of profits and nothing else;” a claim for profits as to part of the time over which the dealing extends, and interest
as to the other part, or for profits against some or one of the surviving partners, and interest against others,
cannot be allowed.144 Where the arbitrator awarded interest at nine percent instead of six percent, the Supreme
Court held that it was an error apparent on the face of the award and corrected the same.145
The election between demanding a share of the profits or interest may be exercised after accounts have been
taken.146
[s 37.6] SETTLEMENT OF ACCOUNTS
The right of a partner during the subsistence of the partnership is to get his share of profits from time to time as
may be agreed upon among the partners and after the dissolution of the partnership or with his retirement from
partnership, of the value of his share in the net partnership assets as on the date of dissolution or retirement
after a deduction of liabilities and prior charges.147 The share of the partner at the time of dissolution is nothing
but a monetary value of sum of profits of his share in the partnership property148 including goodwill.149
A partner can get his share in the properties of the partnership only after the assets have been converted into
money, and that too after the debts and liabilities have been paid and discharged. It is after the discharge that
the residue is liable to be partitioned. Sections 46, 48 and 49 enjoin this process being gone through before a
partner can get his share in the assets of a partnership. The interest of a partner in the partnership is not an
interest in a specific item of the partnership property. A partner has a right only to get his share of profits during
the period that a partnership subsists and on its dissolution to get the value of his share in the assets of the
partnership firm. The law in regard to dissolution of partnership would equally apply in the case of retirement.
There is no difference in principle on the basis of which the position of a partner may be different in case of his
retirement. He stands in the same position qua the properties of partnership when he is retiring from the firm as
his position becomes on dissolution.150
For a retiring partner to seek relief of recovery of his share in the property, it must be preceded by prayer for
rendition of accounts.151 Without seeking the relief of rendition of accounts, no suit for recovery of any sum can
be filed by an outgoing partner against the surviving partners.152
In the case of a retiring or an outgoing partner that where there is an agreement between the outgoing partner
or a retiring partner or his legal representatives, as the case may be, and the surviving partners, the value of his
share shall be ascertained on the date of retirement unless the Court directs that the relevant date for
ascertainment of the value shall be the date on which the share is actually valued.153
[s 37.7] ACCOUNT OF PROFITS AFTER DISSOLUTION USELESS IN PRACTICE
It is a question, however, whether success in asserting claims of this kind is not, in practice, little more
profitable than failure; for an account of profits after dissolution has seldom, or never, been known to produce
any real benefit to the parties who obtained it.154
111 Rajalakshmi v Sarojini, 2010 SCC OnLine Mad 6080 : 2011 (1) CTC 546.
112 See PM Medappa v Kotera A Somanna, 2006 SCC OnLine Kar 864, para 42. This case applies the second part of the
proviso to section 37 (see pr. 46); Saroj Arora v Mohinder Pal, 2015 SCC OnLine Del 9220 .
113 Pamuru Vishnu Vinodh Reddy v Chillakuru Chandrasekhara Reddy, (2003) 3 SCC 445, p 452.
114 Nirmalabai Narayan Datar v Girijabai Gangadhar Gadre, (1984) Supp SCC 590.
115 Bhugwandas v Rivett-Carnac, (1898) LR 26 IA 32 : 23 Bom 544; Ahmed Musaji Saleji v Hashim Ebrahim Saleji, (1915)
LR 42 IA 91 : 42 Cal 914 : 28 IC 710; Ramakrishna Ayyar v Muthusami Ayyar (1928) 52 Mad 672 : 121 T&C 609 : AIR
1929 Mad 456; Lachmi Narain v Beni Ram, (1931) 53 All 479 : 130 IC 704 : AIR 1931 All 327; Udhavji Anandji Ladha v
Bapudas Ramdas Darbar, AIR 1950 Bom 94.
116 Bhugwandas v Rivett-Carnac, (1898) LR 26 IA 32 : 23 Bom 544, p 550; Ramakrishna Ayyar v Muthusami Ayyar, (1928)
52 Mad 672 : 121 IC 609 : AIR 1929 Mad 456.
117 Laxmidas Dayabhai Kabrawala Nanabhai Chunilal Kabrawala, AIR 1964 SC 11; Mohanasundaram v Neelambal, AIR
1955 Mad 442; Bhawarlal v Mathuraprasad, AIR 1962 MP 141; Khuttuva S Thulasi Ammal v RMK Ramachandra
Naidu, AIR 1955 Mad 171; Rajendra Bajoria v Sudhir Jalan, 2017 SCC OnLine Cal 13306 : 2018 (3) CHN (CAL) 289 :
(2018) 2 WBLR (Cal) 235 [On facts, held, in view of “agreement to the contrary” the legal representatives under the
partnership deed have no right to the assets of the firm and thus section 37 would not apply.]
118 Ramakrishna Ayyar v Muthusami Ayyar, (1928) 52 Mad 672 : 121 IC 909 : AIR 1929 Mad 456. For a form of order,
Manley v Sartori, [1927] 1 Ch 157, pp 166, 167.
119 MC Sharma v BC Sharma, AIR 1986 All 69, p 70.
120 [1982] Ch 172; Quaere, would the position have been different if the farm land and buildings had been a trading stock,
Ibid, p 183; Gordon v Gonda, (1955) 1 WLR 885; Sobellv Boston, (1975) 1 WLR 1987 and Robert Watte Pathirana v
Ariya Pathirana, [1967] 1 AC 233 (PC).
122 Crawshay v Collins, (1826) 2 Russ 325, pp 342–45, 347 : 38 ER 358 : 26 RR 83.
123 Turner v Major, (1862) 3 Giff 442 : 66 ER 483 : 133 RR 162.
124 Brown v De Tastet, (1821) Jac 284, p 299 : 37 ER 858 : 23 RR 59; see also Yates v Finn, (1880) 13 Ch D 839 : 49 LJ
Ch 188.
125 Wedderburn v Wedderburn, (1856) 22 Beav 84, p 123 : 52 ER 1039 : 111 RR 267, pp 290, 291.
126 Wedderburn v Wedderburn, 22 Beav 104, pp 112, 122 : 52 ER 1047 : 111 RR 278, pp 283 : 290 (1855–6).
127 These last two cases are given by VC, Wigram, in his judgment in Willett v Blanford, (1841) 1 Ha 271 : 66 ER 1034 : 58
RR 74, p 75.
128 Ibid.
129 Pamuru Vishnu Vinodh Reddy v Chillakuru Chandrasekhara Reddy, (2003) 3 SCC 445.
130 Willett v Blanford, (1841) 1 Ha 253, p 264 : 66 ER 1027 : 58 RR 61, p 69.
131 Vysev Foster, (1874) LR 7 HL 318 : 44 LJ Ch 37.
132 Bradford v Gammon, [1925] 1 Ch 132 : 94 LJ Ch 193.
133 Sivagnanathammal v Nallaperumal, (1934) 67 Mad LJ 880 : 155 IC 783 : AIR 1935 Mad 165.
134 Flockton v Bunning, (1868) LR 8 Ch 323n.
135 Per Lord Cairns in Vyse v Foster, (1874) LR 7 HL, p 334.
136 Stroud v Gwyer, (1860) 28 Beav 130 : 54 ER 315 : 126 RR 57.
137 Stroud v Gwyer, (1860) 28 Beav 130 : 54 ER 315 : 126 RR 57.
138 Vysev Foster, (1874) LR 7 HL 318 : 44 LJ Ch 37; per Lord Selborne, LR 7 HL 346.
139 Jones v Foxall, (1852) 15 Beav 388 : 51 ER 588 : 92 RR 473; per James LJ in Vyse v Foster (1872) LR 8 Ch 333, p
334.
140 Simpson v Chapman, (1853) 4 DMG 154 : 43 ER 466 : 102 RR 61.
142 Simpson v Chapman, (1853) 4 DMG 154 : 43 ER 466 : 102 RR 61; Vyse v Foster, (1874) LR 7 HL 318 : 44 LJ Ch 37;
Tavis v Milne, (1851) 9 Ha 149 : 68 ER 452 : 89 RR 365.
143 Brown v De Tastet, (1821) Jac 284 : 37 ER 858 : 23 RR 59.
144 Per Lord Cairns in Vyse v Foster, (1874) LR 7 HL 336; Sahul Hamid v Sulthan, (1947) Mad 574 : AIR 1947 Mad 287.
145 Nirmalabai Narain Datar v Girijabai Gangadhar Gadre, AIR 1985 SC 338.
146 Ramakrishna Ayyar v Muthusami Ayyar, (1928) 52 Mad 672 : 121 IC 609 : AIR 1929 Mad 456; Mancha Ram v Tej
Bhau, AIR 1998 Punj 5.
147 Addanki Narayanappa v Bhaskara Krishtappa, (1966) 3 SCR 400 : AIR 1966 SC 1300 : 1966 (2) An WR 60.
148 Bhagwan Dass Khanna Jewellers v Bhagwan Das Khanna Jewellers Pvt Ltd, 2012 SCC OnLine Del 6129 : (2013) 196
DLT 565.
149 Controller of Estate Duty Gujarat-I, Ahmedabad v Mrudula Nareshchandra, 1986 Supp SCC 357 : 1986 SCR (3) 45.
150 Board of Revenue v Auto Sales, Allahabad, AIR 1979 All 312 (FB).
151 Pradeep Arora v Samantha Kochhar, 2016 SCC OnLine Del 6268.
152 Gopala Chetty v Vijayraghavachariar, (1921-22) 49 Indian Appeals 181.
153 K Laxminarayana Reddy v Vardhi Reddy Dasrath Ram Reddy, 2012 SCC OnLine AP 1061 : LNIND 2012 AP 1221.
154 Lindley on Partnership, 15th Edn, p 723, note 52, “...there appears to be no instance in which such a judgment has
been worked out and has resulted beneficially to the person in whose favour it was made.”
End of Document
[s 38] Revocation of continuing guarantee by change in firm.—


A continuing guarantee given to a firm, or to a third party in respect of the transactions of a firm, is, in the
absence of agreement to the contrary, revoked as to future transactions from the date of any change in the
constitution of the firm.
[s 38.1] REVOCATION OF CONTINUING GUARANTEE: CHANGE IN FIRM
This section, except for an improvement in style by verbal condensation of the concluding words, reproduces
section 260 of the Contract Act, 1872 and section 18 of the English Act. The law stated there was by no means
new, as will appear from the authorities cited below.
Mere change in the constitution of the firm operates to revoke the guarantee as to all future transactions.155
Such change may occur by the death, or retirement of a partner, or by introduction of a new partner. In all such
cases, the surety, position and risk are altered, and whether he has in fact been indemnified by the change or
not he has a right to say non haec in foedera veni.156
The “agreement to the contrary” required to displace the effect of this section must be clearly shown. It is not
implied for the mere fact that the guarantee is given to a firm whose name has ceased to describe its existing
members, and is to secure the balance of a current account.157 Such an intention may be apparent from other
circumstances. A bond given to trustees to secure the faithful service of a clerk to an incorporated insurance
society having a large number of members, “some of whom might be changed before the wax on the bond was
cold,” was held enforceable without regard to the identity of the members for the time being, the purpose being
clear and interposition of trustees removing any formal difficulty about parties.158 A case of this kind can hardly
occur in modern practice.
The one Indian decision reported on the former equivalent section is in a plain case. A becomes surety to the
firm of “NC Mookerji” for B’s conduct as cashier to the firm. The constitution of the firm is subsequently
changed, and its name is altered to N Mookerji & Son. A is not liable for B’s defections subsequent to the
change.159 For the rules as to continuing guarantees in general, Contract Act, sections 129–131 can be referred
to.160
155 CIT V Figgies & Co, AIR 1953 SC 455.

157 Backhouse v Hall, (1865) 6 B & section 507 : 141 RR 495.
158 Metcalf v Bruin, (1810) 12 East 400 : 11 RR 432.

159 Neel Comul Mookerjee v Biproo Das Mookerjee, (1901) 28 Cal 597.
160 Pollock and Mulla, The Contract Act, 9th Edn, pp 618–22.
End of Document
Chapter 6 Dissolution of a Firm

Act, 8th ed > The Indian Partnership Act, 1932 > Chapter 6 Dissolution of a Firm
CHAPTER 6 Dissolution of a Firm

PRELIMINARY NOTE
Very little is found on the subject of dissolution of firm in the Contract Act. There are rules now, mainly following
those laid down in the English Act, for dissolution by consent (section 40), by operation of law (section 41),
automatically (section 42), optionally (section 43), and judicially (section 44), and the consequent winding up of the
firm’s affairs and settlement of accounts. The rules, for the most part long settled in English practice, are clearly
stated. Difficulties in applying them arise from the frequent complexity of the facts, especially when the obligations
of a partner are conjoined with fiduciary duties of other kinds, as often happens in England at any rate. Further, the
relevant facts may be made difficult to ascertain due to lax and careless conduct of the business. For such
complications, there is no legislative or judicial remedy. Any attempt to formulate special rules of evidence or
presumptions would do more harm than good.
The Parliament has enacted the Insolvency and Bankruptcy Code, 2016 consolidating and amending the laws
relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time
bound manner for maximisation of value of assets of such persons. Part III of the Code deals with insolvency
resolution and bankruptcy for individuals and partnership. Section 1(3) of the Code provides that the provisions of
this Code shall come into force on such dates as the Central Government may, by notification, in the Official
Gazette appoint. It further permits the Central Government to appoint different dates for different provisions. So far
as Part III is concerned, the same not been notified as yet by the Central Government under section 1(3) of the
Code. The Code seeks to amend the Partnership Act.1
1 Swiss Ribbons Pvt Ltd v UOI, 2019 SCC OnLine SC 73.
End of Document
[s 39] Dissolution of a firm.—


The dissolution of partnership between all the partners of a firm is called the ‘dissolution of the firm’.
[s 39.1] DISSOLUTION OF FIRM
Only a partner can seek dissolution of the firm.2 A firm is not said to be dissolved by the fact of one or more
members ceasing to be partners in it while others remain, but only when all and every one of the members of
the firm cease to carry on its business in partnership. The Supreme Court has held in Erach FD Mehta v Mintoo
FD Mehta, (1970) 2 SCC 724, that when the partnership consists of only two partners, retirement of one partner
leads to the dissolution of the firm.3 However, where there are more than two partners, the relinquishment of his
right by one of the partners in favour of another does not dissolve the firm.4 The law with respect to retiring
partners as enacted in the Partnership Act, 1932 is, to a certain extent, a compromise between the strict
doctrine of English Common Law which refuses to see anything in the firm name but a collective name for
individuals carrying on business in partnership and the mercantile usage which recognises the firm as a distinct
person or quasi corporation.5 The provisions of sections 39, 42 and 46 deal with the concept and consequences
of dissolution of the firm and do not abrogate the terms of the contract between the partners relating to the
consequences to ensue, in the event of the death of a partner, when the firm is not to stand dissolved by such
death, nor to the right which the partner has in the assets and property of the firm.6 It will be noticed from the
arrangement of ch VI that matters pertaining not only to the fact of dissolution and fixing the date thereof but
also matters arising out of the fact of dissolution which pertain to the winding up of the partnership, settlement
of accounts, taking over of the goodwill and assets of the partnership, restrictions on the outgoing partners
carrying on business in the case of transfer of goodwill to one of them, are all matters dealt with under the
subject “dissolution of a firm”. However, for dissolution, the question of winding up and making other provisions
consequent to it would not arise. A deed of dissolution must necessarily cover other matters which arise directly
out of dissolution, such as settlement of accounts, payment of amounts found due on such settlement, closing
down or continuation of business collection of outstanding and payment of liabilities. Notwithstanding such
clauses in a deed of dissolution, it would be liable to payment of stamp duty under Article 47, sch I of the
Bombay Stamp Act,1958 and would not be subject to separate duty on such matters.7
[s 39.1.1] Dissolution and Reconstitution
Reconstitution means a continuation under altered circumstances. There can be dissolution followed by the
constitution of a new firm by some of the erstwhile partners.8 Reconstitution implies that the firm never became
extinct. It is only a structural alteration of the membership.
The principle is well settled that it is on an examination of relevant documents and relevant facts and
circumstances that the court has to be satisfied in each case as to whether there has been a succession or a
mere change in the constitution of the partnership. It cannot be disputed that “dissolution” and “reconstitution”
are two distinct legal concepts,9 for, a dissolution brings the partnership to an end, while a reconstitution means
the continuation of the partnership under altered circumstances but in law there would be no difficulty in a
dissolution of a firm being followed by the constitution of a new firm by some of the erstwhile partners who may
take over the assets and liabilities of the dissolved firm. It is quite conceivable that in cases of dissolution of the
firm brought about by a notice under section 43 or by an order of the court under section 44 some of the
erstwhile partners may take over the assets and liabilities and carry on the same business by constituting a new
firm and even such cases would be cases of succession to the old business. The question whether there has
been a dissolution of the firm and upon such dissolution a new firm has succeeded to the business of the old
firm, is a question which depends upon the intention of the parties to be gathered from the document or
documents, if any, executed by and between the partners and other facts and surrounding circumstances of the
case.10
If a new firm is formed by agreement between some of the former partners, it will nonetheless be new, however
closely that agreement may follow on the dissolution of the old firm. Whether a new firm is formed or not is a
question of fact.11 The fact and date of the dissolution may, of course, be disputable in particular circumstances.
The distinction between dissolution, succession and re-constitution has been discussed by the Madras High
Court in Chandrasekharan v Kumaresan, (2000) 3 Mad LJ 475.
[s 39.1.2] Dissolution or Continuation of Partnership
Mere cessation of the trading activity does not automatically result in dissolution of a partnership firm leaving
behind no rights and liabilities unless it was dissolved and accounts settled.12 Mere discontinuation of the
business is distinct and different from a dissolution of the partnership firm.13 A dissolution does not necessarily
follow because the partnership has ceased to do business, for the partnership may continue for the purpose of
realising the assets.14 In the law of partnership, stoppage of the partnership business is one thing; dissolution of
partnership is quite another. Even after dissolution, the business may be carried on, if only for the purpose of
the mere beneficial winding up of the affairs of the partnership. Where a partner sent notices through lawyer to
other partners, intimating that the partnership business was stopped it was held that such notices could not be
construed as notice for dissolution of partnership. However, words “intimating the dissolution of partnership...”
in telegrams issued to other partners were regarded as sufficient notices of dissolution holding that telegrams
must be construed liberally, supplying requisite words to make sense.15
A single judge dealt with the interaction of section 39 and O XXIII, rule 1(3) of the Code of Civil Procedure
1908.
The cause of action for accounting, it is observed, is not a recurring cause of action; once a partner files a suit
seeking accounting from other partners and the suit is withdrawn, no fresh suit could be instituted. The view
does not appear to be inconsistent with principles.16
2 Hemant Kumar Jalan v Rajendra Bajoria, 2018 SCC OnLine Cal 6331 : LNIND 2018 CAL 7231.
3 (1970) 2 SCC 724; See also, G Sathyan v B Vasudevan, 2016 SCC OnLine Mad 9905 : (2017) 1 CTC 553 : (2017) 1
Mad LJ 161; Prakash Chand v Bhanwar Lal, 2009 SCC OnLine Raj 5415 : (2009) 4 RLW 3419 : 2010 AIHC (NOC 324)
98 : (2009) 5 WLC 633.
5 CIT, West Bengal v AW Figgis & Co, AIR 1953 SC 455.
6 Khushal Khemgar Shah v Khorshed Banu Dadiba, AIR 1970 SC 1147, p 1148.
7 Santdas Moolchand Jhangiani v Sheodayal Gurudasmal Massand, AIR 1971 Bom 237 (DB).
8 Sharad Vasant Kotak v Ramniklal Mohanlal Chowda, (1998) 2 SCC 171; affirming the decision of the Madras High
Court in Tyresoles India v CIT, Coimbatore, [1963] 49 ITR 515 (Mad).
9 Niranjan Sarkar v South Eastern Coal Field Limited, 2016 SCC OnLine Chh 1827 : AIR 2017 (NOC 141) 55 [Held,
Dissolution puts an end to the partnership, but reconstitution keeps it subsisting, though in another form. Furthermore
reconstitution of a firm a partnership necessarily implies that the firm never became extinct. What it denotes is a
structural alternation of the membership of the firm, by addition or reduction of members, and an incidental
redistribution of the shares of the partners.]
10 CIT v Pigot Champan & Co, (1982) 2 SCC 330, para 9 : AIR 1982 SC 1085.
11 MM Valliammai Achai v KNPLV Ramanathan Chettiar, AIR 1969 Mad 257.
12 KPA Vellayappa Nadar v Bhagirathi Ammal, (1997) 1 SCC 211, para 6.
13 Om Prakash v Mohan Lal Yadram Aadti, 2013 SCC OnLine Raj 2922.
14 Sathappa v Subramaniam, AIR 1927 PC 70 : 53 Mad LJ 245 : 101 IC 17; Palhoomal v Paramanand, AIR 1933 Sind
121 : 143 IC 900; Gundayya v Siddappa, (1937) 173 IC 194 AIR 1937 Mad 599; Gokaldoss v Parry & Co, (1925) 48
Mad 795 : 91 IC 127 : AIR 1925 Mad 1249; Bhawanidas v Jethsing, (1938) 175 IC 214 : AIR 1938 Sind 82; Vazirbhai v
Gadmal, (1940) Bom 505 : 190 IC 420 : AIR 1940 Bom 263. The transfer of a running business does not necessarily
dissolve the partnership, Radha Soami Satsang Sabha v Pawan Electric Refrigerating Co, AIR 1967 All 9. Also see
Elezabeth Philip v Stephen John, 2011 SCC OnLine Mad 520 : 2011 (4) CTC 297.
15 VVP Thangaraju v KV Perumal, AIR 1980 Mad 7, p 9.
16 Budha Prakash Rastogi v Santhosh Pal Dublish, 1998 All LJ 543 : 1969 Mah LJ 577; Kali Ram v Ram Rattan, (1977)
79 Punj LR 162 (Del) : (1965) 69 Cal WN 889.
End of Document
[s 40] Dissolution by agreement.—


A firm may be dissolved with the consent of all the partners or in accordance with a contract between the
partners.
[s 40.1] “CONTRACT BETWEEN THE PARTNERS”
Section 40 gives right to the partners to dissolve the partnership by agreement with the consent of all the
partners or in accordance with the contract between the partners.17 Although this is new in terms, however, it is
a quite familiar law. “Contract between the partners” obviously means a contract already made; the most likely
case is that of a clause in the partnership articles providing for dissolution in certain events,18 as mentioned in
the Special Committee’s note. Any circumstance such as unsoundness of mind, physical incapacity,
incompatibility of temperament, or dishonesty (even outside the business) may, by an express clause, in the
articles, be a ground for dissolution of the partnership without the intervention of the court.19
The principle is well-settled that it is on the examination of relevant documents and relevant facts and
circumstances that the court has to be satisfied in each case as to whether there has been a succession or a
mere change in the constitution of the partnership. It cannot be disputed that “dissolution” and “reconstitution”
are two distinct legal concepts, for, dissolution brings the partnership to an end while a reconstitution means the
continuation of the partnership under altered circumstances. In law, there would be no difficulty in the
dissolution of a firm being followed by the constitution of a new firm by some of the erstwhile partners who may
take over the assets and liabilities of the dissolved firm.20
In cases of express agreement to dissolve the firm between all the partners, barring questions as to its
construction and effect, no problem arises. However, circumstances may also indicate existence of such
agreement and consequential dissolution. It has now been affirmatively decided that the doctrine of repudiation
has the same applicability to partnerships as in the case of other contracts. The repudiation of the partnership
by one or more of the partners which is accepted by the others would indicate an implied agreement to
dissolve.21 Dissolution may also be inferred where the service by a partner or his partners of an invalid notice to
determine the partnership is accepted by the co-partners as a valid notice or where the conduct of the partners
is inconsistent with the continuance of partnership.22 In a case where in a partnership at will, notice of
dissolution was given to the other partner who did not do anything in respect of the notice or partnership
business for about three years after the notice, it was held that failure to do anything amounted to consent for
dissolution.23
A contract between a partner and his co-partners for his remuneration for the management of the partnership
business by a commission on sale during his lifetime does not, in the absence of any express agreement to that
effect, imply a renunciation of the right of the co-partners to dissolve the partnership if they find that it cannot be
carried on except at a loss, nor does it imply an obligation to pay the managing partner compensation in case
the partnership is dissolved for that reason.24 The clause “all disputes and questions whatsoever which may
arise during the partnership or afterwards between the partners touching the partnership agreement including
division of assets, debts or liabilities”, clearly covered a dispute where the parties agreed that the partnership
be dissolved.25
Where the licence to sell liquor in the name of a partnership firm and the dispute as to dissolution of firm arises
between the partners, the civil court has exclusive jurisdiction to decide the dispute. However, after the
determination of the dispute regarding the dissolution of firm, the civil court shall leave it to the Collector to
decide the question of deleting the name of any of the partners from the licence.26
In the case of two partners in a firm, where one agrees to retire, there is dissolution.27 There would also be a
dissolution of the firm in case of death of one partner out of the two partners.28 For the purposes of assessment
under the income tax laws, a dissolution by agreement may, in certain circumstances, be treated as only as a
change in the constitution of the firm.29

18 In addition to a dissolution clause where in a partnership deed reference is made to the Indian Partnership Act,1932,
that where special provision is not made in the deed the provisions of the Act shall apply, it cannot be said that a
partner of the firm is not entitled to ask for dissolution of the firm and that only course open to him is to retire as
provided by another clause in the deed. Sheonarain Jaiswalv Kripa Shankar Jaiswal, AIR 1972 Pat 75.
19 Underhill’s Principles of the Law of Partnership, 11th Edn, p 76; citing Peyton v Mindham, [1971] 3 All ER 1215, clause
in a medical partnership deed providing for dissolution of partnership by a notice of determination should either party be
incapacitated from performing ‘his fair share of the work’ of the practice for more than 9 consecutive months or commit
“any gross or persistent breach of the clauses” ; Carmichael v Evans, [1904] 1 Ch 486. Where a partner was convicted
of travelling without a railway ticket with intent to avoid payment and it was held by the Chancery Division that there
was ample justification for giving notice of expulsion from the partnership to the errand partner in view of the expulsion
clause in the partnership deed. Thus, the Chancery Division refused to grant interlocutory injunction.
20 CIT, West Bengal v Pigot Chapman & Co, AIR 1982 SC 1085, p 1089.
21 Hitchman v Crouch Butlet Savage Associates, (1983) 80 LS Gaz 550; Fulwell v Bragg, (1983) 127 SJ 171.
22 Bothe v Amos, (1976) Fam 46 (partnership between husband and wife).
23 Kali Ram v Ram Rattan, AIR 1977 NOC 31 (Del).
24 Cowauasjee v Lailbhoy, (1876) 1 Bom 468 : LR 3 IA 200; in appeal from (1871) 8 Bom HCOC 209.
25 Erach FD Mehta v Minoo FD Mehta, AIR 1971 SC 1653, p 1655.
26 Shripat C Mahajan v Sanjay Radheshyam Jaisaual, AIR 2002 Bom 211.
27 Erach FD Mehta v Minoo FD Mehta, AIR 1971 SC 1653 : (1970) 2 SCC 724.
28 For further discussion, see below, sub-clause (c) of section 42.
29 CIT v Bharat Steel Rolling Mills, 2009 SCC OnLine All 2069 : (2009) 313 ITR 406 [In this case, partners had, by an
agreement, dissolved the partnership and then, a new partnership by some of the earlier partners and some new
partners was constituted. Accordingly, two returns were filed - one by the earlier partnership firm and other by the new
firm. Issue was whether such change is dissolution of partnership or reconstitution of partnership for the purposes of
Income-tax Act. The Allahabad High Court held that in spite of there being a dissolution of partnership by agreement,
such dissolution will be treated only as a change in the constitution of the firm in view of section 187(2)(a) of the
Income-tax Act, 1961 except where the firm is dissolved due to death of any of its partners. Rel CIT v Ratan Lal Garib
Das, [2003] 261 ITR (All) and CIT v Ram Jas Rat Askaran Das, [19960] 218 ITR (All). Further, disagreed with Gujarat
High Court in CIT v Ketan Chemicals, [2006] 281 ITR 244.
End of Document
[s 41] Compulsory dissolution.—


A firm is dissolved—
(a) 30[***]
(b) by the happening of any event which makes it unlawful for the business of the firm to be carried on or
for the partners to carry it on in partnership:
Provided that, where more than one separate adventure or undertaking is carried on by the firm, the illegality of
one or more shall not of itself cause the dissolution of the firm in respect of its lawful adventures and
undertakings.
[s 41.1] OMMISSION OF SECTION 41(a) UNDER THE INSOLVENCY AND BANKRUPTCY CODE, 2016
The Code seeks to amend the Partnership Act.31 section 245 read with First Schedule of the Code omits clause
(a) of section 41 of the Partnership Act. However, since the said section 245 has not been notified by the
Central Government under section 1(3) of the Code, as of now, clause (a) of section 41 still remains on the
statute book.
[s 41.2] CLAUSE (a)
Clause (a) is new as an express enactment. In substance it is a necessary corollary to section 34, sub-section
(1), under which a partner adjudged insolvent ceases from that date to be a partner. If no partner or only one
partner is left, it is obvious that there can no longer be a firm. As regards insolvency proceedings in a foreign
country, the view appears to be that they would cause dissolution, at any rate if taken in the country in which
the insolvent partner is domiciled.32
[s 41.3] CLAUSE (b)
Clause (b) mentions the business of the firm. Therefore, if a firm is engaged in more than one business which
may have become unlawful, the better view appears to be that the firm will not dissolve as to the other
legitimate businesses unless all of them are so interconnected that stoppage of one would paralyse the others.
Clause (b) is in the same words as section 34 of the English Act, and the illustrations and comments to this
section are taken, with some modification, from Pollock on Partnership.33
Illustrations
(1) There cannot be a partnership firm without there being at least two persons contracting to do business.
Retirement of one of the two partners leads to dissolution of the partnership firm since it will be
unlawful for the firm to carry on business as a partnership firm.34
(2) Death of one of the two partners in the firm would dissolve the firm35 since it is not lawful to have a firm
with a single partner.
(3) A and B charter a ship to go to a foreign port and receive a cargo on their joint venture. War breaks out
between England and the country where the port is situated before the ship arrives at the port, and
continues until after the time appointed for loading.
The partnership between A and B is dissolved.36
(4) A is a partner with ten other persons in a certain business. An Act is passed which makes it unlawful
for more than ten persons to carry on that business in partnership. The partnership is dissolved.
(5) A, an Englishman, and domiciled in England is a partner with B, a domiciled foreigner. War breaks out
between England and the country of B’s domicile. The partnership between A and B is dissolved.37 The
true test is not domicile, but voluntary residence.38
It may be noted that the partners’ knowledge or lack of knowledge of the illegality is irrelevant, for eg, where
there is inadvertent omission of renewal of his practising certificate on the part of member of a firm of
solicitors.39
The doctrine of frustration, however, is not available to a defendant when the non-performance of a contract is
attributable to his own default.40
[s 41.4] EFFECTS OF WAR
The First World War brought the question of illegality based on alien enemy character back into prominence
after many years. Commercial relations involving subjects of a state which has become hostile, or persons
carrying on their business in the territory of such a state, had to be considered in the light of two quite distinct
rules of the common law, one as to personal disqualification, the other as to trading with enemies. There was
considerable doubt as to several points until the full Court of Appeal dealt with a group of cases early in 1915.41
The results of that considered judgment, and of some others, are as follows:
The term “alien enemy” includes persons of any nationality voluntarily resident in a hostile country.42
However, it does not include, for the purpose of the common law rules, a subject of an enemy state resident within the
realm with the licence of the Crown; and registration of an alien under the Aliens Registration Act, 1914, and the Aliens
Restriction Order made in pursuance of the Act operates to confer such a licence.43
Otherwise, the general and ancient rule is that an alien enemy cannot sue in the Queen’s courts,44 but he can be sued,
may be heard in defence, and, can appeal. The practical difficulties of substituted service on an enemy-defendant
outside the jurisdiction, with which the court also dealt, are beyond the scope of this work.
Transactions with a foreign company having a seat of business in England are governed by the same rules as
transactions with an individual alien. A company registered and having its place of business in a hostile country is
treated in Prize Courts as an enemy without regard to the nationality of its shareholders.45
Inasmuch as a body corporate may be a partner, it has power to note that the friendly or hostile character of such a
body is not conclusively determined by the place of its registration and its official seat, nor by the nationality of its
members or the majority of them. A company incorporated and registered here may be an enemy if it carries on
business in an enemy country, or if its business is under the control of persons resident in an enemy country or
adhering to or controlled by enemies; on which last question the prevailing character of the shareholders is material
though not conclusive.46
The alien enemy partner cannot enforce his rights or receive his share of the partnership assets or of the subsequent
profits until the termination of war.47
However, belligerent countries only enforce the above principles. Neutrals do not apply them to commercial
questions arising between the nationals of belligerent states. Thus, an award under an arbitration clause
contained in a contract between two belligerent states was held to be valid and enforceable in England.48
For the general rules against trading with enemies see the commentary in Pollock and Mulla The Contract
Act.49
30 Clause (a) omitted by Act 31 of 2016, sec. 245 and First Sch. Clause (a), before omission, stood as under: “(a) by the
adjudication of all the partners or of all the partners but one as insolvent, or”.
31 Swiss Ribbons Pvt Ltd v UOI, 2019 SCC OnLine SC 73.
34 Prakash Chand v Bhanwar Lal, 2009 SCC OnLine Raj 5415 : (2009) 4 RLW 3419 : 2010 AIHC (NOC 324) 98 : (2009) 5
WLC 633. See also Erach FD Mehta v Mintoo FD Mehta, (1970) 2 SCC 724 : AIR 1971 SC 1653 [Held, When the
partnership consisted of only two partners and one partner agreed to retire there can be no doubt that the agreement
that one of the partners will retire amounts to dissolution of the partnership.] Also see, G Sathyan v B Vasudevan, 2016
SCC OnLine Mad 9905 : (2017) 1 CTC 553 : (2017) 1 Mad LJ 161.
35 Sambhu Nath Agarwal v State of West Bengal, 2013 SCC OnLine Cal 22793 : (2014) 1 CHN 133.
36 Esposito v Bowden, (1857) 7 E&B 763 : 27 LJ QB 17 : 119 ER 1430 : 110 RR 822. This would appear to be so even
though, the illegality is of an essentially temporary character as in the case of war. Compare the position under the
general law enunciated in Denry, Mott and Dicken Ltd v James B Fraser & Co Ltd, [1944] AC 265.
37 Griswold v Waddington, (1818) (Supreme Court, New York) 15 Johns 57. The suggestion that partnership, like other
subsisting contracts between subjects of the hostile states, is only suspended, does not seem tenable: see the
judgment of the Court of Criminal Appeal in R v Kupfer, [1915] 2 KB 321 : 84 LJ (KB) 1021. Note, however, that the
resumption of business on the old terms at the end of the war would probably be held without difficulty to be a
reconstitution of the partnership. There is no reason for extending this rule by analogy to the position of an enemy-
shareholder in a British company, though his right to receive or recover dividends is suspended: Schuster, Effect of War
and Moratorium on Commercial Transactions, 2nd Edn, 1914. On the other hand, it would clearly apply to a limited
partnership: Limited Partnership Act, 1907, section 7. Where the English partner in the dissolved firm continued the
business here, the House of Lords held that he was not entitled to take the enemy partner’s share at a valuation, but
must account for the profits made after dissolution by the use of that partner’s capital in England, Stevenson v
Cartonnagen Industrie, [1918] AC 239 : [87] LJ KB 416.
38 Sovfracht v Van Uden’s Scheepvaart, [1943] AC 203.
39 Hudgell Yeafes & Co v Watson, [1978] QB 451.
40 Ganga Saran v Firm Ram Charan Ram Gopal, AIR 1952 SC 9.
41 Porter v Freudenberg & Co, [1915] 1 KB 857 : 84 LJ 1001 (DB).
42 Sovfracht v Van Uden’s Scheepvaart, [1943] AC 203.
43 Princess Thurn and Taxis v Moffitt, [1915] 1 Ch 58 : 84 LJ Ch 220; approved by the CA in Porter v Freudenberg & Co,
[1951] 1 KB 857 : 84 LJ (KB) 1001.
44 A much discussed article in the Hague Conventions of,1907 (IV 23 h) is held not to bear on this point. As to English
procedure see further, if desired in Rodriguez v Speyer, [1919] AC 59.
45 The Roumanian, [1915] P 26, affirmed [1916] 1 AC 124 : 85 LJ (PC) 33.
46 Daimler Co’s case, [1916] 2 AC 307 : 85 LJ KB 1333; see especially the opinion jointly prepared by Lord Parker and
Lord Sumner. For application of the principle by Russell J with full discussion, R Badische Co Ltd, [1921] 2 Ch 331 : 91
LJ Ch 133.
47 Hugh Stevenson & Sons Ltd v Aktiengesell Schaft fur Cartonnagen-Industrie, [1918] AC 239, affirming [1917] 1 KB 842;
The Berwickshire, [1950] 1 All ER 699.
48 Dalmia Dairy Inds Ltd v National Bank of Pakistan, (1978) 2 Lloyd’s Rep 223.
49 Ninth edn, pp 231–32.
End of Document
[s 42] Dissolution on the happening of certain contingencies.—


Subject to contract between the partners a firm is dissolved—
(a) if constituted for a fixed term, by the expiry of that term;

(b) if constituted to carry out one or more adventures or undertakings, by the completion thereof;
(c) by the death of a partner; and
(d) by the adjudication of a partner as an insolvent.
All this is settled law. References to the corresponding passages in sections 32 and 33 of the English Act are
given in the Special Committee’s note.
[s 42.1] CLAUSE (a): FIXED TERM
A firm constituted for a term is of course not exempt from dissolution by any of the other possible causes before
the expiration of the term.
The contract may expressly provide that the partnership will determine in certain circumstances but even if
there is no such express term, an implied term as to when the partnership will determine may be gathered from
the contract and the nature of the business.50 The provisions of this section make it clear that unless some
contract between the partners to the contrary is proved, the firm, if constituted for a fixed term, would be
dissolved by the expiry of that term. It cannot be disputed that after such dissolution, the partnership subsists
merely for the purpose of completing pending transactions, winding up the business and adjusting the rights of
the partners, and for only these purposes, the authority, rights and obligations of the partners continue. On
these principles, it was held that a consent given by the erstwhile partner to an arbitration award would not
detract from the conclusion that the firm of the parties stood dissolved on the expiry of the fixed period of
partnership.51
[s 42.2] CLAUSE (b)
In the absence of a contract to the contrary, a firm is dissolved, if it is constituted to carry out one or more
adventures or undertakings, by completion thereof. A partnership constituted to carry out contracts with
specified persons during a particular season would be taken to be dissolved once the contracts are closed.52
Where partnership was for sole business of carrying on the managing agency, it was held that by necessary
implication, the partnership would determine under section 42(b) on determination of the managing agency.53
Where a firm was constituted for a specific undertaking to supply certain quantity of grain and the contract was
prematurely terminated after supply of a part of the goods, it was held that the partnership did not come to an
end and was dissolved only on the final realisation of the assets.54 In Mann v D’Arcy,55 the managing partner of
a firm of produce merchants had entered into a single venture co-partnership with the plaintiff for the purchase
and resale of a particular quantity of potatoes on the terms of equal share in profits and the validity of the co-
partnership for the said venture was upheld. A partnership to undertake the work of whitewashing military
barracks and for construction of latrines was held to have ceased to exist after the close of the business
undertaken under clause (b).56 In the case of Dayalal Trikamlal Mali v Harjivandas Madhavji Mali, (1982) 23(2)
Guj LR 305, p 308, a contract to carry out murram work on a road was undertaken in partnership which was
constituted for that venture. It was held that the work could not be said to be completed till the final bill is
prepared. It was observed that even if the roadwork was completed, the contract was not completed till
reciprocal promises were fulfilled. The matter was decided in context of the plea of limitation set up against the
suit for dissolution of the firm.57
[s 42.3] CLAUSE (c): DEATH OF PARTNER
Where the deed of partnership did not provide that the death of a partner would not dissolve the partnership, by
reason of section 42, the partnership stood dissolved on the death of a partner.58 Firm stands dissolved
automatically on death of one partner.59 By operation of law upon death of a partner the partnership is dissolved
in absence of a clause in the partnership deed to the contrary.60 However, when there is a specific clause in the
partnership deed with regard to continuance of the partnership in spite of death of a partner, then, such deed
would have overriding effect on section 42(c).61 Continuance of business after such death would not tantamount
to continuance of earlier partnership.62 The contingency of death and the contingencies of one of the partners
showing intention to retire are different, distinct and by no stretch of imagination an analogy can be drawn to
have the similar resultant effect.63
The fact that a partnership is entered into for a single adventure, and therefore is to last till the termination of
the adventure, does not preclude dissolution by death.64 A covenant by a deceased partner binding his
executors to continue the partnership cannot be specifically enforced against the executors and the effect of the
death of the partner coupled with the refusal of the executors to continue the partnership, is the dissolution of
the firm.65 An acknowledgement or part payment of a debt, made after the death of a partner by a continuing
partner, does not bind the personal representatives of the deceased.66 Contract to continue a partnership after
death of a partner may be express or implied.67 Devji Goa v Tricumji, 49 Cal WN 299 could be referred to for
implied contract to continue.68 In the absence of a term in the deed of the partnership to that effect, it cannot be
inferred that a term that the partnership is still continuing notwithstanding the death of a partner, will operate to
extinguish his proprietary rights in the assets of the firm. In the absence of a provision expressly made or
clearly implied, the normal rule that the share of a partner in the assets devolves upon his legal representatives
will apply to the goodwill as well as to other assets.69
[s 42.4] TWO-PARTNER FIRM
The Supreme Court has held that where one of two partners dies, the firm automatically comes to an end and
there is no partnership for a third party to be introduced therein. In deference to the wishes of the deceased
partner, the surviving party may enter into a partnership with the heir of the deceased partner but it would be a
new partnership. An agreement that on the death of a partner in such partnership his heir or nominee would
take his place does not make the heir or nominee automatically a partner.70 In such a situation, it cannot be
converted into a proprietorship concern even though there might be a clause in the partnership agreement to
that effect.71 The Apex Court has held in Mohd Laiquiddin v Kamala Devi Misra,72 that when there are only two
partners constituting the partnership firm, on the death of one of them, the firm is deemed to be dissolved
despite the existence of a clause which says otherwise. A partnership is a contract between the partners. There
cannot be any contract unilaterally without the acceptance by the other partner. A partnership being a
relationship of mutual trust and confidence, a clause in a deed of partnership for inclusion of the heirs of a
deceased partner cannot be specifically enforced when the other partners are unwilling in such a case, the
partnership would dissolve and the heirs of the deceased partner would be entitled to the share of the
deceased partner to the profits and/or assets if any of the partnership.73 There cannot be a contract between
two partners that on the death of one of them the partnership will not be dissolved.74 Even assuming that there
is such an agreement consisting of two partners, on the death of one of them the partnership automatically
comes to an end, and there is no partnership which survives and into which a third party can be introduced.75
Where a partnership deed between two partners required that the partnership would continue for 42 years, the
death of one of the partners would lead to dissolution of the partnership.76
In a case involving death of one of the two partners, the Supreme Court was faced with a question as to
whether a suit instituted by the firm prior to the death can be continued by the sole surviving partner. In view of
the family relationship between the partners, the court held that upon the death of one of the partners, the entire
interest gets devolved on the surviving partner and therefore, the suit can be proceeded with upon necessary
amendments.77
[s 42.5] SUBJECT TO CONTRACT BETWEEN THE PARTIES
Since the fallout of this section is “subject to contract between the partners”,78 where one of the clauses in the
partnership deed stated that “in no event the partnership shall be dissolved but the same shall continue with the
remaining partners”, it was held that the death of a partner would not dissolve the partnership and hence, would
merely require a notice to the Registrar under section 63 to register the reconstituted deed.79 In cases where
the terms of the partnership deed are silent on continuation of the firm’s business, a contract to continue the
partnership after the death of a partner may be implied from the conduct of the parties. Where it is evident that
such an intention was present, the nominee or legal representative of the deceased partner can take the place
of deceased partner and business of the firm can be continued with the presumption that the partnership was
never dissolved on the death of that partner. The above legal position is based on two assumptions: (a) there
are more than two partners in the firm; and (b) the legal representatives are interested in taking forward the
business of the firm.80
Where in a partnership between father and son dealing in liquor business the father, in whose name the licence
stood, died and the son contended that the licence be transferred to his name as it was granted to the firm and
not to his father personally, it was held that the firm stood dissolved by virtue of clause (c) by the death of the
father and the son was not entitled to carry on business on that licence which was originally issued to the firm.81
[s 42.6] ASSESSMENT UNDER TAX LAWS
For the purposes of assessment under the income tax laws, a dissolution may, in certain circumstances, be
treated as only as a change in the constitution of the firm.82 However, cases falling under section 187 of the
Income-tax Act, 1961 may not be resorted to for construing the provisions of clause (c) of section 42 because
the basic concept underlying section 187 is of the continuity of the firm as an entity in the eye of law.83
[s 42.7] CLAUSE (d): INSOLVENCY OF PARTNER
See notes under section 34 above.
50 Keshavlal Lallubhai Patel v Patel Bhailal Narandas, AIR 1968 Guj 157; Abdul Azeez v Kader Mohiddeen, AIR 1963
Mad 428; Shantaram Sadashiv Harithe v Sripada Bhavani Shankar Chinkkaramane, AIR 1947 Kant 110, firm formed
for stipulated period, continued for incidental purpose, dissolution of firm, when takes place.
51 Saligram v Rajnath, AIR 1974 SC 1094, 1103, p 1105.
52 Gherulal Parakh v Mahadeodas, AIR 1959 SC 781; Ram Prashad v Maya Devi, 2013 SCC OnLine Raj 1379 : AIR 2013
Raj 172.
54 Basantlal Jalan v Chiranjilal Sarawgi, AIR 1968 Pat 96. Partnership to work out sub-lease coming to an end on the sub-
lease see P Manga Rao v C Kishan Rao, AIR 1965 AP 98.
55 (1968) 1 WLR 893; J&J Cunningham v Lucas, (1957) 1 Lloyd’s Rep 416; Lindern Trawler Managers v WHJ Trawlers,
(1949) 83 Lloyd’s Rep 131.
56 Banshi Lal v Jamuna Prasad, AIR 1981 All 324, p 327.
57 (1982) 23(2) Guj LR 305, p 308; Basantlal Jalan v Chiranjilal Sarawgi, AIR 1968 Pat 96; Shantaram Sadashiva Haritha
v Sripada Bhavani Shankar Chinkkaramane, AIR 1974 Kant 110; CIT WB v Pigot Champman & Co, AIR 1982 SC
1085; Succession to old business contemplated by section 25(4) of the Income Tax Act of 1922 considered.
58 CIT v Empire Estate, (1996) 2 SCC 345, p 348. See also, Ishwar Singh Sharma v Bharat Petroleum Corporation Ltd,
2015 SCC OnLine Del 13820 [Held, since the firm stood dissolved, the dealership granted to the firm would also cease
to exist.] Rakesh Kumar v Umesh Kumar, 2009 SCC OnLine Del 890 : ILR (2009) V DELHI 657; Bhagwan Dass
Khanna Jewellers v Bhagwan Das Khanna Jewellers Pvt Ltd, 2012 SCC OnLine Del 6129 : (2013) 196 DLT 565.
59 CIT, Nagpur v Seth Govindram Sugar Mills, AIR 1966 SC 24 (a case under Urban Land Ceiling Act); Mahender Kumar
Khurana v Rajinder Kumar Khurana, 2013 SCC OnLine Del 4161 : 2013 (138) DRJ 715.
60 CIT v Sehgal Oil and General Mills, 2006 SCC OnLine P&H 2068 : (2008) 303 ITR 102 : (2006) 203 CTR 215.
61 Kodendera K Uthaiah v PM Medappa, (2017) 16 SCC 331 : AIR 2017 SC 4833.

63 Sarkhel Enterprise v Jagannath Maity, 2015 SCC OnLine Cal 7018 : 2017(2) CHN (CAL) 47.
64 Abdul Hak v Tumulari Vykuntam, (1927) 52 Mad LJ 318 : 100 IC 616 : AIR 1927 Mad 491, this should have been too
obvious to call for decision.
65 Lancaster v Allsup, (1888) 67 LT 53; Satyanarayanamurthi v Gopalan, (1939) 2 Mad LJ 279 : 186 IC 57 : AIR 1939
Mad 891; Sughra v Babu, AIR 1952 All 506.
66 Venkatasubbamma v Subba Rao, AIR 1964 AP 462.
67 Ramkumar v Kishorilal, (1946) All 309 : AIR 1946 All 259 : 222 IC 231.
68 49 Cal WN 299 : AIR 1945 PC 71.
69 Khushal Khemgar Shah v Khorshed Banu Dadiba Boatwala, AIR 1970 SC 1147; Ram Prasad Chhota Lal v Bai Reva,
AIR 1970 Guj 269; On karta of a joint Hindu family becoming partner with strangers and his death, Bhagat Ram
Mohanlal v Commr of Excess Profits Tax, Nagpur, AIR 1956 SC 374; Khairati Ram v Balak Ram, AIR 1960 Punj 192,
pp 195, 196.
70 CIT Madhya Pradesh v Seth Gobindram Sugar Mills, AIR 1966 SC 24; Erach FD Mehta v Minoo FD Mehta, AIR 1971
SC 1653; KR Mallesha v Ramnath Gajanand, AIR 1974 AP 53. Gay Printers v Pawan Buildwell Pvt Ltd, 2017 SCC
OnLine NCLT 12383 : (IB) -301 (ND)/ 2017; Sambhu Nath Agarwal v State of West Bengal, 2013 SCC OnLine Cal
22793 : (2014) 1 CHN 133; Sambhu Nath Agarwal v State of West Bengal, 2013 SCC OnLine Cal 22793 : (2014) 1
CHN 133; Rakesh Kanaujia v Superwhite Drycleaners, 2018 SCC OnLine Del 10640.
71 Rita Shaw v Dipendra Lal Shaw, 2006 SCC OnLine Cal 181 : (2006) 4 CHN 414; Jagannath Minerals v State of Orissa,
2010 SCC OnLine Ori 253 : (2010) 109 CLT 782.
72 (2010) 2 SCC 407 : 2010 (1) Scale 227. In view of the Supreme Court decision, the judgment of the Bombay High
Court in Resources International v Lithoferro, A Partnership Firm, 2010 SCC OnLine Bom 1043 : 2010(7) Mh.Lj. 840
holding that a two-partner firm can continue with legal heirs of a deceased partner once such legal heirs and the sole
surviving partner enter into such a compromise, would stand impliedly overruled.
73 Abhishek Bagaria v Sushil Kumar Bagaria, 2016 SCC OnLine Cal 445 : (2016) 161 AIC 508.
74 CIT Madhya Pradesh v Seth Gobindram Sugar Mills, AIR 1966 SC 24; Sughra v Babu, AIR 1952 All 506; S
Kandaswami v SB Adityan, AIR 1959 Mad 288; P Ananda Rao v G Raja Rao, AIR 1976 AP 256; Mc Leod v Dowling,
(1927) 43 TLR 655; IRC v Graham’s Trustees, 1971 SLT 46; Jardine-Paterson v Fraser, 1974 SLT 93 holding that even
in Scotland (where the separate legal personality of a partnership is recognised a change in the partners alters the legal
personality of the partnership).
75 S Parvathammal v CIT, [1987] 163 ITR 161.
Approved by the Supreme Court in Mohd Laiquiddin v Kamala Devi Misra, (2010) 2 SCC 407 : 2010 (1) Scale 227.
76 Jai Narayan Misra v Hashmathunnisa Begum, AIR 2002 AP 389.
77 AVK Traders v Kerala State Civil Supplies Corpn Ltd, (2013) 15 SCC 217.
78 Ambady Tourist Home v State of Kerala, 2017 SCC OnLine Ker 18944 : LNIND 2017 KER 28039 [the partnership deed
stipulated continuance of the partnership even after death of one of the partners].
79 Subhash Chandra Kesarwani v Assistant Registrar, Firms, Societies and Chits, Allahabad, AIR 2003 All 254.
80 Hemantkumar Ptilokani v State, 2016 SCC OnLine Mad 21169 : 2016-2-LW (Crl) 553.
81 Hipolito Gregorio Coutinho v Jagdish Sagar, (1975) 77 Bom LR 31 (DB).
82 CIT v Bharat Steel Rolling Mills, 2009 SCC OnLine All 2069 : (2009) 313 ITR 406.
83 Notes under section 31, above.
End of Document
[s 43] Dissolution by notice of partnership at will.—

(1) Where the partnership is at will, the firm may be dissolved by any partner giving notice in writing to all
the other partners of his intention to dissolve the firm.
(2) The firm is dissolved as from the date mentioned in the notice as the date of dissolution or, if no date is
so mentioned, as from the date of the communication of the notice.
[s 43.1] SCOPE
Section 43 declares that 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 which stands dissolved by operation of
sub-section (2) thereof from the date mentioned in the notice as the date of dissolution or if no date is so
mentioned from the date of communication of the notice.84 This section is applicable only in such cases where
the partnership is at will. In view of section 7, a partnership is said to be a partnership at will where no provision
is made by contract between the partners for the duration of their partnership, or for the determination of their
partnership. Where it was found that the partnership was not at will, it was held that a notice given by a partner
could not result in dissolution of the partnership.85 A partnership does not become a partnership at will only by
stating so in the partnership deed. The circumstance and effect of other clauses of the deed have to be
considered.86
[s 43.2] PARTNERSHIP AT WILL: NOTICE OF DISSOLUTION
A partnership at will may be dissolved by any partner by giving notice in writing to other partners of his intention
to dissolve the firm and the firm is to be dissolved from the date mentioned in the notice as the date of
dissolution87 or if no date is mentioned, from the date of communication of the notice.88 This again is familiar
law, except that notice is required to be in writing, as can be seen in the English Act, section 32(c).89 A notice
contemplated under this provision must, in order to be effectual, be explicit and be communicated to all the
partners.90 If before such notice becomes operative an event occurs which dissolves the partnership, the notice
would become redundant since there would then exist no partnership on which it can operate.91 If however,
there is an agreement that the partnership shall be terminated by mutual agreement only, this right stands
excluded.92 However, the partner giving notice to dissolve the firm cannot thereby determine all duties and
responsibilities of its members in respect of their partnership: “the court will compel the parties to act as
partners in a partnership existing only for the purpose of winding up the affairs”.93 In the case of a partnership at
will, the mere filing of a suit for dissolution does not amount to a notice of dissolution. The section contemplates
the mentioning of a date in the notice from which the firm would stand dissolved.
In Banarasi Das v Kanshi Ram, AIR 1963 SC 1165, p 1169, the Supreme Court was concerned with a case
where the earlier suit filed at Lahore by one of the partners for dissolution of partnership and accounts was
dismissed for default, the parties having migrated to India, consequent on the partition of the country. Later on,
in another suit a declaration was sought by one of the other partners that the firm was dissolved on 13 May
1944 when the earlier suit was instituted. It was held that the analogy of suits for partition of joint Hindu family
property with regard to which it is settled law that if all the parties are majors, the institution of a suit of partition
will result in the severance of the joint status of the members of the family was inapplicable under section 43(1)
because, the rights of the partners of a firm to the property of the firm are of a different character from those of
members of a joint Hindu family. If a partner does not choose to give notice under section 43(1) and wants to
go to the court for effecting the dissolution, he would be bound by the procedure laid down under O XX, rule 15
of the Code of Civil Procedure 1908 which, inter alia, requires the court to fix the day on which the partnership
shall stand dissolved. Sub-section (2) contemplates mentioning of a date from which the firm would stand
dissolved. It was held that mentioning of such a date would be entirely foreign to a plaint in a suit for dissolution
of partnership and therefore such a plaint cannot fall within the expression “notice” used in the sub-section. It
would follow, therefore, that the date of service of a summons accompanied by a copy of a plaint in the suit for
dissolution of partnership cannot be regarded as the date of dissolution of partnership and section 43 is of no
assistance. The decision was followed by the Patna High Court in the case of Krishna Kumar Poddar v Ram
Kumar Agrawal, AIR 1978 NOC 25 (Pat) (DB), but strangely enough; not by the Court of the Judicial
Commissioner of Goa, Daman and Diu,94 which took the view that it did not lay down a different rule than the
holding of the Privy Council95 that filing of a plaint in a suit for dissolution by one partner and service of the
summons is enough to put an end to a partnership at will by the Court. It is submitted that an attempt to restrict
the ratio of the Supreme Court judgment, by observing that the observations in the Supreme Court judgment
must be read strictly in the context of the facts of that case, is not justified for the simple reason that the
Supreme Court, despite there being admissions in the written statement about the dissolution, chose to
consider the question as a question of law as is clear from paras 12 and 13 of the judgment. Therefore, it can
no longer be said that service of the summons along with the copy of the plaint on the other partners is notice of
dissolution within the meaning of sub-section (1), as was taken to be the settled position in some cases.96 The
Supreme Court in Banarsi Das to counter the argument noticed that even assuming that the term “notice” is
wide enough to include a plaint within it, it would follow that the partnership would be deemed to be dissolved
when the summons accompanied by a copy of the plaint is served on the defendant where there is only one
defendant and on all defendants where there are several defendants. Since a partnership would be dissolved
only from a particular date, the date of dissolution would have to be regarded to be the one on which the last
summons was served.97 However, it may be noted that this is not the ratio of the case.98 The Madras High
Court made it clear that the proposition of law laid down by Supreme Court in Banarsi Das’s case was: “A plaint
cannot fall within the expression “notice” used in section 43(2) of the Partnership Act”.99
In the case of Vasantrao Dattaji Dhanwatey v UOI, AIR 1984 Bom 181, the partnership at will was dissolved by
notice and a suit for dissolution of partnership and accounts was pending when the management of the
undertaking was taken over under section 18 AA(i)(b) of the Industries (Development and Regulation) Act,
1951, by an order of the Central Government. The Bombay High Court held that the writ petition, filed by two of
the partners challenging the order, was maintainable since legal inquiry due to taking over of management was
alleged by the petitioners who admittedly held one-fourth share in the undertaking. In a partnership at will, if a
partner desires to dissolve the firm by giving notice, his right cannot be taken away by existence of an
arbitration clause wide enough to cover all the disputes between the partners. Such a clause can be invoked
only during the subsistence of the partnership.100
Where one of the three partners, gave notice for dissolution of the firm, the others were not entitled to the
exclusive use of the trademark, which formed part of the assets of the partnership.101 In Fazalbhai Dhela v The
Custodian General of Evacuee Property, New Delhi, AIR 1961 SC 1397, the Supreme Court was concerned
with a firm’s dissolution which was brought about by a regular deed of dissolution by which the dissolution was
purported to be effected as from an anterior date. The Supreme Court held that this cannot be brought about,
and the dissolution took effect only from the date of the deed. If, even in a consensual dissolution by a deed
signed by all partners, the firm cannot be dissolved with retrospective effect, there is a fortiori justification for the
view that a unilateral notice by a partner in a partnership at will cannot effectuate the firm’s dissolution as from
an anterior date.102
The state of mind of any partner to whom such notice is given makes no difference, for however sane he was,
he could not object.103
The decisions include those of the High Court of Calcutta in Ram Kumar Shew Chand Rai v UOI,104 High Court
of Orissa in Atul Krushna Roy v Rau Kishore Mohanty, AIR 1956 Ori 77, and of the Travancore-Cochin High
Court in Bank of Kothattukulam v Itten Thomas, AIR 1955 TC 155, and the decisions of the Madras High
Court.105
There is no conflict between sections 43 and 44 regarding the act of dissolution proceedings open to a party
under the Act. In the case of a partnership at will, a notice will suffice for effecting dissolution. Section 44 is non-
comprehensive as regards grounds on which dissolution can be sought for through a suit. The right under
section 43, however, does not operate as a bar to the suit under section 44.106
A contention that the wide arbitration clause in a partnership deed which takes in proceedings for dissolution
would in the face of decisions in the case of Ram Singh v Ram Chand,107 be repealed in the above case.
84 MOH Uduman v MOH Aslum, (1991) 1 SCC 412, para 13; Asha Agarwal v Arvind and Co Kaimganj, 2014 SCC OnLine
All 15820 : (2015) 127 RD 226 : (2015) 109 ALR 10 : (2015) 1 All LJ 721 : (2015) 148 AIC 948.
85 Anant Purushottam Athavale v Govind Purushottam Athavale, AIR 2005 Bom 301. 86 Sardar Jagmohan Singh v Sardar
Upkar Singh, 2008 SCC OnLine IPAB 103 : [2008] IPAB 33.
87 Joginder Pal v Pushpinder Kumar, 2016 SCC OnLine P&H 520.
88 Ketineni Chandrasekhar Rao v Boppana Seshagiri Rao, 2016 SCC OnLine Hyd 386 : AIR 2017 Hyd 30 : (2017) 3 ALD
224 (DB).
89 Banarsi Das v Kanshi Ram, AIR 1963 SC 1165; Firth v Armslake, (1964) 108 SJ 198.
90 Chainkaran Sidhkaran Oswal v Radhakishan Vishwanath Dixit, AIR 1956 Ngp 46, p 48 (DB); Dhulia Amalner Motor Tpt
Co Ltd v Raychand Rupsi Dharamsi, AIR 1952 Bom 337; Babacomp Ltd v Rightside Properties Ltd, [1974] 1 All ER 142
(CA).
91 Mc Leod v Dowling, (1927) 43 TLR 655.
92 Moss v Elphick, [1910] 1 KB 465, p 846.
93 Crawshay v Maule, (1818) 1 Swanst 508 : 18 RR 132; Dayalal v Harjivandas, (1982) 23(2) Guj LR 305, p 308.
94 Sharyau Armando Pereira v Vishnu Yeshwant Sawant, AIR 1981 Goa, Daman & Diu 57.
95 Sathappa v Subramaniam, AIR 1927 PC 70.
96 Sailendra Nath Kumar v Chillar Ram, ILR (1951) 2 Cal 140, p 141 (DB); MS Patel v Swashray Constrn Co, (1982) 23(1)
Guj LR 312, p 315; Sharyau Armando v Vishnu, AIR 1981 Goa Daman & Diu 57.
97 Banarsi Das v Kanshi Ram, AIR 1963 SC 1165. The court has no option to refuse to grant the dissolution of a
partnership-at-will, 1966 Punj LR 91(D) held not good law in view ofAIR 1924 PC 2 and AIR 1917 PC 116; Sat Pal
Anand v RK Ahuja, AIR 1973 P&H 197. Receipt of the suit summons by the defendant brought about dissolution of the
partnership at will. Sharyau Armando Pereira v Vishnu Yeshwant Sawant, AIR 1981 Goa, Daman and Diu 57;
Arunachalam & Co v M Sadasivan, AIR 1985 Mad 354, p 356; Narinder Singh Randhawa v Hardial Singh Dhillon, AIR
1985 P&H 41, p 42.
98 P Venkateswarlu v C Lakshmi Narasimha Rao, AIR 2002 AP 62, para 7.
99 Venu alias Venugopal v Jaya, (1993) 2 Mad LJ 434.
100 MS Patel v Swashray Constn Co, (1982) 23 (1) Guj LR 312, p 315.
101 Sohanlal v Amin Chand & Sons, AIR 1973 SC 2572.
102 VVP Thangaraju v KV Perumal Chettiar, AIR 1980 Mad 7, p 11.
103 Mellersh v Keen, (1859) 27 Beav 235 : 122 RR 390; Sobell v Boston, [1975] 2 All ER 282. On the facts and
circumstances holding that though the parties by agreement caused a notice to be published that the partnership had
been dissolved, from the conduct and evidence it appeared that the agreement has not worked a dissolution
104 AIR 1977 Cal 37; National Insurance Co Ltd v Poonam Chand Jain, AIR 1983 Cal 150; Re Abani Kanta Pal, AIR 1986
Cal 143.
105 (1989) 2 MLJ 349 : (1981) 1 MLJ 437 : (1990) TN LJ 27 : (1991) 1 MLJ 421; Mulla, p 137–40, refers to the following
decisions Crawshay v Maule, 1818 Swanst 508 : 18 RR 132; Mellersh v Keen, (1859) 27 Beav 235 : 122 RR 390; Moss
v Elphick, [1910] KB 465 ; Rehmatunissa Begum v Price, AIR 1917 PC 116; Sathappa Chetty v SN Subramaniam
Chetty, AIR 1927 PC 70 : (1927) 43 TLR 655 : ILR 2 Cal 480; Sohanlal v Arun Chand & Sons, AIR 1973 SC 2572;
Dhulia Amalner Transport Ltd v Raychand Rupsi Dharamsi, AIR 1952 Bom 337; Banarsi Das and Kundanlal v Kanshi
Ram and Kundanlal, AIR 1963 SC 1165; VVP Thangaraju v KV Perumal Chettiar, AIR 1980 Mad 7; Chainkaran
Sidhkaran Oswal v Radhakrishnan Vishwanath Dixit, AIR 1956 Ngp 46; Baba Comp Ltd v Rightside Properties, [1974]
All ER 142; Sharyau Armando Pereira v Vishnu Yeshwant Sawant, AIR 1981 Goa 57 : (1964) 108 SJ 198; Sobell v
Boston, [1975] 2 All ER 282 : 1966 Punj LR 91; Krishna Kumar Poddar v Ram Kumar Agrawal, 1978 NOC 25 (Pat);
Dayalal Trikamlal Mali v Harijivandas Madhavji Mali, (1982) 23 (1) GLR 312; Vasantrao Dattaji Dhanwantey v UOI, AIR
1984 Bom 181; Arunachalam & Co v M Sadasivam, AIR 1985 Mad 354; Narinder Singh Randhawa v Hardial Singh
Dhillon, AIR 1985 P&H 41.
106 AC Ramanath Naidu v B Subbarami Reddy, (1994) 1 Andh LT 88.
107 AIR 1924 PC 2; CIT Bombay v Nandlal Gandalal, AIR 1960 SC 1147; Michael Golodetz v Serayuddin, AIR 1963 SC
1044; Erach FD Mehta v Minoo FD Mehta, AIR 1971 SC 1653 : (1979) 1 Andh LT 380; Muthuvarapu Venkateshwara
Rao v N Subbarao, (1984) 1 Andh LT 326.
End of Document
[s 44] Dissolution by the Court.—


At the suit of a partner, the Court may dissolve a firm on any of the following grounds, namely:—
(a) that a partner has become of unsound mind, in which case the suit may be brought as well by the next
friend of the partner who has become of unsound mind as by any other partner;
(b) that a partner, other than the partner suing, has become in any way permanently incapable of
performing his duties as partner;
(c) that a partner, other than the partner suing, is guilty of conduct which is likely to affect prejudicially the
carrying on of the business, regard being had to the nature of the business;
(d) that a partner, other than the partner suing, wilfully or persistently commits breach of agreements
relating to the management of the affairs of the firm or the conduct of its business, or otherwise so
conducts himself in matters relating to the business that it is not reasonably practicable for the other
partners to carry on the business in partnership with him;
(e) that a partner, other than the partner suing, has in any way transferred the whole of his interest in the
firm to a third party, or has allowed his share to be charged under the provisions of rule 49 of Order
XXI of the First Schedule to the Code of Civil Procedure, 1908 (5 of 1908), or has allowed it to be sold
in the recovery of arrears of land-revenue or of any dues recoverable as arrears of land-revenue due
by the partner;
(f) that the business of the firm cannot be carried on save at a loss; or
(g) on any other ground which renders it just and equitable that the firm should be dissolved.
[s 44.1] DISSOLUTION BY COURT
Section 44 empowers the court, at a suit of a partner, to dissolve the firm on the happening of any one of the
grounds enumerated in clauses (a) to (g).108 This declaration of the grounds for judicial dissolution corresponds,
with verbal variation and additional provision adapted to Indian procedure, to section 35 of the English Act,
which was itself a somewhat enlarged version of section 254 of the Indian Contract Act, 1872. The section
confers a right to pray for dissolution on any of the grounds specified therein notwithstanding any term of the
partnership deed.109A statutory jurisdiction conferred on a court to order dissolution of a firm on the grounds
mentioned in section 44 of the Act cannot be taken away by any private contract made between the parties.
The argument that the partners are at liberty to contract out of the provisions of section 44 of the Act is not
countenanced by section 11 of the Act which subjects, the power of the partners to determine their mutual
rights and duties by contract, to the provisions of the Act, unlike in section 19 of the English Act.110
A prayer for “dissolution of partnership” through Court is a compendious mode of asking a fourfold relief: (a) a
declaration that the partnership stands dissolved from a certain date, (b) a declaration as to who the partners
are and what are their proportionate shares; (c) a prayer that accounts be taken and the assets and liabilities of
the partnership as on the date of dissolution be determined, and (d) a final decree be passed.111
Where the partners offered their own shares to the firm under the stipulation contained in the partnership deed
but no resolution was passed on the notice though included in the agenda, it was held that dissolution could not
be enforced under section 44 as under the deed of partnership it was open to the plaintiffs to have sold their
shares privately if the firm did not purchase them.112 The word “firm” obviously means the firm in which the
plaintiff is the partner. The plaintiff can, in such a suit, ask for a decree for the amount due.113 In a partnership
suit, each of the parties, however he may be formally ranked, is really in turn plaintiff and defendant and in both
capacities and comes before the court for adjudication of his rights relative to the other, partners which the
court endeavours to determine by its decree.114 When a partner files a suit for dissolution of the partnership and
for account, the stranger in whose favour there is an agreement by a partner should not be made a party.115
Where the partnership in question had more than seven members at the time when the suit for dissolution and
accounts was instituted, the Supreme Court, negativing the contention that the suit was not maintainable, held
that section 590 of the Companies Act, 1956 makes it clear that Pt X of that Act does not affect the operation of
the Indian Partnership Act, 1932.116
A creditor of the firm is not entitled to be added as a party in a suit for dissolution and accounts, for, he is
neither a necessary nor a proper party in such a suit.117
Where the plaintiff did not, either expressly or impliedly, pray for dissolution it was held that section 44 cannot
assist him because the court would have no occasion to consider whether the firm should be dissolved on any
one of the grounds enumerated in the section.118
Clause (e) resembles section 33, sub-section (2), of the English Act in part, but goes farther in making total
alienation of a partner’s in whatever way, a cause for dissolution.
As to clause (g), Lord Lindley’s remark that the court ought not to fetter itself by any rigid rules,119 is obviously
founded on common sense and there is certainly no authority against it. Application of what is called in England
the ejusdem generis rule of construction would really leave no room for the clause to operate.120 “Just and
equitable” however means something more than “convenient”. A mere opinion of the court that dissolution
would, on the whole, be the best course, is not enough.
About the substance of what is here laid down for the guidance of the court, there can be very little doubt. The
form has gone through a series of expert legislative revisions. Accordingly, not much comment is required. It
will be remembered that the Indian Contract Act, section 254, sub-section (5), spoke of “gross misconduct” in
the affairs of the firm, and the adjective might have been thought to narrow the discretion of the court (though it
does not seem to have done so in fact). It is not used in the English Act. Even as the Contract Act, 1872 stood,
persistent refusal or neglect to attend to the business was ground for dissolution.121
[s 44.2] WHAT CONDUCT OF A PARTNER CAN BE A GROUND FOR DISSOLUTION122
It is rather difficult to fix the point at which acts of a partner tending to shake the credit of the firm and the other
partner’s confidence in him become sufficient ground for demanding a dissolution. The state of feelings and
conduct of the partners where business cannot be continued with advantage to either party has been
considered as a relevant factor. Loss of mutual trust and confidence is a ground for dissolution of a firm coming
within the scope of section 44(g).123
The fact that a particular partner’s continuance in the firm is injurious to its credit and custom is not of itself
ground for a dissolution where it cannot be imputed to that partner’s own willful misconduct. In a case where
one partner had been insane for some time, and while insane had attempted suicide, this was held not to be a
cause for dissolution, although it was strongly urged that the credit of the firm could not be preserved if he
continued to be associated with the firm.124 On the other hand, conduct of a partner in the business carried on
by the firm and its predecessors, though not in the actual business of the existing firm, which was calculated to
destroy mutual confidence among the partners, has been held to be sufficient ground for a dissolution.125
A special clause is usually inserted in the partnership deed to facilitate dissolution in the event of misconduct.
The court will, however, be reluctant to construe such a clause “in the air” so as to govern the future but not
extant conduct.126
Actual malversation of one partner in the partnership affairs, such as failing to account for sums received,127 is
ground for a dissolution; so is a state of hostility between the partners which has become chronic and renders
mutual confidence impossible, as where they have habitually charged one another,128or one partner has
habitually charged another,129 with gross misconduct in the partnership affairs.
In Atwood v Maude, (1868) LR 3 Ch 373, Lord Cairns said:
It is evident...that in every partnership...such a state of feeling may arise and exist between the partners as to render it
impossible that the partnership can continue with advantage to either;
and he added that, when it is admitted that this state of feeling does in fact exist, it becomes immaterial by
whom a judicial dissolution of the partnership is sought.
Where it is agreed that if any partner desires to retire he should sell his share to the other partners, the
valuation to be referred, if necessary, to arbitration, a suit for dissolution does not lie.130
When a partnership deed stipulates for all contingencies and provides for withdrawal of a partner who considers
his rights prejudiced or desires to sell his share for some reason, it takes away the right of that partner to seek
dissolution of the firm under section 44.
The court will not interfere at the suit of a partner who is himself guilty of misconduct.131 In Harrison v Tennant,
(1856) 21 Beav 482 : 52 ER 945 : 111 RR 175 Lord Romilly said:
No party is entitled to act improperly and then to say that the conduct of the partners and their feelings towards each
other are such that the partnership can no longer be continued, and certainly this Court would not allow any person so
as to act and thus to take advantage of his own wrong.
Where, from the conduct of a partner it was found that whatever rights he had on the basis of the deed of sub-
partnership had been abandoned by him, the Supreme Court, applying the doctrine of laches, held that he was
not entitled to claim any share in the fruits of the decree obtained by the other partner on the basis of the deed
of sub-partnership.132 The Supreme Court approved the principle stated in the following passage cited from
Lindley on Partnership:
The doctrine of laches is of great importance where persons have agreed to become partners, and one of them has
unfairly left the other to do all the work, and then, there being a profit, comes forward and claims a share of it. In such
cases as these, the plaintiffs conduct lays him open to the remark that nothing would have been heard of him had the
joint venture ended in a loss instead of gain; and a court will not aid those who can be shown to have remained quiet in
the hope of being able to evade responsibility in case of loss, but of being able to claim a share of gain in case of
ultimate success.133
[s 44.3] POWER OF ARBITRATOR TO DISSOLVE A FIRM
The Supreme Court in VH Patel & Co v Hirubhai Himabhai Patel,134 has held that an arbitrator has the power to
dissolve a partnership if the partnership deed provides for referring of all disputes to an arbitrator:
So far as the power of the arbitrator to dissolve the partnership is concerned, the law is clear that where there is a
clause in the articles of partnership or agreement or order referring all the matters in difference between the partners to
arbitration, the arbitrator has power to decide whether or not the partnership shall be dissolved and to award its
dissolution. (See Phoenix v Pope, [(1974) 1 All ER 512 (Ch D)].) Power of the arbitrator will primarily depend upon the
arbitration clause and the reference made by the court to it. If under the terms of the reference all disputes and
difference arising between the parties have been referred to arbitration, the arbitrator will, in general, be able to deal
with all matters, including dissolution. There is no principle of law or any provision which bars an arbitrator to examine
such a question. Although the learned counsel for the petitioner relied upon a passage of Pollock & Mulla, quoted
earlier, that passage is only confined to the inherent powers of the court as to whether dissolution of partnership is just
and equitable, but we have demonstrated in the course of our order that it is permissible for the court to refer to
arbitration a dispute in relation to dissolution as well on grounds such as destruction of mutual trust and confidence
between the partners which is the foundation therefor.
However, power of arbitrator to dissolve partnership must not be prohibited by the partnership deed.135 What is
not reserved for an Arbitrator to assume jurisdiction in terms of an agreement between the parties cannot be
exercised so by an Arbitrator, but only by the Court. An arbitrator cannot assume jurisdiction to dissolve a firm
under section 44(g) in absence of specific reference in the partnership agreement. In such a situation, a firm
can be dissolved by a Civil Court alone.136
Dissolution of partnership cannot be equated with the winding up of the company. In a case of winding up of a
company it can be held either by the Court or voluntary or subject to the supervision of the Court. Winding up of
a company is not a money claim simplicitor between two parties. A company has a distinct personality from the
members composing it. The property of the Company does not belong to the members and such members
cannot be sued individually. On the other hand, members of a partnership firm can be said individuals and also
in the name of partnership firm since the partners are responsible for the firm.137 The judgment of the Company
Court to order winding up is an order in-rem whereas the order of dissolution of partnership is order in-
personam.138 Section 44 therefore does not oust the jurisdiction of the arbitrator to consider the dissolution of
the firm.
[s 44.4] STAY OF ARBITRATION
Although the arbitration clause in a partnership agreement may be sufficiently wide to include the question
whether the partnership should be dissolved, the court in its discretion may not stay a suit for dissolution, if
dissolution is sought under section 44(g).139 In the undermentioned cases the view taken is that whenever
dissolution of partnership is sought under section 44(g), then it is for the court to decide, whether it would be
just and equitable to dissolve the partnership or not and such a matter cannot be left to be gone into and
decided by the arbitrator in pursuance of the arbitration clause contained in the partnership deed.140
109 Sardar Hardutt Singh v Ch Mukha Singh, AIR 1973 J&K 46; Rehamatunissa Begum v Price, AIR 1917 PC 116.
110 Krishna Kumar Poddar v Ram Kumar Agrawal, AIR 1978 NOC 25 (Pat); Gur Dayal v L Raghunath, AIR 1976 All 141
dissented.
111 Jhandu Mal v Rulia Ram, AIR 1937 Lah 633 : 168 Ind Cas 692.
112 Gur Dayal Prasad v L Raghunath Prasad, AIR 1976 All 141, p 150.
113 Daggumati Radhakrishnaiah v Yedalapalli Govindu, AIR 1966 AP 192; EM Wacha v V Khandboy, ILR 7 Bom 167.
114 EM Wacha v Vkhandboy, ILR 7 Bom 167.
115 Ramagya Prasad Gupta v Murli Prasad, (1973) 2 SCC 9, p 25.
116 Vasantrao v Shayamrao, AIR 1977 SC 1021, affirming AIR 1977 Bom 188.
117 Siddharth Kumar Modi v Jagjit Singh Bindra, AIR 1984 Del 116, p 118; State Bank of Patiala v Amar Nath, (1982) 84
Punj LR 479 : AIR 1983 NOC 150.
118 Md Khalil Rahaman v Bhagabati Charan Roy, AIR 1978 Cal 321, p 323.
119 Lindley on Partnership, 15th edn, p 707.
120 Ebrahim v Westbourne Galleries Ltd, [1973] AC 360 : Re A Co (No 002567 of 1982) 1 WLR 927.
121 Krishnamachariar v Sankaran Sah, (1920) 22 Bom LR 1343 : 57 IC 713 (PC).
122 This note is taken mainly from Pollock on Partnership, 15th Edn, pp 93–4.
123 Palakkal Suhara v Palampadiyan Muhammed, 2014 SCC OnLine Ker 21739 : (2014) 4 KLJ 814 : (2014) 4 KLT 721 :
(2015) 2 CCC 227.
124 Anon (1855–6) 2 K&J 441, p 452 : 69 ER 855 : 110 RR 308, p 315.
125 Harrison v Tennant, (1856) 21 Beav 482 : 52 ER 945 : 111 RR 175.
126 Mellstrom v Garner, [1970] 1 WLR 603 (CA).

127 Cheesman v Price, (1865) 35 Beav 142 : 55 ER 849 : 147 RR 74; Babu Lal v Kanhaiya Lal, AIR 1953 VP 43.
128 Baxter v West, (1860) 1 Dr & Sm 173 : 62 ER 344 : 127 RR 64; Bhagawan v Radhika, AIR 1953 Assam 25.
129 Watney v Wels, (1861) 30 Beav 56 : 54 ER 810; Leary v Shout, (1864) 33 Beav 582.
130 Dropadi v Bankeylal, 184 IC 511 : AIR 1939 All 548; Gur Dayal v L Raghunath Prasad, AIR 1976 All 141.
131 Manilal v Keshabji, AIR 1952 Pat 33.
132 Gattulal v Gulab Singh, AIR 1985 SC 547, p 549.
134 (2000) 4 SCC 368, pr 12; see also Walmsley v White, (1892) 67 LT 433 : 40 WR 675; JBDadachanji v Ravinder Narain,
(2002) 65 DRJ 770 : (2002) 99 DLT 663 : (2002) 3 Arb LR 395; Rajinder Prasad Goyal v Royal Orchid Company, 2011
(3) PLR 266 : (2010) 4 Arb LR 42; Yogendra N Thakkar v Vinay Balse, 2018 SCC OnLine Bom 1200 : 2018 (4) ABR
596 : 2019 (1) ALLMR 255 : 2018 (4) Bom CR 785.
135 Tetali Chinna Krishna Reddy v Konala Nagalakshmi, 2006 SCC OnLine AP 181 : (2006) 4 ALD 596 : (2006) 4 ALT 609
: (2006) 3 Arb LR 575.
136 Hindustan Life Care v N Ramesh, 2008 SCC OnLine Mad 737 : (2008) 5 CTC 481 [In this case, the partnership deed
provided for resolution of disputes through arbitration. However, the clause in the deed pertaining to dissolution and
retirement rights provided. The dissolution of the firm can be initiated only if the majority of the partners agree to do so.
If any partner or two partners wish to leave the firm, they shall do so only by retiring from the partnership. The Court
thus set aside the award in absence of a specific term for reference of all disputes including the issue of dissolution to
the arbitrator.]
137 Mahendra Kumar Poddar v Bansal Builders, AIR 2001 Calcutta 58 : 2001 (2) ArbLR 62 (Cal).
138 Ashok Kumar Malhotra v Kasturi Lal Malhotra, 2012 SCC OnLine P&H 2002. 139. Oliver v Hillier, [1959] 2 All ER 220;
for interpretation of the arbitration clause. Erach FD Mehta v MFD Mehta, AIR (1971) SC 1653; Nitya Kumar Chatterjee
v Sukhendu Chandra, AIR 1977 Cal 130, paras 10, 11.
139 Jones v Foxall, (1852) 15 Beav 388 : 51 ER 588 : 92 RR 473; per James LJ in Vyse v Foster (1872) LR 8 Ch 333, p
334.
140 Narinder Singh Randhawa, v Hardial Singh Dhillon, AIR 1985 P&H 41, p 42; Nitya Kumar Chatterjee v Sukendu
Chandra, AIR 1977 Cal 130; Dwarka Nath Kapur v Rameshwar Nath, (1966) 68 Punj LR 91 (Del).
End of Document
[s 45] Liability for acts of partners done after dissolution.—

(1) Notwithstanding the dissolution of a firm, the partners continue to be liable as such to third parties for
any act done by any of them which would have been an act of the firm if done before the dissolution,
until public notice is given of the dissolution:
Provided that the estate of a partner who dies, or who is adjudicated an insolvent, or of a partner
who, not having been known to the person dealing with the firm to be a partner, retires from the
firm, is not liable under this section for acts done after the date on which he ceases to be a partner.
(2) Notices under sub-section (1) may be given by any partner.
[s 45.1] ACTS OF PARTNERS AFTER DISSOLUTION
A retired partner, with no public notice, is still liable for the actions of the firm.141 The first sub-section is really
equivalent to section 36, sub-section (1), of the English Act, but is more explicitly stated. That enactment
speaks of dealings with a firm “after a change in its constitution,” but older authority makes it clear that the
meaning of these words cannot be narrowed to a change short of dissolution.142 It will be observed that in India,
public notice as per section 72, is now sufficient in all cases, without any distinction between old and new
customers.143 The question arises whether, as a literal reading of the terms would suggest, public notice is
necessary as well as sufficient; in other words, that it would be no answer to a party suing on an act such as
here described that, although public notice of dissolution has not been given, the plaintiff was in fact aware that
the firm was dissolved. Section 264 of the Contract Act, 1872 was differently worded:
Persons dealing with a firm will not be affected by a dissolution of which no public notice has been given, unless they
themselves had notice of such dissolution.
There the reservation was clear and express. It is a question as if it is to be regarded as abrogated—which
would be a surprising and, it seems, unreasonable novelty—by the omission to repeat it in terms. Compare the
English Act, section 36, sub-section (2), where there is no express saving of private notice. The best opinion is
that notice in fact, of any kind, is good if proved.144 It will not, of course, be established by matter of mere
surmise or conjecture. Section 45(1) has a two-fold objective. On the one hand it seeks to protect third parties
dealing with the firm who had no notice of its prior dissolution and on the other, it also seeks to protect partners
of a dissolved firm from liability to third parties for acts of other partners done subsequent to the dissolution.
Section 45 has no application to a joint Hindu trading family. Section 5 makes it clear that the Act governs only
that relation of partnership which arises from contract and not from status such as the one obtaining among the
members of a joint Hindu family trading partnership.145 Even in a case where the firm is an unregistered one, in
order to save the third parties who are dealing in business with it, public notice in the official gazette and also in
the local newspaper about the retirement of a partner is very much required for the purpose of putting the third
parties to notice about its reconstitution and the cession of liability of the partner who had already retired.146
Section 45 also does not apply to a minor who had become major after the dissolution of the firm.147 In a case
arising from Kerala High Court, though no public notice of dissolution was given, on equity, the Court held that
the recovery of penalty under the Kerala General Sales Tax Act, 1963 for the default of the firm from the retired
partners be done only if the sole continuing partner (running the business as proprietorship concern) defaults in
paying of the penalty.148
The object of the legislature, therefore, in enacting this provision was neither to confer a statutory right on a
third party dealing with a firm with notice of its prior dissolution, nor to penalise the partners of the firm for failure
to give public notice by making them liable to third parties who deal with other partners subsequent to the
dissolution with actual knowledge of dissolution of the firm. It would have been a different matter if word
“unless” was used in place of “until” in the phrase “until public notice is given of the dissolution” in sub-section
(1). Sub-section (1) provides for liability for post-dissolution acts to third parties who have no notice of
dissolution altogether, actual or constructive, and not for those who have actual notice of dissolution.149 Where
earlier to the dissolution of the firm all the invoices were signed as partner, which means that it was for and on
behalf of the partnership and subsequently the invoices were signed as proprietor striking out the word partner,
it was held that this should have normally put the plaintiff to guard that the firm was no longer in existence
which amounted to notice of the dissolution of the firm.150
The proviso is equivalent to section 36, sub-section (3), of the English Act, and the illustrations given in
Pollock’s Digest,151 may be useful:
Illustrations
(a) A and B, partners in trade, agree to dissolve the partnership, and execute a deed for that purpose,
declaring the partnership dissolved as from 1 January; but they do not discontinue the business of the
firm or give notice of the dissolution. On 1 February, A endorses a bill in the partnership name to C,
who is not aware of the dissolution. The firm is liable on the bill.152
(b) A bill is drawn on a firm in its usual name of the M Company, and accepted by an authorised agent. A
was formerly a partner in the firm, but not to the knowledge of B, the holder of the Bill, and ceased to
be so before the date of the bill. B cannot sue A upon the bill.153
(c) A is a partner, with other persons, in a bank. A dies while the survivors continue the business under the
same name. Afterwards, the firm becomes insolvent. A’s estate is liable to customers of the bank for
balances due to them at A’s death, so far as they still remain due, and for other partnership liabilities
incurred before A’s death;154 but not for any debts contracted or liabilities incurred by the firm towards
customers after A’s death.155 In the case of liabilities of the firm which have arisen after A’s death, it
makes no difference that at the time, when the partnership liability arose the customer believed A to be
still living and a member of the firm.156
In one case157 the words “a partner who not having been known to the person dealing with a firm to be partner”
fell to be construed. Lynskey J said:
Whether he was to other people an apparent partner, or whether he was a dormant partner, the words seem to me to
be equally applicable. If the person dealing with the firm did not know that the particular partner was a partner, and if
that partner retired, then, as from the date of his retirement, he ceases to be liable for further debts contracted by the
firm with that person. The fact that later the person dealing with the firm may discover he was a partner seems to me to
be irrelevant. If the person who subsequently deals with the firm had no knowledge prior to the dissolution that the
retiring partner was a partner, then (the proviso) comes into operation, and, in effect, relieves the person retired from
liability.
In a case, A and B were partners and had dissolved the partnership, A agreeing to continue the business. After
dissolution, A ordered certain goods from X, using notepaper on which the names of A and B appeared as
partners. It was held that B had not authorised A to continue to use the old notepaper and, therefore, B was not
liable to X.
The High Court of Madras has held that where money is borrowed by the surviving partner to pay for and take
delivery of goods ordered by the firm in the lifetime of the deceased partner, the estate of the deceased is not
liable for the debt. All that the creditor is entitled to is a personal decree against the surviving partner and a
decree against the partnership assets in the hands of those partners.158
The Bombay High Court held, under section 264 of the Contract Act, that a dormant partner is liable for
obligations incurred after his retirement; the proviso to the present section excludes this view, which may well
have been wrong even under the Contract Act. The only ground on which a retired partner can be liable is that
credit was given to him as an ostensible partner.159 When premises are let out to a firm, all partners become
liable for rent and the fact that the firm is dissolved and the premises are allotted to one of them would not
absolve the others of the liability to pay rent vis-à-vis the landlords unless they have assented to the same.160
An infant was apprenticed to two persons trading in partnership. The covenants by the partners in the
apprentice deed were joint covenants. One of the partners went out of the firm and gave notice to the
covenantee. It was held that the dissolution of the firm was a breach of the covenants as the partners had
thereby rendered themselves unable to carry out their covenants towards the infant, and that they were liable in
damages.161
Section 45 declares the continuing liabilities of the partners to third parties until public notice is given of the
dissolution. The object of giving such public notice is to enable the third party to know of the retirement. Even in
the absence of the public notice, the result would be the same if the notice of dissolution had been individually
given to the third party. The logic of this elucidation is given in the decision of the Andhra Pradesh High Court. It
reads:162
That individual notice affords higher protection than public notice and that, when a person sought to be affected, had
knowledge that the firm was dissolved, it creates a form of estoppel and it is not open to him to plead that there was no
public notice.
The factum of dissolution, and the date thereof of such dissolution could be inferred from the facts of the case.
The interaction of sections 32 and 63(1) is an issue, which will arise in the operation of a firm. If the
requirements of section 32 are not fulfilled on the retirement, there cannot be any retirement in law. Merely
sending a notice under section 63(1) to the Registrar of Firms and the registrar effecting necessary entries in
the register will not effect a retirement.
The observation in163 in this regard cannot be taken as laying down any proposition of law. On the facts it was
held that there was no proof about a person who claimed to be a partner of a firm, having so become a partner.
The principle of holding out by a partner to the outside world has a long history. The object of the rule was not
to impose a statutory liability on retiring partner but to protect the parties. The rule of estoppel was incorporated
into the rights and responsibilities of a retiring partner.
The Privy Council, in Jwaladutt R Pillani v Bansilal Motilal, AIR 1929 PC 132 observed:164
The law prior to the enactment of Indian Partnership Act, 1932 was the same of England.
That legal position was explained by reference to Pollock, Digest of Law of Partnership.165
The Bombay High Court in Vinayaka Keshav Paranjape v Dena Bank, Bombay, (1998) 3 Mah LJ 39, explained
the ramifications of section 32.
Section 32 removed the distinction between private notice and public notice. Section 32(3) did not create a
liability where none existed before; it did not penalise a retired partner who failed to give public notice of
retirement. There can be no holding out if the person who deals with a new firm, is aware of the retirement of a
particular partner. Personal or actual notice would serve better, the object of issuing notice. The decisions in
Ratanji Bhagwanji v Prem Shankar, AIR 1938 All 619, and Central United Bank Ltd, Rajapalayam v BA
Venkatarama Naidu, AIR 1963 Mad 302, declare the above legal position.
Section 42(3) of the Act does not bar the institution of a suit for dissolution of a firm when it is sought on
numerous grounds, even though the firm is dissolved by any partner by giving notice, as in Chinna
Ramanathan Naidu v B Subbarami Reddy, (1994) 1 Andh LT 88.
Public notice is visualised in the context of dissolution of a firm. Some exceptional situations are carved out by
the proviso. Death or insolvency of a partner are the first two exceptions. The third one is “of a partner who not
having been known to the person dealing with the firm to be a partner, retires from the partnership”. It has been
held that in case of death, an arbitral award is not binding upon the legal heirs of the deceased partner.166
The interaction of the two sections has been explained in Kamutala Laxminarayana v Firm Laxmi Venkata
Satyanarayan, (1988) 2 Andh LT 780 by the Andhra Pradesh High Court. The proviso to section 45 has no
application to a dissolution simpliciter. “When it is dissolution simpliciter, it is not retirement and the proviso
cannot operate in favour of such retiring partner dispensing with public notice on the ground that the third party
who is dealing with him has no knowledge of his partnership of the firm. The view of the Calcutta High Court in
Juggillal v Sew Chand, AIR 1963 Cal 505, was followed by the Andhra Pradesh High Court.
141 Jani Nautamlal v Shri Vivekanand, AIR 1986 Guj 162; Omprakash v Gordhan, 2006 SCC OnLine MP 173 : [2006 (2)
MPLJ] 497; C Ponnusamy v Chinnamman Constructions, 2014 SCC OnLine Mad 5664 : 2014 (5) CTC 808.
142 Ex p Robinson, (1833) 3 D & Ch 388.
143 Section 264 of the Indian Contract Act, 1872, was finally held in 1920 not to have abolished the rule that old customers
were entitled to special notice, Jwaladutt R Pillani v Bansilal Motilal, (1929) LR 56 IA 174.
144 Central United Bank Ltd v Venkatarama Naidu, AIR 1963 Mad 302; Jani Nautamlal Venishankar v Vivekanand Co-op
Housing Society Ltd, AIR 1986 Guj 162, pp 171–2.
145 Nandhand Gangaram Sheth v Mallappa Mahalingappa Sadalge, (1976) 2 SCC 429, p 439.
146 Meenakshi Sathish v Southern Petrochemical Industries Corporation Ltd, (2008) 2 MLJ Crl 117; Firos CM v Director,
2017 SCC OnLine Mad 5699.
147 Shivagouda Ravji Patil v Chandrakant Neelkanth Sadalge, AIR 1965 SC 212.
148 Danesh Kumar Gupta v Inspg Asst Commissioner (Inv Branch), 2007 SCC OnLine Ker 655 : (2008) 13 VST 461 :
(2008) 2 KLT (SN 35) 28.
149 Natwarlal Ambalal & Co v D Chaturbhai, (1977) 18 Guj LR 127; Rama Rao v Venkateshwara Rao, AIR 1963 AP 154;
ABP Pvt Ltd v Jyoti Jain, 2014 SCC OnLine Cal 18154; Kamangar and Company v AL Byahatti and Sons, 2011 SCC
OnLine Kar 22 : ILR 2011 KAR 1576.
150 H Manjunatha Nayak v Ullal Dayanand Hanumanth Nayak, AIR 1984 Kant 55, p 59.
152 Fx p Robinson, (1833) 3 D & Ch 388.
153 Carter v Whalley, (1830) 1 B & Ald 11 : 109 ER 691 : 35 RR 199.
154 Devaynes v Noble,(1816) 1 Mer 529 : 35 ER 767 : 15 RR 151; Sleech’s case, (1816) 1 Mer 539 : 35 ER 771 : 15 RR
155; Clayton’s case (1816) 1 Mer 672 : 35 ER 781 : 15 RR 161.
155 Brice’s case, (1816) 1 Mer 622 : 35 ER 797 : 15 RR 171.
156 Houlton’s case, (1816) 1 Mer 616 : 35 ER 796 : 15 RR 169. The judgment itself in this case is not reported; but it
appears by the marginal note and the context that it followed Brice’s case. The authority of Houlton’s case is not
affected by anything in the Act, Friend v Young, [1897] 2 Ch 421, p 428 : 66 LJ Ch 737; Hameed Rowther v Aiyappa
Mudaliar, (1940) 187 IC 100 : AIR 1940 Rang 60.
157 Tower Cabinet Co Ltd v Ingram, [1949] 1 All ER 1033, pp 1037–38.
158 Seshi Ammal v Viaravan Chettiar, (1918) 35 Mad LJ 669 : 47 IC 958.
159 Gorio v Vallabhdas, (1915) 17 Bom LR 762 : 30 IC 904; followed Chenchuvenkatanagiah Chetty v Padmanathan
Chetty, 106 IC 904 : AIR 1928 Mad 125.
160 Kanahiya Lal v Labhu Ram, AIR 1971 Del 219.
161 Titmus and Titmus v Rose and Watts, [1940] 1 All ER 599.
162 T Rama Rao v C Venkateswara Rao, AIR 1963 AP 154.
163 AIR 1977 SC 211.
164 AIR 1929 PC 132.

165 Fifteenth edn, p 96.
166 Ranjit Singh v Food Corporation of India, 2018 SCC OnLine Del 12048.
End of Document
[s 46] Right of partners to have business wound up after dissolution.—


On the dissolution of a firm every partner or his representative is entitled, as against all the other partners or
their representatives, to have the property of the firm applied in payment of the debts and liabilities of the firm,
and to have the surplus distributed among the partners or their representatives according to their rights.
[s 46.1] PARTNERS’ RIGHTS ON DISSOLUTION
Under section 46 on the dissolution of the firm, the other partner or his representative is entitled as most of the
other partners or their representatives to have the property of the firm applied in payment of the debts and
liabilities of the firm and to have the surplus distributed according to their rights.167 Sections 46 and 48
constitute a complete code in itself for settlement of accounts, sharing of profits/losses and distribution of value
of the assets of the partnership firm among the partners in the residue after settling the accounts.168 On
dissolution, the immovable property of a partnership firm converted into money, therefore, loses the character
of immovable property in the hands of the partner and the partners are entitled to receive their proportionate
share in residue of the property being money represent the value of the property.169
The Supreme Court in Ravi Prakash Goel v Chandra Prakash Goel, 2008) 13 SCC 667 : (2008) 13 SCC 667,
has interpreted the rights available under section 46 as under:
Section 46 provides two things, namely, first is to realise the assets of the business and then to apply the same for
discharge of liabilities and finally to distribute the surplus, if any, among the partners. All that section 46 empowers is
that every partner shall claim that this is to be done for ultimate distribution of the surplus to the partners according to
their shares. A suit to enforce the latter right relating to the distribution of surplus is generally called a suit for an
account which means account taken up accordingly. This right to a partner to file a suit for account is not affected by
the fact that the retiring partner has already inspected the accounts of the firm. Section 46 is, however, merely
declaratory of the rights of the partners or their legal representatives in the surplus and does not set out the mode of
calculating the surplus. The share of a partner upon the winding up of a dissolved firm, is only in the residue which is
left after the liabilities mentioned in the various clauses of section 48 have been paid out. Payment of capital and
advances to partners is not out of the residue. The amount paid as capital investment to a partner will have to be
deducted in order to find the value of the residue, because the value of a partner’s share is only his proportion of the
residue.
The Court has further laid down the duty of the surviving partner in case of a dissolution of the firm due to death
of one of the partners:
When a partner dies and the partnership comes to an end it is not only right but also the duty of the surviving partner to
realise the assets for the purpose of winding up of the partnership affairs including the payment of the partnership
debts. However, it is true that in a general sense the executors or administrators of the deceased partner may be said
to have a lien upon the partnership assets in respect of his interest in the partnership and taking the partnership
account.
This is the substance of section 39 of the English Act, with verbal condensation. Section 265 of the Contract
Act, amended in 1880, which it supersedes, gave the court a general power to act, which was exercised
according to English authority. The law is unchanged in substance, though more definitely declared. This right
is said to be in the nature of an equitable lien existing throughout the partnership, although it remains dormant
until a dissolution, when it immediately attaches to what was partnership property at that date.170 The lien is
analogous to a floating charge created by a debenture of a limited company and it is lost by the conversion of
the assets into the separate property of one of the partners.171 A partner’s lien may be lost if he impliedly
abandons it in favour of some other security, eg a specific charge over certain assets.172 If a partnership is
illegal, its members have no lien upon their common assets or upon each other’s share therein; unless it is by
virtue of some agreement, not affected by the illegality173. The partners can devise a composite scheme in
which assets and liabilities may, instead of being respectively realised and discharged, be distributed amongst
themselves. That would be a valid manner of settling the accounts of the dissolved firm. However, in view of
sections 46 and 48, whatever actual method of distribution is adopted by the partners, in law there can be pro
rata division only of the residue, if any, left after taking into account the various liabilities. Value of a parent’s
share in the residue will be the value of the assets, less the liabilities allotted to him.174
A signed balance sheet can constitute an acknowledgement of liability to account and was sufficient to justify a
decree for account in respect of matters covered by such acknowledgement.175
It follows from the provisions of this section that the right of a partner only extends over the property of the firm
and to separate interest of each partner in such property. If a partnership is in respect of profits only, but that
which produces those profits belongs exclusively to one of the partners, the lien of others is confined to the
profits, and does not extend to that which produces them.176 The rights and liabilities of the partners in respect
of the partnership property would be discharged only when the firm is finally wound up and the properties of the
firm are distributed.177
[s 46.2] SUIT FOR ACCOUNT
On dissolution of a firm accounts are to be reconciled and on reconciliation of accounts one or other partner
may be found entitled to receive money from the other partners. Till the accounts are rendered or reconciled, it
cannot be said that amount received or held by one partner is payable to the other. On rendition of account, it
may transpire that an asset or money held by one partner, may in fact fall into his own share. It is only on
rendition of account or on dissolution of firm one can determine as to which partner is entitled to receive from or
deliver to the money or assets to the other partner. Till accounts are reconciled/rendered there is no distinct or
definite share of any partner in any asset of the partnership firm.178
No suit will lie, as a general rule, by one partner against another for partnership accounts without praying for a
dissolution.179 In the case of a dissolution, the dissolution closes the dealings between the partnership and
others and eventually accounts between the partnership firm and other parties. Thereafter, there cannot be an
open, mutual and current account between the parties.180 If a partner asks for an account without asking for a
dissolution, the court must be satisfied that there are special grounds for granting the prayer, which grounds
must be alleged by the plaintiff in his pleadings.181 Such was the rule of English courts of equity. Moreover,
when a suit for account is brought, all questions arising between the partners out of the partnership dealings
should be disposed of in that suit.182 Ordinarily, in suit for partnership accounts, the account of the partnership
will begin from the commencement of the partnership, unless it is shown that there has been an adjusted
account at a later date.183
No suit can be maintained by one partner against another in respect of any transaction which forms an item of
the partnership account, for such a suit would, from its very nature, involve the taking of the whole partnership
account, and this can only be done in a suit of an account.184 There is no rule of law, which prevents an action
being brought by any party to the partnership from recovering any amount from any partner even though it may
have some connection with the partnership concern.185 Thus, one partner cannot sue for money lent by him to a
firm of which he is a member; for the advance is but an item in the partnership account.186 However, the suit will
lie if it is brought on a transaction, which does not involve a general account of all the partnership dealings.
Thus, one partner can sue his copartners for contribution in respect of moneys borrowed by him under an
express agreement with them for the purposes of the partnership, without also asking for a general account.187
Similarly:
When two partners borrow from a bank on their joint promissory note, and apply the money borrowed to the
partnership concern, and one of the partners is compelled to pay more than his share of the debt, the transactions
have been considered to be separate and altogether dehors the partnership, and as such capable of sustaining an
action for contribution.188
On the same principle, if partners borrow money from a stranger to start the partnership business, and a decree
is obtained by the creditor against the partners and executed against one of them only for the full amount, he is
entitled to contribution from his co-partners.189 Moreover, one partner may likewise sue another for advances
made by him not to the partnership concern, but to the other partner in respect of what he is to contribute to the
joint capital.190 Similarly, a suit is maintainable by one partner upon a promissory note given to him by the other
partners in respect of an advance made by him to the firm, and it is no answer to such a suit that if the general
accounts of the partnership were taken, nothing would be found due to him.191 Upon the same principle, if A
and B enter into a partnership under an agreement that the whole capital should be brought in by A, and that B
should hand over to A all moneys received by him in the course of the partnership business irrespective of the
state of the general account, A can maintain a suit against B for moneys received by B but not handed over to
A.192 However, where an individual is a common partner in two firms, no action can be brought by one firm
against the other upon any transaction between them so long as that individual continues to be a common
partner. This doctrine, however, does not rest upon any principles of the law of partnership, but is founded on
the elementary rule of procedure that the same individual, even in different capacities, cannot be both, a plaintiff
and a defendant, to one and the same action.193
If a partner, with the express or implied consent of the other partners, spends money on bribes on behalf of the
firm, credit must be given to him for such sums in the taking of accounts, the question whether the expenditure
on bribes was opposed to public policy being irrelevant, as the bribes in such a case are not the consideration
of a contract which is sought to be enforced by the partners.194 However, where a partner has given bribes
without the consent of the other partners, he is not entitled to bring into account such payments so as, thereby,
to obtain contributions for such payments from the other partners.195
A settlement of account can be reopened on the grounds of fraud or mistake or some other ground which the
court would accept as having led one of the parties to accept the account as correct which, in equity, would be
considered as unconscionable. Where, therefore, on dissolution, accounts were mutually settled between the
partners and the plaintiff was given the right to realise the assets and liabilities of the firm by the other three
partners who had relinquished their rights in his favour for consideration and later a sum shown to be due from
the bank to the firm turned out to be a false entry, it was held that the plaintiff was entitled to have the error in
the account rectified and the said entry struck-off and the defendants were duty-bound to disgorge the amount
by which they were unjustly enriched due to the entry.196
In a case where there is a stipulation in the partnership deed for sale, on the death of a partner, of his share to
his surviving partner, an error made in the valuation of the deceased partner’s share will be put right by the
court in a proper case. If, however, it is not challenged for a number of years, the court will let it stand unless
manifestly wrong.197
When the valuation of such share is honestly made by an independent valuer as per the partnership deed, it will
generally be binding and cannot be upset.198 In the event of negligent error of the valuer, the remedy would be
against the valuer for damages.199
In a suit for accounts, all the partners and the legal representatives of deceased partners should be made
parties. If a party is added after the bar of limitation, the suit will be barred against all the parties.200
In a suit for dissolution and accounts of a firm which carried on business outside India, the relevant date for
determining the exchange rate is the date on which the accounts had been closed and the business wound
up.201
[s 46.3] ARBITRATION FOR ACCOUNT
An application for appointment of an arbitrator by the legal representative of a deceased partner is

maintainable. While right to sue for rendition of accounts of partnership firm survives on the legal representative
of a deceased partner, he is also entitled to invoke the arbitration clause contained in the partnership deed.202
[s 46.4] FORM OF PLAINT IN A SUIT FOR DISSOLUTION
In every suit for dissolution of partnership and rendition of accounts every partner is both a plaintiff and a
defendant meaning thereby a partner is a plaintiff to the extent that he has to get rights in the partnership firm
and the partner is a defendant to the extent that he is liable to render accounts of any of the assets etc. of the
partnership firm in the hands of such partner. Every partner therefore has a right and a liability and is therefore
both a plaintiff and a defendant simultaneously in a suit for dissolution of partnership firm and rendition of
accounts.203 Regarding form of plaint, Code of Civil Procedure 1908, Sch I, App A, No 49 should be referred to,
whereas Sch I, App D, Nos 21 and 22 should be referred to regarding forms of decrees.204
[s 46.5] ACCOUNTS BEFORE COMMISSIONER
In a partnership suit, accounts taken by a commissioner without production or discovery of the partnership
books and documents are not properly taken.205 The commissioner appointed to go into accounts of a
partnership, which has been dissolved by the death of a partner, must follow the procedure laid down by
sections 46 and 48. He cannot simply allow the amount standing due to the credit in the deceased partner’s
personal account to the heir of the deceased partner. Payment of this amount could only arise when the debts
of third parties were cleared and so also the loans, if any, obtained by the firm from the partners. Ratable and
proportionate distribution had to be done of the residue towards capital investment of the partners and share of
profits.206 A combined reading of sections 46 and 48 shows that after dissolution of the partnership, the partners
cannot manage its affairs and that this role can be played only by disinterested neutral persons.207
[s 46.6] PARTNER’S RIGHT TO ACCOUNTS
Every partner’s legal right to have the accounts taken on dissolution is unaffected by any question, however
grave, about his conduct in partnership affairs. The time for such questions to be decided is when the accounts
are taken.208 In taking them, he cannot be charged with estimated loss of profit caused by his want of diligence
in the business, short of fraud or wilful default.209 In a suit for accounts, practically every partner is in the
position of a plaintiff and defendant and each is liable to render accounts. To such a suit, all partners must be
parties.210 Where the suit was filed to recover a specified amount as due on settlement of account of the
partnership which was dissolved and no relief for accounts was prayed, it was held that the matter could not
have been remanded for taking accounts.211
[s 46.7] LEGAL REPRESENTATIVE OF DECEASED PARTNER
The surviving partner or partners have the right and duty to realise the partnership property, and in this sense
they are in a fiduciary relationship to the deceased partner’s representatives as regards his interest in the
partnership property. However, a surviving partner cannot be considered a trustee or made liable as a
trustee.212 A partner or a representative’s lien with reference to partnership assets is generally on the surplus of
the assets and he cannot claim any particular item of property.213
Where a partnership was dissolved by the death of a partner who was the karta of a Hindu joint family, the
family was held entitled to claim accounts as his representative within this section.214 In the absence of a
provision expressly meant or clearly implied, a legal representative will be entitled to a share in the goodwill
also.215
[s 46.8] APPOINTMENT OF RECEIVER
In England, the effect of appointing a receiver is, to the extent of the authority delegated to him by the court, to
exclude everyone else from exercising the authority of a partner, whether usual or specially regulated by
agreement; and if he is also appointed manager, the whole control of the business is transferred to him, subject
to the directions of the court, whose officer he is. Hence, a receiver is seldom appointed when dissolution is not
contemplated,216 though it can be done,217 and a manager never.218 Where the partnership is already dissolved,
to appoint a receiver at the instance of a partner is almost a matter of course, though not of right.219 Where one
or more partners are bankrupt, it is the practice of the court to appoint the solvent acting partner receiver and
manager, requiring security in its discretion. Where the existence of the partnership is in issue although the
court may have the power to do so, it would be slow to appoint a receiver. In considering whether a receiver be
appointed or not the court will carefully consider the nature of the business of the firm and the probable effects
as a result of such appointment.220 It is not considered desirable, as a rule, to separate the offices of receiver
and manager, though the court has power to do so.221On the other hand, where the partnership is not yet
dissolved, the appointment of a receiver is not an ordinary incident of an action for dissolution. There must be
fraud or gross misconduct of some kind,222or wilful denial of the complaining partner’s rights,223 or persistence,
under colour of right, in conduct endangering the assets.224 In such cases the court will act either before, or
after a dissolution.
As Lord Eldon observed:
As, in the ordinary course of trade, if any of the partners seek to exclude another from taking that part in the concern
which he is entitled to take, the court will grant a receiver, so in the course of winding up the affairs after the
determination of the partnership the court, if necessary, interposes on the same principle.225
The jurisdiction “is founded on the common right of persons who are interested in property which is in danger to
apply for its protection”,226 and even a doubt as to the legality of the partnership or its objects will not hinder the
court from preserving the property in the meantime,227 or enable a defendant to deny all relief to the plaintiff.228
The appointment of a receiver does not, of course, conclude any ultimate question. Where no misconduct is
alleged the court will refuse to appoint a receiver in interlocutory proceedings unless there is positive evidence
of danger to the partnership assets.229
Receivers and managers are officers of the court, and do not succeed to the personal fiduciary relations of
partners. Accordingly, if they become entitled to an indemnity for expenses of management, they can look only
to the assets under the control of the court.230They will not be restrained from dealing on their own account with
customers of the firm, or competing with a purchaser of the business, doing nothing inconsistent with their
employment while it lasts.231 A discussion of their position in Bank of Commerce Ltd v Arun Kumar, AIR 1965
Cal 333, will throw more light in this respect. A partner appointed receiver by the court on the usual terms is
entitled as such to his remuneration and costs out of the assets in his hands, although as a partner he is in debt
to the firm and unable to pay.232 This position, as an officer of the court, is independent of the state of his
accounts as a partner with the firm. The plaintiff, in spite of his compulsory retirement from the partnership and
in spite of his issuance of the notice of dissolution of the partnership at will under section 43, waited for about
three years and allowed the other partners to carry on the partnership business with great difficulty caused due
to his conduct. It was only after the new partnership business run by them became very profitable that the
plaintiff filed a suit for dissolution and accounts and made an application for appointment of a receiver over its
property. The court rejected the prayer for appointment of a receiver on the ground of delay and laches.233
[s 46.9] RECEIVERS IN INDIAN PRACTICE
The power of Indian courts to appoint a receiver is now defined by O XL, rule 1 of the Code of Civil Procedure
1908. Under that rule, a receiver may be appointed “where it appears to the court to be just and convenient”.234
The court can appoint a receiver during the pendency of an application under section 20 of the Arbitration
Act.235 The high courts, in their original jurisdiction, possess the same powers with regard to the appointment of
a receiver as are possessed and exercised by the courts in England under the Judicature Act.236 Assets of a
partnership in the hands of a receiver cannot be attached by a creditor of the firm without first obtaining the
leave of the court, as they are in the hands of the court through its officer, the receiver; and such leave will not
be granted except on such terms as will ensure equality between the creditors.237 The Civil Procedure Code of
1908 (O XL) assimilates Indian and English practice.
[s 46.10] APPOINTMENT OF RECEIVERS IN DISSOLUTION PROCEEDINGS
In Firm Ashok Traders v Gurumukh Das Saluja, (2004) 3 SCC 155 : AIR 2004 SC 1433, the Supreme Court
held that the most basic principle governing the discretion of the court in appointing a receiver is whether it is
“just and convenient” to do so. The court interfered with the order of the high court appointing one of the
partners as receiver on the ground that the groups holding 80 percent of the shares had been ousted by the
holders of the group having 20 percent interest only, which has been appointed receiver for running the
business. It was also found that the partnership business was of liquor outlets which were to be run for 12
months out of which nine months had already elapsed. The Supreme Court, in Kalpana Kothari v Sudha Yadav,
(2002) 1 SCC 203, para 10 while setting aside a high court order appointing a receiver, took note of the
following illustrative guidelines to ascertain the need for or desirability of appointing a Receiver:
(i) the overall necessity to balance the interests of parties;

(ii) serious difficulties and loss to which the firm and partners may be put into by freezing the day-to-day
business activities of the firm;
(iii) adverse impact on the credibility and reputation of the firm.
In Raghbir Singh v Gurcharan Singh, (1993) Supp 3 SCC 81 the Supreme Court has clarified that “day-to-day
business” means business permitted to be carried on to effectuate the winding up and not to carry on the
business in normal fashion as if there was no winding-up order. It does not include a new business. In this
case, the receiver carried on the business of purchase and sale of finished goods resulting in rise in stock-in-
trade of the firm. The receiver was also purchasing goods instead of only clearing the available stock-in-trade.
The appointment of a receiver is within the discretion of the Court238 and the receiver has to be appointed only
when it appears to be just and convenient, but in cases where one partner is taking undue advantage out of the
assets and business of a dissolved firm and is trying to exclude other partners by show of force, appointment of
receiver is just and convenient to make parties abide by law and not go by their muscle power.239
A receiver is to be appointed as a matter of course when a partnership is dissolved under the orders of a
court240 and the relationship between the partners is extremely strained,241 or if the partnership has already
been dissolved and any of the parties has come to the court for seeking his reliefs due to him as an ex-partner.
A receiver can be appointed to take charge of the partnership assets, collect the same and convert it into cash,
if necessary, and to discharge the debts of the firm and thereafter divide the surplus between the partners.242
The Delhi High Court turned down the prayer for appointment of a Receiver to take possession of immovable
property from the defendants since a plea had been raised that the defendants were trespassers in the
premises.243 However, where there was a reasonable apprehension that the partnership property, assets or
income were in danger of being misused or dissipated due to dissolution of the firm, a receiver was
appointed.244 However, this course may not be followed by the courts where the outgoing partner appears to be
himself not participating in the partnership business before the dissolution of the partnership or holds only a
minor share in the partnership firm or where the partners under the control of the dissolved firm are majority
shareholders and appear to be bona fide trying to wind up the business and complete the commitments of the
firm prior to dissolution, which are so much that the receiver may not be in a position to fulfill the same.245
Where the share of outgoing partner is retained by another partner and property of the firm is used by him to his
own advantage,246 or where one of the partners has been excluded and other partners are continuing in the
management even after dissolution,247 the appointment of a receiver was found to be necessary.
[s 46.11] LIMITATION PERIOD FOR A SUIT FOR DISSOLUTION
The period of limitation for a suit for an account and a share of the profits of a dissolved partnership is three
years from the date of dissolution;248 and the period is the same even if the instrument of partnership is
registered.249 A suit for accounts against the retired partner filed beyond three years from the date of dissolution
was held by the Supreme Court to be barred by limitation.250 A suit for division of immovable property forming
part of partnership assets after the dissolution of partnership is governed by Article 106 of the Limitation Act,
1908.251 It is open, however, to the partners to agree to an account among themselves even after the expiry of
three years from the date of dissolution;252 and such a settlement is supported by consideration, as all the
partners make mutual promises to abide by the settlement.253 The expression “share of the profits” in Article 5
of the Limitation Act, 1963 applies equally to a claim for a share in the capital. It covers a suit for a partnership
account and to recover plaintiff’s share of the assets and property of the partnership business.254
A suit brought on the death of a partner by his legal representative for accounts of the partnership business
since such partner’s death, is not governed by Article 106 of the Limitation Act, 1963 inasmuch as the right of
the legal representative is not to a share of the profits of a dissolved partnership within the meaning of Article
106, but a right accruing to him by subsequent dealing with the assets belonging to the deceased partner.255
[s 46.12] ASSETS BROUGHT IN AFTER DISSOLUTION
Where after a dissolution and winding up of the partnership affairs an asset falls in, which for any reason has
not been taken into account, “it ought to be divided between the ex-partners or their representatives, according
to their shares in the former partnership”.256
However, if there has been no taking of accounts and no final settlement, the proper remedy is to have the
accounts of the partnership taken; and if it is too late to do that, it is too late to claim a share in the newly
recovered asset; for the plaintiff could not make such a claim good without showing that he would be entitled to
that share upon the due taking of the accounts.257
[s 46.13] COSTS IN A SUIT FOR DISSOLUTION
Under ordinary circumstances, the costs of a partnership suit should be paid out of the assets of the
partnership, or, in default of assets, by the partners in proportion to their respective shares, unless any partner
denies the fact of partnership, or opposes obstacles to the taking of the accounts, and so renders a suit
necessary, in which case he is usually made to pay the costs up to the hearing.258
[s 46.14] INTEREST
Interest on any sum found due to a partner runs only from the date of the final decree by which it is found due.
A partner is not generally chargeable with interest on overdrawing.259
[s 46.15] PURCHASE OF PARTNERSHIP ASSETS BY ONE OF THE PARTNERS
Where one of the partners has a preponderating interest in the partnership, he may submit a proposal to the
court for the purchase of the share of the other partner or partners. It is open to the court, in such a case, to
value the share of the other partner or partners and to order the sale of the concern to the partner with the
preponderating interest.260 No interest from the date of the plaint is allowable where the suit is filed for
dissolution of a going concern. Where, however, the suit is for settlement of accounts of a dissolved firm,
interest can be allowed from the date of the plaint.261
167 CIT, Madhya Pradesh v Dewas Cine Corpn, AIR 1968 SC 676.
168 K Laxminarayana Reddy v Vardhi Reddy Dasrath Ram Reddy, 2012 SCC OnLine AP 1061.
169 Shanti Bai Agrawal v Uma Bai Agarwal, (2015) 1 HCC (Chh) 145 : AIR 2015 Chh 80 : 2015 (2) CGLJ 466; Viswanathan
v Subramanian, 2018 SCC OnLine Ker 3440.
170 Payne v Hornby, (1958) 25 Beav 280; ex p Morley, (1873) 8 Ch App 1026.
171 Re Bourne, Bourne v Bourne, [1906] 2 Ch 427.
172 Burston Finance Ltd v Spierway, [1974] 1 WLR 1648 a case concerning the loss of an unpaid vendor’s lien; if a
partnership is illegal, its members have no lien upon their common assets or upon each other’s share therein; unless it
be by virtue of some agreement not affected by the illegality.
174 Manohar Das v The Board of Revenue, Uttar Pradesh, AIR All 523, p 526.
175 Kamouh v Associated Electrical Inds Intl Ltd, [1980] QB 199; Re Compania De Electricidad etc, [1980] Ch 146; Jones v
Bellgrove Properties Ltd, [1949] 2 KB 700; Re Overmark Smith Warden Ltd, [1982] 1 WLR 1195.
176 Stekel v Ellice, [1973] 1 WLR 191.
177 Shreedhar Govind Kamerkar v Yesahwant Govind Kamerkar, (2006) 13 SCC 481 : 2006 (14) Scale 174.
178 Charanjeet Singh v State (NCT of Delhi), 2019 SCC OnLine Del 6397.
179 Golla Nagabhushanam v Kanakala, (1864) 2 Mad HC 28; Kassa Mal v Gopi, (1886) 9 All 120; Damodara v Subraya,
(1917) 33 Mad LJ 509 : 43 IC 217; Mistry Goa Petha v NH Moos, (1931) 10 Pat 792 : 133 IC 40 : AIR 1931 Pat 312;
Lindley on Partnership, 15th Edn, pp 591–2, 624.
180 MW Pradhan v Panchal Engg Works, AIR 1967 Bom 48.
181 Krishnaswami Naidu v Jayalakshmi Ammal, (1931) 54 Mad 671 : 130 IC 766 : AIR 1931 Mad 300.
182 Lalbhai v Kavasji, (1871) 8 BHC 209 (OC); Keshav v Rayapa, (1875) 12 BHC 165.
183 Shawal Ram Dunharmal v Tansukdash, (1929) 33 Cal WN 1104 : 125 IC 721 : AIR 1930 Cal 154.
184 Bhagtidas v Oliver, (1872) 9 BHC 418; Manni Lal v Narain Das, 21 Luck 295 : AIR 1946 Oudh 118; Hari Shankar v
Bansilal, (1946) Ngp 301 : AIR 1946 Ngp 118; Mohamadali v Karji Kondho, AIR 1945 Pat 286 : 220 IC 217; Moyyappa
Chettiar v Palaniappa, AIR 1949 Mad 109 : 2 Mad LJ 589.
185 Harivallabh Chhotalal Nagori v Ahmedali Rajabhai Kadiani, AIR 1969 Guj 145.
186 Rustomji v Sheth Purshotamdas, (1901) 25 Bom 606, nor can one partner sue another for money received by the latter
on behalf of the firm, but not accounted for by him to the firm; Bhut Nath Das v Girish Chandra, (1907) 11 Cal WN 311.
187 Durga v Raghu, (1898) 26 Cal 254.
188 Subbarayudu v Adinarayudu, (1894) 18 Mad 134, p 135; Dayal v Khatav, (1875) 12 BHC 97, p 107; Durga Praosonno
Bose v Raghu Nath Dass, (1898) 26 Cal 254.
189 Labau Sardar v Choyen, (1915) 19 Cal WN 768 ; 29 IC 811.
190 Rustomji v Sheth Purshotamdas, 25 Bom 606; Somanna v Subba Rao, AIR 1958 AP 200, where it was argued that a
legal representative of a deceased partner could not sue for a debt due to the legal representative personally.
191 Vallam Kondu v Malupeddi, (1908) 31 Mad 343; distinguishing Rustamji v Sheth Purshotamdas, (1901) 25 Bom 606;
Ramnath v Pitamber, (1916) 43 Cal 733, pp 740–41 : 31 IC 430.
192 Karri Venkata Reddi v Kollu Narasayya, (1908) 32 Mad 76; Hirji Melaram v Kripa Ram Brij Lal, (1921) 2 Lah 351 : 66 IC
478.
193 Rustomji v Sheth Purshotamdas, 25 Bom 606, p 612. See now the Code of Civil Procedure 1908, O 30, rule 9.
194 Joti Prasad v Hardwari Mal, (1930) 53 All 54 : 137 IC 334 : AIR 1932 All 128.
195 Venkatachala Chetty v Natesa Chetty, (1939) 1 Mad LJ 905 : AIR 1939 Mad 670.
196 S Sethuratnam v M Mutiah, AIR 1979 Mah 60, p 68; Rattan Lal Ahluwalia v Jai Jamindar Prasad, AIR 1976 P&H 200, p
202.
197 Hordern v Hordern, [1910] AC 465, pp 475, 476; Vysev Foster, (1874) LR 7 HL 318.
198 Campbell v Edwards, (1976) 1 WLR 403 (CA); Baber v Kenwood Mfg Co Ltd, (1978) 1 Lloyd’s Rep 175 (CA); Burgess
v Purchase & Sons (Farms) Ltd, [1983] 2 WLR 361; summary of the law set out in the judgment of Nourse J in Frank H
Wright (Construction) Ltd v Frodoor Ltd, [1967] 1 WLR 506; Smith v Gale, [1974] WLR 9.
199 Sutcliffe v Thakrah, [1974] AC 727 (HL); Arenson v Casson Backman Rutley & Co, [1977] AC 405 (HL), in normal
circumstances a “mutual” valuer chosen by the parties will be liable for negligence unless he is acting as an arbitrator.
200 Yakub Ibrahim v Gulamabbas, AIR 1958 Bom 51.
201 MC Manickam v VSM Sivalingam Chettiar, AIR 1977 Mad 324.
202 Ravi Prakash Goel v Chandra Prakash Goel, (2008) 13 SCC 667 : 2007 (4) Scale 562; Sushil Kumar Ojha v Shesh
Narayan Tripathi, 2014 SCC OnLine All 15226 : (2014) 4 All LJ 734 : (2014) 104 ALR 365.
203 Parmod Kumar Gupta v Ram Murti Devi, 2017 SCC OnLine Del 9508.
204 Thirukumaresan v Subbaraya, (1895) 20 Mad 313. As to valuation for the purpose of court fees, Chunni Lal v Sheo
Charan Lal, (1925) 45 All 756 : 89 IC 122 : AIR 1925 All 787.
205 Dwarka Nath v Haji Mahommed, (1915) 17 Bom LR 5.
206 Sundar Devi v Brijlal, AIR 1981 Del 208, p 210.
207 Gupta Steel Inds v Balbir Kumar, AIR 1980 P&H 215.
208 Ram Singh v Ram Chand, (1923) LR 51 IA 154 : 79 IC 944 : AIR 1924 PC 2.
209 Mahadev v Ganoo, (1925) 27 Bom LR 500 : 87 IC 735.
210 S Mohinder Singh v Shiv Des Singh, AIR 1971 P&H 186; Venkideswara Prabhu Ravindranatha Prabhu v
Surendranatha Prabhu Sudhakara Prabhu, AIR 1985 Ker 265, p 274.
211 Patel Vinubhai Nathubhai v Thakkajayantilal Chhaganlal, AIR 1984 Guj 86.
212 Kasi v V Ramanathan Chettiar, (1949) 1 Mad LJ 298.
213 MM Valliammai Achi v Ramanathan Chettiar, AIR 1969 Mad 257.
214 Gopi Nath v Satish Chandra, AIR 1964 All 53.
215 Khushal Khemgar Shah v Khorshed Banu Dediba Boatwala, AIR 1970 SC 1147.
216 Hall v Hall, 3 Mac & G 79 : 87 RR 15; Roberts v Eberhart, (1853) Kay 148.
217 Const v Harris, (1823) T&R 496, p 517 : 24 RR 108, 125, p 135.
219 Pini v Roncoroni, [1892] 1 Ch 633; Sudhansu Kanta v Manindra Nath, AIR 1965 Pat 144.
220 Sobell v Boston, [1975] 1 WLR 1587, p 1893; Floydd v Cheney, [1970] Ch 602, p 610.
221 Collins v Barker, [1893] 1 Ch 578.
222 Smith vjeyes, (1841) 4 Beav 503 : 55 RR 149.
223 Halev Hale, (1841) 4 Beav 369 : 55 RR 107; Sheppard v Oxenford, (1855) 1 K&J 491, where a receiver was appointed
although the legality of the partnership was denied.
224 Madgwick v Wimble, (1843) 6 Beav 495 : 63 RR 155, where surviving partners insisted (apparently in good faith, on
their construction of the articles) on keeping a deceased partner’s assets in the business.
225 Wilson v Greenwood, (1818) 1 Sw 471, p 481 : 18 RR 118, p 123.
226 Knight Bruce LJ, Evans v Coventry, (1854) 5 DMG 911, p 916 : 104 RR 343, p 347.
227 Sheppard v ONenford, (1855) 1 K&J 491 : 103 RR 203.
228 Hale v Hale, (1941) 4 Beav 369 : 55 RR 107.
229 Floydd v Cheney, [1970] Ch 602.
230 Boehm v Goodall, [1911] 1 Ch 155.
231 Re Irish, (1888) 40 Ch D 49.
232 Davy v Scarth, [1906] 1 Ch 55 : AIR 1965 Cal 333.
233 Ganesh Chandra Mukherji v Gopal Chandra Hajra, AIR 1976 Cal 459, p 467 (DB).
234 Bank of Commerce Ltd v Arun Kumar Chowdhury, AIR 1965 Cal 333; Sudhansu Kanta v Manindra Nath, AIR 1965 Pat
144.
235 Sunderlal Haveliwala v Smt Bhagwati Devi, AIR 1967 All 400.
236 Jaikissondas v Zenabai, (1890) 14 Bom 431, p 434.
237 Kahn v Alli Mahommed, (1892) 16 Bom 577; Shidlingappa v Shankarappa, (1903) 28 Bom 176.
238 AIR 1985 J&K 50.
239 Ashok Kumar Mittal v Ashwani Kapoor, AIR 2005 Del 323, para 23.
240 Vidya Devi v Mani Ram, 1974 Rajdhani LR 346.
241 Khaderan Ram v Sharda Prasad, AIR 1986 All 34.
242 Sudhansu v Manindra, AIR 1965 Pat 144, p 146; Sheonarain v Shri Kripa Shankar, AIR 1972 Pat 75.
243 Rajeshwar Nath Gupta v Administrator General, AIR 1989 SC 179.
244 Vidya Devi v Mani Ram, 1974 Rajdhani LR 346.
245 Ashok Kumar Mittal v Ashwani Kapoor, AIR 2005 Del 323, para 21.
246 Tilak Chand Jain v Darshan Lal Jain, AIR 1985 J&K 50.
247 Devi Textiles v S Suganthi, AIR 2000 Mad 62.
248 Limitation Act, 1963, sch 1, Article 5; Sudarsanam v Narasimhulu, (1901) 25 Mad 149; Udhavji Anandji v Bapudas
Ramdas, AIR 1950 Bom 94. The period of limitation for a suit by a legal representative of the deceased partner for a
share in the assets of partnership is also three years; MM Valliammai Achi v KNPLV Ramanathan Chettiar, AIR 1969
Mad 257; Peeran Sahib v Pedda Jamaluddin Sahib, AIR 1958 AP 48.
249 Vairavan v Ponnayya, (1898) 22 Mad 14.
250 Mir Abdul Khalid (deceased) v Abdul Gaffar Sheriff (deceased), AIR 1985 SC 608.
251 MM Valliammai Achi v KNPLV Ramanathan Chettiar, AIR 1969 Mad 257; Addanki Narayanappa v Bhaskara
Krishnappa, AIR 1966 SC 1300; Saligram Ruplal Khanna v Kanwar Rajnath, AIR 1974 SC 1094, p 1104; for a suit by
the heirs, limitation would begin from the date of the death of the deceased partner, Jati v Banwarilal, AIR 1923 PC
136.
252 The fact that the share of the deceased partner continued to be dealt with, in the partnership books is not evidence of
such agreement Jati v Banwarilal, AIR 1923 PC 136.
253 Rochi Ram v Faizullah, (1933) 37 Cal WN 580 : 35 Bom LR 745 : 142 IC 549 : AIR 1933 PC 120.
254 K Balakrishnan Nair v K Gopalan Nair, AIR 2004 Ker 271, p 273 quoting with approval Rustomji on Law of Limitation
and Adverse Possession, 7th Edn, pp 562 & 563
255 Nilmadhab Nandi v Srimati Nirada Sundari Dasi, 1941 SCC OnLine Cal 119 : (1940-41) 45 CWN 1065.
256 Dicta in Knox v Gye, (1872) LR 5 HL 658, as explained in the case next cited, they were misunderstood on some of the
Indian high courts.
257 Gopala Chetty v Vijayaraghavachariar,[1922] 1 AC 488 : LR 49 IA 181 : 74 IC 621; reversing the decision of the High
Court of Madras and overruling Merwanji Hormusji v Rustomji Burjorji, (1882) 6 Bom 628; Sokkanadha v S, (1904) 28
Mad 344; Sadhu Narayana v Ramaswami, (1908) 32 Mad 203 and cases following them.
258 Ram Chunder v Manick Chunder, (1881) 7 Cal 428; Hiralal v Chhaganmal, AIR 1950 MB 56.
259 Suleman v Abdul Latif, (1930) LR 57 IA 245; Veeraswami v Bandaru Chetty, AIR 1948 Mad 231 : 2 Mad LJ 450.
260 Sayers v Sayers, [1876] AC 174 ; Nagireddi Pothuraju v Veera Venkata Satyanarayana, (1949) 1 Mad LJ 420;
Pannalal Paul v Padmabati Paul, AIR 1960 Cal 693.
261 Vincent Antony Jabamalai Fernando v SA Thomas Fernandes, AIR 1978 Mad 90.
End of Document
[s 47] Continuing authority of partners for purposes of winding up.—


After the dissolution of a firm the authority of each partner to bind the firm, and the other mutual rights and
obligations of the partners, continue notwithstanding the dissolution, so far as may be necessary to wind up the
affairs of the firm262 and to complete transactions begun but unfinished at the time of the dissolution, but not
otherwise:263
Provided that the firm is in no case bound by the acts of a partner who has been adjudicated insolvent; but this
proviso does not affect the liability of any person who has after the adjudication represented himself or
knowingly permitted himself to be represented as a partner of the insolvent.
[s 47.1] CONTINUING AUTHORITY OF PARTNERS AFTER DISSOLUTION
This section follows section 38 of the English Act with only the minute verbal variation in the second paragraph
required to adapt it to the Indian insolvency procedure. The superseded section 263 of the Contract Act, 1872
was more general in wording, but was probably not intended to go beyond English law. This section
incorporates an exception qualifying the rule that the agency of each partner is determined by dissolution (or
retirement) and notice. The effect of the corresponding provision of the English law contained in section 38 of
the Partnership Act, 1890 was considered by the House of Lords in the following observations of Lord Reid:
...In my view this must mean that the surviving partners have the right and duty to complete all unfinished operations
necessary to fulfil contracts of the firm which were still in force when the firm was dissolved... Otherwise the position
would be intolerable. Suppose the firm was employed to build a bridge and the bridge was half finished when the firm
was dissolved. The surviving partners must be bound to finish the work, for otherwise they could hold the employer to
ransom by refusing to proceed unless he made a new contract more favourable to them, and conversely the employer
could refuse to allow the work to proceed unless the surviving partners made a new contract more favourable to him.
That could not be right.264
The Apex Court in Saligram Ruplal Khanna v Kanwar Rajnath265 has noted the scope of section 47 in the
following words:
According to Section 47 of the Indian Partnership Act, after the dissolution of a firm the authority of each partner to bind
the firm, and the other mutual rights and obligations of the partners, continue notwithstanding the dissolution, so far as
may be necessary to wind up the affairs of the firm and to complete transactions begun but unfinished at the time of
the dissolution, but not otherwise. The word “transaction” in Section 47 refers not merely to commercial transaction of
purchase and sale but would include all other matters relating to the affairs of the partnership. The completion of a
transaction would cover also the taking of necessary steps in connection with the adjudication of a dispute to which a
firm before its dissolution is a party.266
The proposition cannot be disputed that after dissolution the partnership subsists merely for the purpose of completing
pending transactions, winding up the business, and adjusting the rights of the partners; and these purposes, and these
only, the authority, rights, and obligations of the partners continue.267
On facts of the above case, it was found that that an arbitration proceeding was initiated to settle certain
disputes with a third party during the subsistence of the partnership, but remained pending on the date of
dissolution of the firm. Supreme Court held it to be an unfinished “transaction” for the purpose of section 47
which was permissible to be completed notwithstanding the dissolution.
Section 47 permits such acts which may be necessary to wind up the affair of the firm and to complete
transactions begun but unfinished at the time of dissolution but not otherwise,268 for instance, a legal
proceeding by a firm.269 While attending to such unfinished transactions after the dissolution, the partners must
show proper care and skill otherwise they may expose themselves to a claim for negligence, despite the
dissolution of the firm.270
An acknowledgement or part payment of an old partnership debt made after the death of a partner by the
continuing partner, does not bind the legal representatives of the deceased.271
The argument that the firm having been dissolved, the authority of a partner to give a valid discharge on behalf
of the firm ceased with the dissolution of the firm and that he could, no longer maintain the execution
application in his name alone is effectively answered by section 47. The execution of decree in favour of the
firm only amounted to collecting an asset of the firm and a partner of the dissolved firm could surely perform
that duty, and had the necessary authority to do so under this section.272
Where during the pendency of the suit filed in the name of the firm by one of its partners, A, for eviction of the
tenants and the arrears of rent, the firm was dissolved and the premises were assigned to the other partner B, it
was held that the suit can be continued by A on behalf of the firm even if B did not apply under O XXII, rule 10
of the Code of Civil Procedure and the decree obtained in favour of the firm can be executed by A for the
benefit of B. The judgment proceeded on the footing that so long the trial court’s finding, that in spite of
dissolution of the firm and assignments of the premises in favour of B the suit was maintainable, is not set
aside, the executing court has no power to go behind the finding. It was observed that the procedural law
contained in O XXX, rule 1 and O XXI, rule 15 do not stand abrogated by the Act.273
A suit brought in the name of all the partners of the firm can be continued in the event of death of one of them
during its pendency, by the remaining partners without the necessity of the legal representatives of the
deceased partner being brought on record. This conclusion was deduced from section 47.274
In absence of an assignment of right, title and interest in the earlier firm to the reconstituted firm, the original
firm can sue in the name of the firm for recovery of its claims accrued before its reconstitution.
Similarly, the original firm may be sued in the firm name in respect of its liabilities which accrued prior to change
in its constitution.275
Even after dissolution, the partners, in law, are called partners notwithstanding that they are partners of the
dissolved firm and moreover, a dissolution does not necessarily follow because the partners had ceased to do
business for the partnership may continue for the purpose of realising the assets.276 For the purposes of
winding up, the authority of one partner continues even after dissolution.277 There can be no abatement of
appeal when one of the defendant partners dies during the pendency of appeal.
Having regard to the correspondence with the rule of Indian law as now declared, it now seems useful to
reproduce some of the illustrations to the English section 38 given in Pollock on Partnership.278
Illustrations
(a) A and B are partners. A becomes bankrupt. B gives acceptances of the firm as security for an existing
partnership debt to C, who knows of A’s bankruptcy. C endorses the bills for value to D, who does not
know of the bankruptcy. D is entitled to rank as a creditor of the firm for the amount of the bills.279
(b) A and B are partners. A becomes bankrupt. B continues to carry on the trade of the firm, and pays
partnership moneys into a bank to meet current bills of the firm. The bank is entitled to this money as
against A’s trustee in bankruptcy.280
(c) A and B are partners in trade. A becomes bankrupt. The solvent partner, B, but not other persons
claiming through him by representation or assignment, may notwithstanding the dissolution of the
partnership brought by A’s bankruptcy, sell any of the partnership goods to pay the debts of the firm,281
and the purchaser will be entitled to the entire property in such goods as against A’s trustee in
bankruptcy.282
(d) A and B, shareholders in partnership, buy certain railway shares. Before the shares are paid for, they
dissolve partnership. Either of them may pledge the shares to the bankers of the firm to raise the
purchase-money, or may authorise the bankers to sell the shares to indemnify themselves.283
(e) A and B dissolve partnership and A takes over the business and property of the firm. If A gives
negotiable instruments in the name of the old firm, then (subject to the rights of creditors of the firm) B
is not bound thereby,284 unless he has specially authorised the continued use of the name for that
purpose.285
(f) Partnership articles provide that, before each division of profits, interest shall be credited to both
partners on the amount of capital standing to the credit of their respective accounts. This alone does
not authorise the allowance of interest, in the event of a dissolution, for the interval between the
dissolution and the final settlement of the partnership accounts.286
(g) A and B are C are partners. A and B are adjudicated insolvent and afterwards indorse in the name of
the firm a bill belonging to the partnership. The indorsee acquires no property in the bill. Under the
English law, even if A and B had indorsed the bill before adjudication, but after an act of bankruptcy
committed by them, the indorsee would have acquired no property in the bill.287 The reason is that
under English law, bankruptcy relates back to the completion of the act of bankruptcy on which a
receiving order is made. [As per Bankruptcy Act, 1914, section 37, sub-section (1)]. While under
section 34, sub-section (1) of the present Act the partner does not cease to be a partner until the date
of the order of adjudication.
262 Babu alias Govinddoss v Gokuldoss, (1929) 57 Mad LJ 404 : 126 IC 97 : AIR 1930 Mad 393 (disposal of partnership
property by surviving partners for purposes of winding up held to give a good title to the purchaser). Transaction,
meaning of, includes matters relating to affairs of partnership. The word “transaction” in section 47 refers not merely to
commercial transaction of purchase and sale but would include also all other matters relating to the affairs of the
partnership. The completion of a transaction would cover also the taking of necessary steps in connection with the
adjudication of a dispute to which a firm before its dissolution is a party. After dissolution, the partnership subsists
merely for the purpose of completing pending transaction, winding up the business and adjusting the rights of the
partners and for these purposes and these only the authority, rights and obligations of the partners continue. MM
Valliammai Achi v KNPL V Ramnathan Chettiar, AIR 1969 Mad 257. It has been held that a firm continues to exist till its
affairs are finally wound up, Narendra Bahadur Singh v Chief Inspector of Stamps, Uttar Pradesh, AIR 1972 All
1.Winding up is treated as a part & parcel of dissolution, Santadas Mulchand Jhangiani v Sheevdayal Gurudasmal
Masand, AIR 1971 Bom 237. “The partnership continues for the purposes of discharging liability to pay tax where
assessment is completed after the dissolution.” Ghanshyamdas Chhotalal v Sales-tax Officer, AIR 1964 MP 161. The
effect of this section on abatement of a suit or appeal Devilal v Himmat Ram, AIR 1973 Raj 39.
263 Ramrichpal v The Bikaner Stores Supply & Trading Co, AIR 1966 Raj 187. After dissolution there could not be a current
open mutual account with another firm, MW Pradhan v Panchal Engg Works, AIR 1967 Bom 48.
264 IRC v Graham’s Trustees, 1971 SLT 46, p 48.
265 (1974) 2 SCC 642 : AIR 1974 SC 1094. See also Kanaiyanand v Bindadevi Hiranand Pandey, 2015 SCC OnLine Guj
1381 : (2015) 155 AIC (Sum 23) 10 : (2015) 3 GLH 560.
266 (1974) 2 SCC 642, para 30.
267 Ibid, para 31.
268 Mulanthuruthy Chitty v Varghese, 2007 SCC OnLine Ker 583 : (2008) 1 KLT 500.
269 Hindustan Petroleum Corporation Ltd v Gem Paper Company, 2010 SCC OnLine Mad 5555 : 2010-5-L.W.912.
270 Welsh v Knarston,1972 SLT 96, p 97.
271 Venkatasubbamma v Subba Rao, AIR 1964 AP 642; Probodh Chandra v Bharat Loan Co Ltd, AIR 1964 Assam 114.
272 Kedar Nath v Firm Rekh Chand Dasu Ram, AIR 1983 All 270.
273 Sajjan Singh v Nadeali, AIR 1978 NOC 218 (MP).

274 Gajanand v Sardarmal, AIR 1961 Raj 223 (DB); Ramrich Pal v Bikaner Stores Supply & Trading Co, AIR 1966 Raj 187;
Shambhudayal v Chunnilal Devkinandan, AIR 1980 Raj 69, dissenting from MS Pearl Sound Engineer v Pooran Chand,
AIR 1975 All 207. See also Abdul Salim v Mugal Theatre & Padiyans Complex, 2012 SCC OnLine Ker 16960 : (2012) 4
KLT 644 : (2013) 1 KLJ 1 : (2013) 1 RCR (Rent) 228.
275 UOI v Bilas Singh & Co, AIR 1984 Cal 261, p 266.
276 Gomathy Shankar Transports v State of Karnataka, 2010 SCC OnLine Mad 3244 : 2010 (4) CTC 58.
277 Abdul Rehiman v RD Prasadi Lal, (1994) 1 Raj LW 40 : AIR 1980 SC 69 : AIR 1966 SC 24 distinguished, contra AIR
1981 Cal 229 : AIR 1991 Raj 223 : 1985 Raj LW 525, case of section 42 (c) : AIR 1973 Raj 39
279 Ex p Robinson, (1833) 3 D&Ch 376 : 38 RR 39.
280 Woodbridge v Swann, (1833) 4 B&Ad 633 : 110 ER 594 : 38 RR 337.
281 Fraser v Kershaw, (1856) 2 K&J 496, p 501 : 69 ER 878, p 880 : 110 RR 340, p 343. The authority to sell is “personal
to him in his capacity of partner”.
282 Fox v Hanbury, (1776) Cowp 445 : 98 ER 1179.
283 Butchart v Dresser, (1853) 4 DMG 542 : 43 ER 619 : 102 RR 269.
284 Heath v Sansom, (1832) 4 B & Ald 172 : 110 ER 420 : 38 RR 237.
285 Smith v Winter, (1838) 4 M&W 454 : 51 RR 678.
286 Barfield v Loughborough, (1872) LR 8 Ch 1 : 42 LJ Ch 179.
287 Thomason v Frere, (1809) 10 East 418 : 103 ER 834 : 10 RR 341.
End of Document
[s 48] Mode of settlement of accounts between partners.—


In settling the accounts of a firm after dissolution, the following rules shall, subject to agreement by the
partners, be observed:—
(a) losses, including deficiencies of capital, shall be paid first out of profits, next out of capital, and, lastly, if
necessary, by the partners individually in the proportions in which they were entitled to share profits.
(b) the assets of the firm, including any sums contributed by the partners to make up deficiencies of
capital, shall be applied in the following manner and order:—
(i) in paying the debts of the firm to third parties;
(ii) in paying to each partner rateably what is due to him from the firm for advances as distinguished
from capital;
(iii) in paying to each partner rateably what is due to him on account of capital; and
(iv) the residue, if any, shall be divided among the partners in the proportions in which they were
entitled to share profits.
[s 48.1] HOW ACCOUNTS ARE SETTLED
This section is identical, except for slight verbal variations, with section 44 of the English Act;288 it replaces the
Contract Act, section 265, which gave the court very loosely defined powers. Section 48 provides for the mode
of settlement of accounts between the partners. It prescribes the sequence in which the various outgoings are
to be applied and the residue remaining is to be divided between the partners.289 Mere dissolution of a firm
would not automatically lead to making the partners owners of the firm property. Account of assets and
liabilities of the dissolved partnership firm have to be settled in accordance with sections 48 to 55 of the Act.290
An arbitrator is equally bound by section 48 while dealing with dissolution of the firm291 and cannot apply a part
of section 48 alone.292
The distribution of surplus is for the purpose of adjustment of the rights of the partners in the assets of the
partnership; it does not amount to transfer of assets.293 Merely because a partnership firm has been dissolved,
it does not preclude the erstwhile partners from dealing with the partnership assets, or withdrawing from the
bank accounts held in the name of the partnership firm before the settlement of accounts takes place under
section 48.294 An arbitral award pertaining to settlement of accounts between the partners is liable to be set
aside if it does not confirm to the requirements of section 48.295
[s 48.2] SUB-SECTION (a)
The terms of this clause are plain, but as to losses of capital it is to be observed that whatever is contributed by
an individual partner is, at that stage, a loan to the firm, and will be dealt with as such under sub-clause (iii),
ranking, however, after specific advances not being contributions to capital; and the other partners may be
called on to contribute to it as a partnership loss in the proportions named above (the proportions of their
shares in the capital are material only if there is a special agreement to that effect). Each partner is treated like
an ordinary creditor and debtor in respect of what he brings in and what he draws out. The balance standing to
his credit or to his debit, as the case may be, in his private ledger shows how his account with the firm stands.
A partner, however, is not a creditor or debtor of his firm in any legal sense of the term.296 Amounts owed by a
partner to the firm can only be settled when the settlement of the accounts takes place on the dissolution of the
partnership and limitation never bars them so long as a suit for dissolution of partnership and rendition of
accounts is not barred.297
If a partner is insolvent and fails to pay his share, the solvent partners are not bound to make up his share of
losses of capital after the liabilities of the firm to creditors have been satisfied.298
[s 48.3] SUB-SECTION (b)
In clause (i) “third parties” is equivalent to “persons who are to partners in the firm,” by the definition in section
2; but it would have been better English, though not a common expression, to say “outside parties.”
[s 48.3.1] Clause (ii)
The following judicial gloss should be noted: Account being taken of the equal [or as the case may be,
according to the terms of the partnership] contributions to be made by him towards the deficiency of capital.
[s 48.4] ASSETS: BENEFIT OF CONTRACTS
A contract on the part of a limited company to continue to employ a firm as its agents, is not a valuable asset in
which the legal representative of a deceased partner of the firm would be entitled to participate.299 The profits in
respect of such a contract would be derived entirely from, and would depend absolutely upon the services of
the surviving partners, and it is not one in respect of which any liability could be incurred by the estate of the
deceased partner. However, contracts of the character found in Ambler v Bolton, (1872) LR 14 Eq 427, and
McClean v Kennard, (1874) LR 9 Ch 336, constitute valuable assets, being in their nature such as would have
rendered the estate of the deceased partner liable in the event of loss.
[s 48.5] PARTNER’S SHARE
Generally, it must be remembered that a partner’s share of assets is only his share of what remains after
payment of the firm’s debts, and partners cannot by any agreement among themselves escape the necessity of
paying the firm’s debts before they divide profits or even repay advances as between themselves. Subject to
this governing principle the rules laid down in the present section express only the usual course of business,
and are subject to variation if it appears that in the particular case the partners intended, as between
themselves, to vary them. Till the debts and liabilities of the firm have been fully paid off, no partner can claim
any particular property as his own, nor can he claim that he has any specific share or interest in any property of
the firm. It is only when after payment of all the debts and liabilities of the firm there is a surplus left that a
partner can have the surplus distributed according to his rights. The partners of a firm presumably are not co-
owners of the property or assets of the firm.300
In absence of any express provision, the beneficial share of the deceased or outgoing partner is his
proportionate interest in the partnership assets after they have been converted into money, and all the
partnership debts and liabilities have been paid and discharged. This it is, and this only, which on the death of a
partner passes to his representatives, or to a legatee of his share and which on his bankruptcy passes to his
trustee.301 Whatever be the character of the property brought in by the partners or acquired during the course of
business, it becomes the property of the firm and what a partner is entitled to is his share of profits, if any,
accruing to the partnership from the realisation of this property, and upon dissolution of the partnership to a
share in the money representing the value of the property. Though every partner has an interest in the property
of the partnership, during its subsistence, no partner can deal with any portion thereof as his own, nor can he
assign his interest in a specific item of the partnership property to anyone. His right is to obtain such profits, if
any, as fall to his share from time to time and upon the dissolution of the firm to a share in the assets of the firm
which remains after satisfying the liabilities set out in clause (a) and sub-clause (i), (ii) and (iii) of clause (b) of
section 48.302
When by dissolution deed, rights and liabilities of the parties are determined and one partner agrees to give
goodwill and all other rights in the partnership firm to the other partner, it will include the right in the trademark
of the partnership firm as well.303
In Ramagya Prasad Gupta v Murli Prasad, (1974) 2 SCC 256 : 1974 SCN 188, five persons, including M,
entered into an oral partnership to carry on the business of supply of electricity. They purchased an electricity
undertaking in an auction sale by contributing capital to the extent of their shares. As agreed between
themselves, they acquired licence under the Indian Electricity Act, 1910 [Now see the Electricity Act 2003 (36 of
2003)] in the name of M. Regular accounts of the partnership firm were maintained and also communicated to
the state government and other statutory authorities. Subsequently, the electricity undertaking was acquired by
the state government. Therefore, the firm stood dissolved. In a suit filed for dissolution and rendition of
accounts, the Supreme Court held that under the Electricity Act, on the basis of the licence in the name of M,
the firm could not have carried on the business. Apparently, the partnership agreement to carry on the business
was void. But, as found, the partners were not aware of this illegality. In this background, the court held that, it
may be true that under the [Electricity] Act permission may be necessary to obtain a licence or to have a licence
assigned to a partnership, but there is nothing in the Electricity Act, 1910 [Now see the Electricity Act, 2003 (36
of 2003)] to warrant the submission that because no permission was taken for assignment of the licence in the
name of the partnership, the claims of the partners against each other cannot be adjudicated upon, and that the
partners will have no rights in the assets held by the partnership.
Unless there is an agreement to the contrary, the assets should be valued on the basis of the market-value on
the date of dissolution, and not on the basis of book value.304 There is no settled principle for ascertaining
profits for all purposes and in all concerns.305
[s 48.6] DISTRIBUTION OF ASSETS OF DISSOLVED FIRM AND QUESTION OF REGISTRATION
On dissolution of the partnership firm, accounts are settled amongst the partners and the assets of the
partnership are distributed amongst the partners as per their respective shares in the partnership firm. Such
distribution to individual partners is not a case of transfer of any assets of the firm. The assets which
hereinbefore belonged to each partner, will after dissolution of the firm, stand allotted to the partners
individually. There is no transfer or assignment of ownership in any of the assets. The distribution can be done
either by way of an arbitration award or by mutual settlement between the partners themselves.306
In CIT, Madhya Pradesh, Nagpur and Bhandara v Dewas Cine Corporation,307 the Supreme Court has held that
the distribution of surplus is for the purpose of adjustment of the rights of the partners in the assets of the
Partnership and it does not amount to transfer of assets. It is further observed that “sale” according to its
ordinary meaning is a transfer of property for a price, and adjustment of the rights of the partners in a dissolved
firm is not a transfer, nor it is for a price.
In a case of dissolution where a partner received the money-value of his share in the indivisible assets of the
firm, the Supreme Court held in CIT v Bankey Lal Vaidya,308 that it is does not amount to sale, exchange or
transfer of assets. It was held:
Such an arrangement, in our judgment, amounted to a distribution of the assets of the firm on dissolution. There is no
clause in the partnership agreement providing for the method of dissolution of the firm or for winding up of its affairs. In
the course of dissolution the assets of a firm may be valued and the assets divided between the partners according to
their respective shares by allotting the individual assets or paying the money-value equivalent thereof. This is a
recognised method of making up the accounts of a dissolved firm. In that case the receipt of money by a partner is
nothing but a receipt of his share in the distributed assets of the firm. The respondent received the money-value of his
share in the assets of the firm; he did not agree to sell, exchange or transfer his share in the assets of the firm.
Payment of the amount agreed to be paid to the respondent under the arrangement of his share was therefore not in
consequence of any sale, exchange or transfer of assets.
The firm has no separate rights in the partnership assets and the partners jointly own the firm’s assets. The
consequence of distribution or division of allotment of the assets after dissolution is nothing but a mutual
adjustment of rights between the partners. There is no transfer of assets involved even in the sense of
extinguishment of the firm’s rights in the assets when distribution takes place upon dissolution of the firm.309
The property allotted to a partner upon dissolution of firm cannot be deemed under the law a transfer or a sale
of the same merely upon dissolution unless there is a specific instrument which can be shown to effect the said
transfer has been done besides the dissolution deed.310
There is no transfer of assets within the meaning of section 2(47) of the Income-tax Act, 1961.311 Prior to 1 April
1988, upon dissolution of a firm, transfer of firm property to a partner was not held to be a transfer for the
purposes of capital gains under the Income-tax Act, 1961. However, Finance Act, 1987 inserted section 45(4)
to the Income-tax Act, 1961 bringing such transfer within the net of capital gains.312
It is realisation of a pre-existing right.313 The property falling to the share of the partner is money and not
immovable property. When a dissolution of the partnership takes place and the residue is distributed among the
partners after settlement of accounts, there is no partition, transfer or extinguishment of interest attracting
section 17 of the Registration Act.314 Similarly, an arbitral award dissolving a firm and distributing the residue
assets amongst the partners does not attract the provision of compulsory registration.315
However, transfer of a property of the firm to a partner during the subsistence of the partnership is a transfer.316
288 K Laxminarayana Reddy v Vardhi Reddy Dasrath Ram Reddy, 2012 SCC OnLine AP 1061 : LNIND 2012 AP 1221.
289 Deshraj Gupta v Shivraj Gupta, 2017 SCC OnLine Del 10263; IV Ahamedkutty v District Registrar, 2017 SCC OnLine
Ker 21737 : (2018) 1 KLJ 578; Vinayakrishnan v Commissioner For Land Revenue, 2015 (3) KLT 214 : 2015 (3) KLJ
347.
290 Geeta v LN Malik, 2012 SCC OnLine P&H 22950.
291 Anand Umashankar Gupta v Jayant Maniklal Lunawat, 2012 SCC OnLine Bom 1531 : 2013 (1) MhLJ 65 [held, failure of
the arbitrator to adhere to the mandatory provision of section 48 is in conflict with public policy.] See also Harminder
Singh Suri v Amrik Singh Suri, 2015 SCC OnLine Del 10123 : (2015) 222 DLT 326; Gulmali Amrullah Babul v Shabbir
Salebhai Mahimwala, 2015 SCC OnLine Bom 5624.
292 Veena Nalin Merchant v Laljee Godhoo & Co, 2015 SCC OnLine Bom 2034 : (2015) 3 Bom CR 778.
293 CIT MP v Dewas Cine Corpn, AIR 1968 SC 676, p 678. (For further discussion, see “Distribution of Assets of Dissolved
Firm” below).
294 Subhash Chander Chachra v Ashwani Kumar Chachra, 2007 SCC OnLine Del 149 : 2007 (95) DRJ 55.
295 K Mohan Rao v Super Diamond Tools, 2008 SCC OnLine Mad 706 : 2008 (5) CTC 613.
296 KA Mahommed Kassim v The Controller of Estate Duty, AIR 1967 Ker 130.
297 Jugal Kishore Maheshwari v Hari Narain, AIR 1971 Raj 111; Rattanlal v Janinder Parshad, AIR 1976 P&H 200. A mere
error in accounts settled by a compromise may not be a sufficient ground for reopening the accounts. This may only be
done in case of a fraud or misrepresentation by one party.
298 Garner v Murray, [1904] 1 Ch 57, p 60; Lindley on Partnership, 15th Edn, 734.
299 Bachubai v Shamji, (1885) 9 Bom 536, pp 555–56.
300 Narendra Bahadur Singh v Chief Inspector of Stamps, AIR 1972 All 1; Manohar Das v The Board of Revenue Uttar
Pradesh, AIR 1971 All 523, p 526.
301 Lindley on Partnership, 15th Edn, pp 517–18; approvingly cited by the Supreme Court in Addanki Narayanappa v
Bhaskara Krishnappa, AIR 1966 SC 1300, p 1303.
302 Addanki Narayanappa v Bhaskara Krishnappa, AIR 1966 SC 1300, pp 1303, 1304; Sundar Devi v Brij Lal, AIR 1981
Del 210; Chief Controlling Revenue Authority, Gujarat State Ahmedabad v Chaturbhauj, AIR 1977 Guj 1, pp 4, 5;
Banshi Lal v Jamuna Prasad, AIR 1981 All 324, p 328; Maheandrakumar Nagindas Patel v Kantilal Nanalal Patel,
(1980) 21 Guj LR 746.
303 Harmohan Singh v Gurbax Singh, AIR 2001 Del 507, p 509.
304 Md Ussain v Abdul Gafoor, AIR 1950 Mad 758.
305 section Kadir Ibrahim Rowther v Noor Mahommed Rowther, AIR 1996 Mad 60; suit for partnership accounts, defendant
not producing account books, inference that can be drawn, Jubedubi v Jainabi, AIR 1975 Kant 7.
306 N Khadervali Saheb v N Gudu Sahib, (2003) 3 SCC 229, para 3. See also, Sudhir Jalan v Rajendra Bajoria, 2018 SCC
OnLine Cal 7799.
307 AIR 1968 SC 676 : (1968) 2 SCR 173 [on facts, it was held that on dissolution of the partnership, each theatre must be
deemed to be returned to the original owner, in satisfaction partially or wholly of his claim to a share in the residue of
the assets after discharging the debts and other obligations. But thereby the theaters were not in law sold by the
partnership to the individual partners in consideration of their respective share in the residue.] See also Kalyan Singh v
Wimpy International Ltd, 2014 SCC OnLine Del 2199.
308 (1971) 1 SCC 355, pr. 4 [upheld Bankey Lal Vaidya, Aligarh v CIT UP, (1965) 55 ITR 400].
309 Synthetic Suppliers v Commissioner of Sales Tax, Mumbai, 2010 SCC OnLine Bom 707 : (2010) 4 AIR Bom R (Noc
406) 114 : (2010) 30 VST 632 [Upon dissolution, the partners shared the assets whereupon one of the partners
received the motorcar in lieu of his share in the firm. The question was whether such transfer of the car from the firm to
the partner amounts to a “sale”, which was held in the negative.]
310 Jai Rattan Bhalla v Puri Investments, 2011 SCC OnLine Del 5560 : LNIND 2011 DEL 2575.
311 Malabar Fishries Co v CIT, (1979) 4 SCC 766, para 18 : [1979] 220 ITR 49.
312 Income-Tax Officer-21(1)(3) v Om Namah Shivay Builders & Developers, 2010 SCC OnLine ITAT 9295 : [2010] ITAT
9581; B Raghurama Prabhu Estate v Joint Commissioner of Income-Tax (Asstt), 2010 SCC OnLine Kar 5176 : (2011)
335 ITR 394 : (2011) 3 AIR Kant R 270 : (2011 239 CTR 274; Girija Reddy, P Hyderabad v Income Tax Officer Ward-
6(2) Hyderabad, 2012 SCC OnLine ITAT 5905 : [2012] ITAT 5388.
313 Sunil Siddharthbhai v CIT, (1985) 4 SCC 519, para 14.
314 SV Chandra Pandian v SV Sivalinga Nadar, (1993) 1 SCC 589, para 16; CIT v Dewas Line Corporation, AIR 1968 SC
676, p 678; Addanki Narayanappa v Bhaskara Krishnappa, AIR 1966 SC 1300; Venkataratnam v Subbarao, (1926) 49
Mad 738 : 96 IC 881 : AIR 1926 Mad 1040; A Narayanappa v B Krishnappa, AIR 1959 AP 380. Partnership consisting
of two partners—agreement whereby one retires, whether a deed of dissolution or conveyance; KR Mallesha v
Ramnath Gajanand, AIR 1974 AP 53; impliedly overruled RN Samuvier v RN Rama Subbier, (1932) 55 Mad 72 : 132
IC 305 : AIR 1931 Mad 580 and Joharmal v Tejram, (1893) 17 Bom 235, p 256; Achala Gupta v Bank of Baroda, 2013
SCC OnLine DRAT 9 : (2014) 3 BC 85 (DRAT); MC Sivagamui v MC Kuppusamy, 2009 SCC OnLine Mad 757 : 2009
(6) CTC 430; Vijaybahi Zinabhai Prajapati v State of Gujarat, 2018 SCC OnLine Guj 1334.
315 N Khadaraval Sahab v N Gudu Sahib, (2003) 3 SCC 229 : 2003 (1) Scale 642.
316 See section 14 above, under the heading “Transfer of property of the firm to a partner”.
End of Document
[s 49] Payment of firm debts and of separate debts.—


Where there are joint debts due from the firm, and also separate debts due from any partner, the property of the
firm shall be applied in the first instance in payment of the debts of the firm, and, if there is any surplus, then the
share of each partner shall be applied in payment of his separate debts or paid to him. The separate property of
any partner shall be applied first in the payment of his separate debts, and the surplus (if any) in the payment of
the debts of the firm.
[s 49.1] JOINT AND SEPARATE DEBTS: ORDER OF PAYMENT
Save for minute verbal amendment, section 2 of the Contract Act, 1872 is reproduced, here and the former
comment on that section is, therefore, retained. This is an old established English rule of administration in
bankruptcy.317
As per Turner LJ:
It has long been settled in bankruptcy that the joint estate is to be applied in payment of the joint debts, and the
separate estate is to be applied in payment of the separate debts, any surplus there may be of either estate being
carried over to the other... According to this rule,...joint creditors cannot touch the separate estate until after payment in
full of the separate debts. They take the surplus only after payment of those debts.318
The rule is established in all or nearly all Common Law jurisdictions, and has been embodied in successive
English Bankruptcy Acts;319 but no one seems to know the original reasons for its adoption. It is generally
disapproved on principle as unduly favouring separate at the expense of joint creditors, and it does not agree
with mercantile usage or with the laws of other nations.320 Probably the framers of this Act thought it better to
preserve the certain good, so far as it goes, of uniformity with English law than to enact a rule more just in itself,
but divergent. Section 49 provides for payment of firm debts in priority to separate debts of the partners out of
the assets.321
A decree against a firm can be executed—(i) against the property of the partnership; (ii) against any person
who has appeared in the suit individually in his own name and has been served with a notice under rule 6 or
rule 7 of O XXX of the Code of Civil Procedure;
(iii) against a person who has admitted on the pleadings that he is or has been adjudged a partner; or (iv)
against any person who has been served with notice individually as a partner, but has failed to appear. The
decree against the firm can be executed against the personal property of such persons.322
The present section is not limited to the case of insolvency, and seems to include, by implication, the right of
every partner, which belongs to the class of equitable (not possessory) liens and is commonly called partners’
lien, to have the partnership property duly applied when a dissolution takes place, from whatever cause.323 This
right is separately declared by section 39 of the English Act. It is available after dissolution, as between the
partners, against one partner who has taken over the assets and business of the firm, but not against former
assets in the hands of a purchaser or mortgagee. The continuing partner is bound to apply the remaining
assets in paying the partnership debts, but a purchaser from him, in the ordinary course of business deals with
him as owner, not as partner, and is not accountable for the application of his money.324 If, however, a surviving
or continuing partner makes fresh acquisitions of property in the course of carrying on the business after
dissolution, the property so acquired is not subject to the claim of the other partners of their executors, and they
will not, in the event of his becoming bankrupt, be entitled to dispute the claim of his creditors thereon.325
The rule is not limited to the case of insolvency and it is available after dissolution, as between the partners,
against one partner who has taken over the assets and business of the firm, but not against former assets in
the hands of a purchaser or mortgagee.
The creditors of the firm are entitled to proceed against the joint family assets including the shares of non-
partner coparceners for realisation of their debts.326
In the undermentioned case,327 it is observed that section 49 has to be read along with section 25 of the Act
and if so read, it would indicate that, even while applying the provisions of section 49, the debt by the third party
can be recovered by proceeding against the partners. Before the principles underlying section 49 are pressed
in aid, all the conditions that bear upon the principles must be available. It is held that in case of a decree which
clearly makes the debt payable in the firm as such and also by each of the partners, the principle is clearly not
available, for it is not as if in every case where the debt is of the partnership and the decree is made joint and
several against the firm as well as the partners of the firm, such principle would hold good in the matter of
execution of a decree in favour of a third party. If such a principle were to be universally applied, several
complications will arise in the matter of execution of the decree, which is obtained by the third party who is not
concerned with the inter se rights, and obligations of the firm and its partners. When the decree is liable to be
executed severally, the executing court cannot refuse the execution on the ground that the firm is made liable,
and it should be first proceeded against. Had there been any other direction in keeping with the principles
underlying section 49, the question would have been different. The ratio of the decision has, therefore, narrow
confines. Where, on passing of a decree for dissolution of a partnership firm, its assets are deposited in court
by order of the court, the income tax or sales tax dues of one of its partners cannot be recovered on priority
basis from partnership assets of the firm so deposited in the court. There is no provision in the Partnership Act,
1932 providing for such priority.328
317 Lindley on Partnership, 15th Edn, 860.

318 Lodge v Prichard, (1863) 1 De GJ & section 610, pp 613, 614 : 137 RR 316, pp 317, 318;
Ridgway v Clare, (1854) 19 Beav 111, p 115 : 105 RR 80, p 83. The Master of the Rolls’ statement is thus summed up
in the headnote:
The distinction between joint and separate assets is not restricted to the cases of a distribution under a bankruptcy or
insolvency, it applies equally to the case of the administration of assets of deceased partners.
In the administration of the assets of a deceased partner, where both partners are solvent, there is no distinction made
between joint and several creditors; they are all paid, and in taking the partnership accounts, the joint debts thus paid
will be allowed in account by the surviving partner.
If the estate of the deceased partner be insolvent, and that of the surviving partner solvent, the joint creditors will
naturally go against the surviving partner, who will then be a creditor against the separate estate of the insolvent
partner for the amount paid by him to the joint creditors beyond his share. If both the deceased and surviving partners
are insolvent, then the joint creditors must resort, in the first instance, to the joint estate, and can only go against the
separate estate of each partner after the claims of his separate creditors have been satisfied.
If both partners die before administration takes place, the rule is the same.
319 Bankruptcy Act, 1914, section 33, sub-section (6); see also section 63; section 49(4) of the Presidency Towns
Insolvency Act; section 61(4) of the Provincial Insolvency Act.
320 Pollock on Partnership, 15th Edn, pp 145–6.
321 Santdas v Sheodayal, AIR 1971 Bom 237, p 240.
322 Topanmal Chhotamal v Kundomal Gangaram, AIR 1960 SC 388, p 389.
323 Pacific Bank Ltd v Thakur Singh Kalsi, AIR 1949 Cal 396, p 399.
324 Re Langmead’s Trustee, 20 Beav 20 : 7 DMG 353; Re Bourne, [1906] 2 Ch 427 (CA).
325 Payne v Hornby, (1858) 25 Beav 280, p 286.
326 Bhagat Ram Mohanlal v EPT Commissioner, AIR 1956 SC 374, p 377.
327 Nilkanth Balappa Managave Shop v Raj & Co, AIR 1982 Bom 388, p 390.
328 The UOI v Salankayala Pulleswara Rao, (1971) ILR AP 171, p 173.
End of Document
[s 50] Personal profits earned after dissolution.—


Subject to contract between the partners, the provisions of clause (a) of section 16329 shall apply to transactions
by any surviving partner or by the representatives of a deceased partner, undertaken after the firm is dissolved
on account of the death of a partner and before its affairs have been completely wound up:
Provided that where any partner or his representative has bought the goodwill of the firm, nothing in this section
shall affect his right to use the firm name.
[s 50.1] PERSONAL PROFITS EARNED AFTER DISSOLUTION
This corresponds in substance, and closely in terms, to section 29, sub-section (2) of the English Act. The
principle is that so long as the affairs of the dissolved firm are in process of winding up, it is still the duty of
every partner, or his representatives, as the case may be, not to make any private advantage out of
transactions which are in substance on the firm’s behalf. Thus, where a lease of immovables held for a firm’s
business expires after the death of a partner and before the affairs are fully wound up, and a surviving partner
renews the lease, the lease belongs to the firm.330
Similarly, if a partner has agreed to take a lease in his own name but in fact, for the purposes of the firm, dies
before the lease is executed, his representatives cannot deal with the lease without the consent of the surviving
partners.331
A partner was not at liberty to acquire gain at the expense of his co- partners without their full knowledge and
consent, either by directly making a profit out of them or by appropriating to himself benefits which he ought to
have acquired, if at all, for the common advantage of the firm.332
If a partner is buying or selling for a firm, he cannot sell to it or buy from it at a profit to himself. Even apart from
this section where a partner represents himself as acting as agent for the firm even though he does not have
any express authority, he may be liable to account for any profit made thereby.333
329 Prescribing a partner’s duty to account for any individual profit derived from the business or the property of the firm;
sections 15, 37 and 53; while the surviving partners, or representatives of a deceased partner, are subject to the
embargo laid down by cl (a) of section 16, they are not subject to the embargo imposed by cl (b) thereof. To compete
with the business is not the same thing as deriving profit from the use of the property or business connection of the firm
or firm-name Mohanasunderam v Neelambal, AIR 1955 Mad 442, p 445.
330 Clements v Hall, (1857) 2 De G&J 173 : 44 ER 954.
331 Alder v Fouracre, (1818) 3 Swanst 489 : 36 ER 947.

332 Lindley on Partnership, 15th Edn, p 482; cited with approval in Thomson’s Trustees v Heaton, (1974) 1 WLR 605.
333 English v Dedham Vale Properties Ltd, (1978) 1 WLR 93.
End of Document
[s 51] Return of premium on premature dissolution.—


Where a partner has paid a premium on entering into partnership for a fixed term, and the firm is dissolved
before the expiration of that term otherwise than by the death of a partner, he shall be entitled to repayment of
the premium or of such part thereof as may be reasonable, regard being had to the terms upon which he
became a partner and to the length of time during which he was a partner, unless—
(a) the dissolution is mainly due to his own misconduct, or

(b) the dissolution is in pursuance of an agreement containing no provision for the return of the premium or
any part of it.
[s 51.1] PREMIUM: RETURN ON PREMATURE DISSOLUTION
This is to much the same effect as section 40 of the English Act, which however gives, in terms, a wider
discretion of the court (“the court may order the repayment of the premium, or of such part thereof as it thinks
just”). The Special Committee, however, regarded the change as merely verbal. In England, the working rule
seems to be that, in the absence of special cause to the contrary, the reasonable sum to be returned will be a
sum bearing the same proportion to the whole premium as the unexpired part of the partnership term originally
contracted forbears to the whole term.334 Conversely, when the premium payable by a partner in fault is still
unpaid, payment of it may be ordered.335 The judicial discretion of the judge who hears the case will not be
overruled by the Court of Appeal, except for strong reasons.336 If the deed of partnership contains an arbitration
clause under which the arbitrator has power to award a dissolution of the partnership that would include power
to award the return of a portion of the premium as one of the terms of a dissolution awarded by him.337
Illustrations
(a) A and B enter into a partnership for five years, on the terms of A paying a premium of GBP 1,050 to B,
out of which GBP 500 was to be paid immediately, and the rest by installments. In the second year of
the partnership term, and before the whole of the premium has been paid. A is adjudicated a bankrupt
on the petition of B, B is not entitled to any further payments on account of the premium, the
partnership having been determined by his own act, and he may retain only so much of the part
already paid to him as the court thinks just.338
(b) A and B enter into a partnership for a term of years, A paying a premium to B. Long before the
expiration of the term, B becomes bankrupt. B’s estate must return or give credit for a proportionate
part of the premium, as the bankruptcy, which determined the partnership, was B’s own act.339
(c) A and B enter into partnership for 14 years, B paying a premium to A. Differences soon arise, and
there is a quarrel in which, in the opinion of the court, A and B are both to blame. A excludes B from
the business and premises of the partnership, and B sues A or a dissolution of partnership and return
of the premium. A is entitled to retain only so much of the premium as bears the same proportion to its
whole amount as the time for which the partnership has actually lasted, bears to the whole term first
agreed upon.340
(d) A and B are partners for a term of 14 years, B having paid a premium of GBP 600 to A. At the end of
seven years of the term, B gives notice of dissolution to A, under a power contained in the partnership
articles, on the ground of A’s neglect of the business; and B claims to have the premium apportioned
on the principle of the last illustration. B is not entitled to the return of half the premium, but only to
such allowance as the court thinks proper on a general estimate of the case.341
(e) A takes B into partnership for seven years, knowing him to be inexperienced in the business, and
requires him on that account to pay a premium. After two years, A calls on B to dissolve the
partnership on the ground of B’s incompetence, and B sues A for a dissolution and the return of an
apportioned part of the premium. B is entitled to the return of such part of the premium as bears the
same proportion to the whole sum, which the unexpired period for the term of seven years bears to the
whole term.342
(f) A and B enter into partnership for fourteen years, A paying a premium. Disputes arise, in the fourth
year and the partnership is dissolved by consent. No agreement is made at the time of dissolution for
the return of any part of the premium. A cannot afterwards claim to have any of it returned.343
334 Atwood v Maude, [1868] LR 3 Ch 369.

335 Bluck v Capstick, (1879) 12 Ch D 863.
336 Lyon v Tweddell,(1881) 17 Ch D 529 (CA).
337 Belfield v Bourne, [1894] 1 Ch 521.
338 Hamil v Stokes, (1817) 4 Pri 161 : 146 ER 426.
339 Freeland v Stansfold, (1852–54) 2 Sm & G 479 : 65 ER 490 : 97 RR 306. This is the modern view; reference to an
earlier case in conflict with it is omitted.
340 Bury v Allen, (1844–5) 1 Coll 589 : 63 ER 556 : 66 RR 200; the proportion to be returned or allowed for was calculated
on the same principle in Astle v Wright, (1856) 23 Beav 77 : 53 ER 30; Pease v Hewitt, (1862) 31 Beav 22 : 54 ER
1045; Wilson v Johnstone, (1873) LR 16 Eq 606.
341 Bullock v Crockett, (1862) 3 Giff 507 : 66 ER 509. There not quite seven years of the term had in fact elapsed, but the
court allowed only GBP 100 to the partner who had paid GBP 600 premium, see also Freeland v Stansfeld, (1852–54)
2 Sm & G 749 : 65 ER 490 : 97 RR 3067.
342 Atwood v Maude, (1868) LR 3 Ch 369; Wilson v Johnstone, (1873) 16 Eq 606
343 Lee v Page, (1851) 30 LJ Ch 857.
End of Document
[s 52] Rights where partnership contract is rescinded for fraud or

misrepresentation.—
[s 52] Rights where partnership contract is rescinded for fraud or

misrepresentation.—
Where a contract creating partnership is rescinded on the ground of fraud or misrepresentation of any of the
parties thereto, the party entitled to rescind is, without prejudice to any other right, entitled—
(a) to a lien on, or a right of retention of, the surplus or the assets of the firm remaining after the debts of
the firm have been paid, for any sum paid by him for the purchase of a share in the firm and for any
capital contributed by him;
(b) to rank as a creditor of the firm in respect of any payment made by him towards the debts of the firm;
and
(c) to be indemnified by the partner or partners guilty of the fraud or misrepresentation against all the
debts of the firm.
This is identical with section 41 of the English Act except that, in accordance with the usage of the present Act,
it reads “firm” for “partnership” in the operative part. It declares a special application of the principles as to
rescinding a contract of any kind for fraud or misrepresentation; those principles must be sought in the general
law of contract, Contract Act, sections 17–9, and chapter IV of the Specific Relief Act, 1963 may be referred to.
The contract of partnership is one in which the utmost good faith is required, not merely abstinence from active
deceit; this duty “extends to persons negotiating for a partnership but between whom no partnership as yet
exists”.344 Where a person is induced to enter into a partnership as a result of a negligent misrepresentation or
negligent mis-statement, a remedy in damages in respect of the sort of negligence would prima facie be
available.345
If the contract is not repudiated within a reasonable time of discovery of fraud, the right to rescind to contract for
fraud would be lost.346
The right of a person, under this provision, to rescind a contract may be lost by his own laches or affirmation or
by disabling himself from restoring what he may himself have received.347 The right to rescind a contract
relating to partnership on the ground of fraud is not assignable with the benefit of the contract.348

345 Fsso Petroleum Co Ltd v Mardon, [1976] QB 801; Argy Trading Development Co Ltd v Lapid Developments Ltd, (1977)
1 WLR 444, p 459; Howard Marina and Dredging Co Ltd v A Ogden & Sons (Fxcavations) Ltd, [1978] QB 574 (CA).
346 Senanayake v Cheng, [1966] AC 63 (PC).
[s 52] Rights where partnership contract is rescinded for fraud or misrepresentation.—
347 Abraham Steamship Co v Westville Shipping Co, [1923] AC 773, p 779; Law v Law, [1905] 1 Ch 140; William Brunton v
J Brunton, AIR 1925 Mad 360; under Article 59, Sch I of the Limitation Act, 1963, suit for the recission ofa contract is to
be brought within three years.
348 Gross v Lewis Hillman & Henry James & Partners, [1970] Ch 445.
End of Document
[s 53] Right to restrain from use of firm name or firm property.—


After a firm is dissolved, every partner or his representative may, in the absence of a contract between the
partners to the contrary, restrain any other partner or his representative from carrying on a similar business in
the firm name or from using any of the property of the firm for his own benefit, until the affairs of the firm have
been completely wound up:
Provided that where any partner or his representative has bought the goodwill of the firm, nothing in this section
shall affect his right to use the firm name.
No commentary is called for on this, beyond the note of the Special Committee, which (with the substitution
now proper of “section” for “clause”) is as follows:
Section 53 is complementary to section 50. The earlier section does not prevent a partner from using the firm
connection or property for his private ends during the winding up, but requires him to account for the profit he obtains
thereby. The present section gives a power to the other partners or their representatives to prevent any partner
absolutely from using the firm name or property until the winding up is completed.
In practice, cases of this kind do not seem likely to come before the courts unless there is a real dispute as to
the construction of the partnership contract.
The court often restrains by injunction, after a dissolution, breaches of such agreements as, not to carry on
business, not to divulge a trade secret etc.349
It would follow from the wordings of section 53 that if a partner, having control over any property of the firm or in
respect of which he is liable to account to the firm, is likely to deliberately damage or dissipate it, or transfer it
out of the jurisdiction of the court, the other partners can apply for what is known as a Mareva injunction in
order to safeguard the property of the firm. Such relief would be equally appropriate to prevent a partner from
dissipating the goodwill of a firm.350
As far as section 53 is concerned, there is a total ban on the carrying on of a similar business in the firm’s name
or using of the property of the firm by a partner for his own benefit, subject, however, to a contract to the
contrary.351 For details pertaining to the use of firm name notes under sections 36 and 53 can be referred to.352
349 Whitehill v Bradford, [1952] Ch 236; Whittacker v Howe, (1841) 3 Beav 383; Schering Chemicals Ltd v Falkman Ltd,
[1982] QB 1; Thomas Marshall (Exports) Ltd Guinle, [1979] Ch 227 (both non partnership cases).
350 The injunction takes its name from the order made in Mareva Compania Naviera SA v International Bulk Carriers SA,
(1975) 2 Lloyd’s Rep 509; CBS United Kingdom Ltd v Lambert, [1983] Ch 37; Darshan v UFAC (UK) Ltd, The Times,
30 March 1982; Lindley on Partnership, 15th Edn, pp 657–8.
351 MC Sharma v BC Sharma, AIR 1986 All 69, p 70.
352 Mohansundaram v Neelambal, AIR 1955 Mad 442.
End of Document
[s 54] Agreements in restraint of trade.—

[s 54] Agreements in restraint of trade.—

Partners may, upon or in anticipation of the dissolution of the firm, make an agreement that some or all of them
will not carry on a business similar to that of the firm within a specified period or within 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.
[s 54.1] AGREEMENTS IN RESTRAINT OF TRADE
This merely reproduces the second exception to section 27 of the Contract Act, a section which adopts the old-
fashioned hostility to all agreements in restraint of trade, and by no means corresponds to the modern English
law. Two of the three exceptions allow limited restraints as between partners, one of these is dealt with by
section 11 of the present Act, the other, in the like form, by the present section; both are repealed by section
73, below, as being no longer useful in their original place.
On reasonableness of restrictions notes under section 36 can be referred to.
End of Document
[s 55] Sale of goodwill after dissolution.—

(1) In settling the accounts of a firm after dissolution, the goodwill shall, subject to contract between the
partners, be included in the assets, and it may be sold either separately or along with other property of
the firm.
Rights of buyer and seller of goodwill.—(2) Where the goodwill of a firm is sold after dissolution,
a partner may carry on a business competing with that of the buyer and he may advertise such
business, but, subject to agreement between him and the buyer, he may not,—
(a) use the firm name,

(b) represent himself as carrying on the business of the firm, or
(c) solicit the custom of persons who were dealing with the firm before its dissolution.
Agreements in restraint of trade.—(3) Any partner may, upon the sale of the goodwill of a firm, make
an agreement with the buyer that such partner will not carry on any business similar to that of the firm
within a specified period or within specified local limits, and, notwithstanding anything contained in
section 27 of the Indian Contract Act, 1872353 (9 of 1872) such agreement shall be valid if the
restrictions imposed are reasonable.
[s 55.1] GOODWILL: SALE AFTER DISSOLUTION
Goodwill is a part of the assets of the firm and section 55(1) enacts that in settling the accounts of a firm after
dissolution, the goodwill shall, subject to contract between the partners, be included in the assets and it may be
sold either separately or along with other property of the firm. The prima facie rule therefore is that the goodwill
of the firm being a part of the assets has to be sold just like other assets before the accounts between the
partners can be settled and the partnership wound up.354
Neither the Indian Contract Act, 1872 nor the UK Partnership Act deals with the rules governing the disposal of
goodwill after the dissolution of a firm; and it is true that those rules extend beyond cases where a business has
been carried on in partnership, and so do not, strictly speaking, form part of the law of partnership any more
than other general rules of the law of contract and property which may, at any time, have to be applied to the
affairs of a firm. However, the rules have been settled chiefly by decisions on partnership affairs, and the matter
of goodwill ought to be provided for, and regularly is, in the constitution of firms of any importance; and it
constantly has to be considered in their dissolution. On the dissolution of a firm by the death of one partner, “the
goodwill of the business would be an asset, and might well be the most valuable asset, of the partnership”.355
Accordingly, the Special Committee decided to include the principal rules in the present Act, but in a form
somewhat simpler than an exact following of English case-law, in its details, would have produced.
The goodwill of a valuable partnership business may be practically unsaleable and worthless, at least to anyone
except a former partner desiring to continue the business of the firm.356 If the firm is dissolved, and there is no
agreement, either express or implied, to the contrary, the goodwill must be sold for the benefit of all the
partners, if any of them insist on such sale.357 So far as it is possible, having regard to the right of every partner
to carry on business himself, the court will, on dissolution, interfere to protect and preserve the goodwill until it
can be sold.358 If a partner has himself obtained the benefit of the goodwill, he can be compelled to account for
its value.359
Under section 55(1), while settling the account of a firm after dissolution, the goodwill has to be included in the
asset subject to contract between the parties. Mere absence of any provision with respect to the rights in
goodwill is not sufficient to hold contrary to the mandate of the provisions of the Act. There must be a positive
provision contrary to the mandate of the Act.360
[s 55.2] RIGHTS OF PARTNERS AS TO GOODWILL
On the dissolution of a partnership, every partner has a right, in the absence of any agreement to the contrary,
to have the goodwill of the business sold for the common benefit of all the partners.361 This, however, does not
mean that goodwill is to be taken into account only when there is a general dissolution. Even the legal
representative of a deceased partner will be entitled to a share in the goodwill of a partnership, which is
continued.362 When the goodwill has been fully appropriated by the surviving partner with all the advantages
flowing from the old business connections, together with a trademark, it is impracticable to direct a sale of the
goodwill, which has, in reality, long ceased to exist. The only way to do justice between the partners, in such
circumstances, is to value the trademarks and give a proportionate share of such value to the heirs of the
deceased partner,363 as can be seen in notes under section 36.
[s 55.3] GOODWILL DOES NOT “SURVIVE”
It was formerly supposed that on the death of a partner in a firm the goodwill survived, i.e., the surviving
partners were entitled to the whole benefit of it without any express agreement to that effect. However, it is now
well-settled that this is not so.364 Surviving or continuing partners may, in various ways, have the benefit of the
goodwill, and an intention to let them have it may be shown by conduct as well as words.
As observed in Menendoz v Holt, (1888) 128 US 514, p 522:
When a partner retires from a firm, assenting to or acquiescing in the retention by the other partners of possession of
the old place of business and the future conduct of the business by them under the old name, the goodwill remains
with the latter as of course.
This, however, is no longer good law in view of the decision of the Supreme Court in KK Shah v Khorshed Banu
where the court said:
An agreement between the partners that the name, the place of business and the reputation of the firm are to be
utilised by the surviving partners will not necessarily warrant an inference that it was intended that the heirs of the
deceased partner will not be entitled to a share in the goodwill.365
However, this really amounts to saying that in such a case the goodwill ceases to have any separate value. The
retiring partner has nothing left that he could give except an undertaking not to compete with the firm; and this,
as we have seen, is not implied even in an express assignment of goodwill.366 A condition in the agreement, of
not carrying similar business by the retiring partner only on the adjoining premises, was found to be reasonable
and binding on the assignee of the retiring partner, in a case where the goodwill was purchased by the other
partners at the time of his retirement and subsequently, he sold the land in question to his father.367
[s 55.4] RIGHT OF PARTNERS TO RESTRAIN USE OF PARTNERSHIP NAME
Doubts as to whether after a dissolution, each of the partners in the dissolved firm or his representatives may,
in the absence of any agreement to the contrary, restrain any other partner or his representatives from carrying
on the same business under the partnership name until the affairs of the firm have been wound up, and the
partnership property disposed of, are removed by section 53.
After the affairs of a dissolved firm are wound up, every partner is free to use the firm name in the absence of
agreement to the contrary,368 provided that he does not expose any late partner to liability.369
When valuation of the goodwill of the firm is honestly made by the agreed valuer, it will bind the parties.370 Such
valuation can, however, be set-aside on the ground of fraud or collusion.371 The dissatisfied partner may have
remedy against the agreed valuer for damages in respect of his negligence.372
[s 55.5] DISSOLUTION UNDER TRADING WITH THE ENEMY LEGISLATION
Where a partnership has been dissolved as the result of the trading with the enemy legislation, and where one
active partner has made use of the assets, such a partner is a trustee of those assets, and he must pay the
other partner his share of the profits with interest.373
353 This sub-section coincides in part with exception (1) to the Contract Act, section 27, but that exception, inasmuch as it
extends beyond partnership affairs, is not repealed by the present Act.
354 Laxmidas Dayabhai Kabrawala v Nanabhai Chunilal Kabrawala, AIR 1964 SC 11, para 17.
355 Re David and Mathews, [1899] 1 Ch 378, p 382; For meaning of the word “goodwill” see “Goodwill” under section 14;
see also State v Bundi Electric Supply Co, AIR 1970 Raj 36, p 41 (DB); NGC Mills Ltd v LA Tribunal, AIR 1957 Bom
111 (DB); Dulaldas Mullick v Ganesh Das, AIR 1957 Cal 280; Trego v Hunt, [1896] AC 7, pp 16–18; Cliff v Taylor,
[1948] 2 KB 394; Govt of Malaysia v Selangor Pilot Assn, [1978] AC 337, pp 357, 358 (PC).
356 Davies v Hodgson, (1858) 25 Beav 177.
357 Sobell v Boston, (1975) 1 WLR 1587; Hill v Fearis, [1950] 1 Ch 466 .
358 Turner v Major, (1862) 3 Giff 442, where, there was an express agreement for sale of goodwill.
359 Smith v Everett, (1859) 27 Beav 446.
360 Sujan Suresh Sawant v Kamlakant Shantaram Desa, AIR 2004 Bom 446, p 455.
362 Khushal Khemgar Shah v Khorshed Banu Dadiba Boatwala, AIR 1970 SC 1147.
363 Md Abdul v Hafija Bibi, AIR 1944 Mad 346 : 220 IC 422.
364 The notion of the goodwill surviving is expressly contradicted, for instance, in Smith v Everett, (1859) 27 Beav 446 : 54
ER 175 : 122 RR 484. For the history of the modern law, judgment of Romer J, Re David and Matthews, [1899] 1 Ch
378, p 382. As late as 1860, it was possible to suppose that the firm name survived, 28 Beav 536 : 54 ER 472 : 126 RR
253.
365 Khushal Khemgar Shah v Khorshed Banu Dadiba Boatwala, AIR 1970 SC 1147; State v Prem Nath, AIR 1977 P&H 62.
367 Hukmi Chand v Jaipur Rice & Oil Mills Co, AIR 1980 Raj 155; onus to prove reasonableness of restrictions imposed in
an agreement in restraint of trade is on the party pleading reasonableness as in Niranjan Shanker Golikari v Century
Spg and Mfg Co Ltd, AIR 1967 SC 1098; for discussion on restrictions exceeding reasonable limits see notes below
section 36.
368 Per James LJ Levy v Walker, (1879) 10 Ch D 445 : 48 LJ Ch 273; Muthu KM Meyyappa Chettyar v Periyah, (1930)
9 Rang 85 : 131 IC 506 : AIR 1931 Rang 138.
369 Burchell v Wilde, [1900] 1 Ch 551 : 69 LJ Ch 314 (CA); Muthu KM Meyyappa Chettyar v Periyah, (1930) 9 Rang 85 :
AIR 1931 Rang 138.
370 Campbell v Edward, (1976) 1 WLR 403 (CA); Baber v Kenwood Mfg Co Ltd, (1978) Lloyd’s Rep 175 (CA).
371 Burgess v Purchase & Sons, (Farms) Ltd, (1983) 2 WLR 361 (summarising the present law on the point); Smith v Gale,
(1974) 1 WLR 9.
372 Arenson v Casson Beckman Rutley & Co, [1977] AC 405; Sutcliffe v Thakrah, [1974] AC 727 (HL).
373 Gordon v Gonda, (1955) 2 All ER 762 : [1955] 1 WLR 885.
End of Document
[s 56] Power to exempt from application of this Chapter.—

Act, 8th ed > The Indian Partnership Act, 1932 > Chapter 7 Registration of Firms
CHAPTER 7 Registration of Firms
[s 56] Power to exempt from application of this Chapter.—

The 1[State Government of any State] may, by notification in the Official Gazette, direct that the provisions of
this Chapter shall not apply to 2[that State] or to any part thereof specified in the notification.
[s 56.1] REGISTRATION
The purpose underlying this provision was to exempt any undeveloped area to which its provisions may not be
suited.3 This chapter is entirely new. The policy of its framers, and the reasons for not attempting to make
registration of firms generally compulsory at present, are set forth in paras 12–24 of the Special Committee’s
report. There is no direct compulsion, but we shall see that section 69 makes registration highly desirable for
firms carrying on business in districts not specially exempted from the operation of this chapter under the
powers of the present section.
In England, not only firms, but individual persons, carrying on business under any name not identical (to put it
shortly) with the usual name or names of the persons concerned, are required by the Registration of Business
Names Act, 1916, to register both the business names and the personal names of the parties in the form
therein prescribed. Registration is not called for in the case of a firm name consisting only of the usual names of
the partners, but in practice the great majority of firms have to be registered. The nationality and the other
business occupation, if any, of each partner in a registered firm have to be stated under section 2 of the English
Act; although the present Act does not require these particulars.
Condition in a tender of a partnership firm being registered would mean registered before the Registrar of
Firms.4
1 Substituted by AO 1937, for words ‘Governor General in Council’.

2 Substituted by AO 1937, for the words ‘any Province’.
3 Special Committee’s Notes on clause 55.
4 NB Krishna Kurup v UOI, 2006 SCC OnLine Ker 181 : AIR 2006 Ker 309 : (2006) 3 KLT (SN 56) 39.
End of Document
[s 57] Appointment of Registrars.—

(1) The State Government may appoint Registrars of Firms for the purposes of this Act, and may define
the areas within which they shall exercise their powers and perform their duties.
(2) Every Registrar shall be deemed to be a public servant within the meaning of section 21 of the Indian
Penal Code (45 of 1860).
Maharashtra
For section 57, substitute the following section, namely,-
57. Appointment of Registrar of Firms and Deputy Assistant Registrars of Firms.— (1) The State Government may, by
notification in the Official Gazette, appoint a Registrar of Firms who shall exercise, perform and discharge the powers,
functions and duties of the Registrar under this Act throughout the State of Maharashtra.
(2) the State Government may likewise appoint one or more Deputy Registrars of Firms and Assistant Registrars of
Firms who shall exercise, perform and discharge all or such of the powers, functions and duties of the Registrar and in
such areas as the State Government may, by notification in the Official Gazette, specify.
(3) The officers appointed under sub-section (1) and sub section (2) shall be deemed to be public servants within the
meaning of section 21 of the Indian Penal Code.
[Vide Maharashtra Act 29 of 1984, sec. 5 (w.e.f. 1-5-1985)].
Uttar Pradesh
For section 57, substitute the following section, namely,-
57. Appointment of Registrar, Deputy Registrars and Assistant Registrars.—(1) The State Government may, by
notification, appoint a Registrar of Firms who shall exercise, perform and discharge the powers, functions and duties of
the Registrar under this Act throughout the State of Uttar Pradesh.
(2) The State Government may likewise appoint one or more Deputy Registrars of Firms and Assistant Registrars of
Firms who shall exercise, perform and discharge all or such of the powers, functions and duties of the Registrar and in
such areas as are notified in the notification.
(3) The officers appointed under sub-section (1) or sub-section (2) shall be deemed to be public servants within the
meaning of section 21 of the Indian Penal Code (45 of 1860).
[Vide Uttar Pradesh Act 34 of 1979, sec. 2 (w.e.f. 22-10-1979)].
Section 21 of the Indian Penal Code, 1860 is an elaborate specification of the classes of persons who are
public servants. Offences committed by public servants in abuse of their offices or wilful disregard of their
official duty are dealt with in chapter IX of the Code whereas offences committed by others in contempt of their
lawful authority are dealt with in chapter X.
This section speaks of appointing Registrars of Firms only, but does not speak of appointing deputy or assistant
registrars of firms. Therefore, in a case where copy of the certificate which was in the prescribed form, bearing
the seal of the Office of Registrar, but was signed by the assistant registrar was produced, it was held that it
cannot be taken as a proof of registration of the firm, because the assistant registrar is an authority not known
to the Act.5
5 Girdhari Lal v New Bharat Finance Co, AIR 1981 J&K 82; in the rules framed by various states under sub-section (2) of
section 71, registrar is defined as Registrar of Firms, while Bombay Rules included Additional Registrar of Firms in the
definition [rule 2(cc) Bombay Partnership Rules, 1932] and Delhi Rules have defined Registrar to mean an officer
appointed by the Lt Governor under section 57 to perform the duties of the Registrar of Firms [rule 2(e)]. Section 57, as
applicable to Uttar Pradesh, is substituted so as to include Deputy Registrars and Assistant Registrars. In Maharashtra
now by a state amendment, the definition of registrar is inserted at clause C–1 of section 2 of the Act and includes the
Deputy Registrar of Firms appointed under sub-section (2) of section 57. Section 57 is substituted so as to include
‘Deputy and Assistant Registrars of Firms’ also.
End of Document
[s 58] Application for registration.—

(1) The registration of a firm may be effected at any time by sending by post or delivering to the Registrar
of the area in which any place of business of the firm is situated or proposed to be situated, a
statement in the prescribed form and accompanied by the prescribed fee, stating—
(a) the firm-name,
(b) the place or principal 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 addresses of the partners, and
(f) the duration of the firm.
The statement shall be signed by all the partners, or by their agents specially authorised in this
behalf.
(2) Each person signing the statement shall also verify it in the manner prescribed.
(3) A firm name shall not contain any of the following words, namely:—
‘Crown’, ‘Emperor’, ‘Empress’, ‘Empire’, ‘Imperial’, ‘King’, ‘Queen’, ‘Royal’, or words expressing or
implying the sanction, approval or patronage of 6[Government] except 7[when the State
Government] signifies 8[its] consent to the use of such words as part of the firm-name by order in
writing.9[***]
Goa, Daman and Diu
In section 58
(i) for sub-section (3), substitute the following sub-section, namely:-
(3) No firm shall be registered by a name which in the opinion of the Registrar is undesirable”.
(ii) after sub-section (3), insert the following sub-sections:-
“(4) Any person aggrieved by an order of the Registrar under sub-section (3) may, within 30 days from the date of
communication of such order, appeal to the State Government whose decision shall be final.
(5) A firm’s name shall not contain any of the following words, namely, Union, State, President, Republic, Governor or
words expressing or implying sanction, approval or patronage of Government unless the Government of Goa, Daman
and Diu signifies, by order in writing, its consent to the use of such words as part of the firm’s name:
Provided that nothing in this sub-section shall apply to any firm carrying on business under any such name, before the
date of the commencement of the Indian Partnership (Goa, Daman and Diu Amendment) Act, 1966.
(6) Any person who contravenes the provisions of sub-section (5) shall be punishable with fine which may extend to
five hundred rupees.
[Vide Goa, Daman and Diu Act 6 of 1966, sec 3 (w.e.f. 22-8-1966)].
Maharashtra
In section 58:
(a) in sub-section (1),

(i) for the words “The registration of a firm”, substitute the words, brackets, figure and letter “Subject
to the provisions of the subsection (1A), the registration of a firm”;
(ii) Omit the words “at any time”;
(iii) after the words “prescribed fee”, insert the words” and a true copy of the deed of partnership”;
(iv) after clause (a), insert the following clause, namely:- “(aa) the nature of business of the firm;”;
(b) after sub-section (1), insert the following sub-section, namely:-
(1A) The statement under sub-section (1) shall be sent or delivered to the Registrar within a period
of one year from the date of constitution of the firm:
Provided that in the case of any firm carrying on business on or before the date of commencement
of the Indian Partnership (Maharashtra Amendment) Act, 1984 (Maharashtra Act 29 of 1984), such
statement shall be sent or delivered to the Registrar within a period of one year from such date.;
(c) for sub-section (3), substitute the following sub-sections, namely:-
(3) A firm shall not have any of the names or emblems specified in the Schedule to the Emblems
and Names (Prevention of Improper Use) Act, 1950 (12 of 1950), or any colourable limitation
thereof, unless permitted so to do under that act, on any name which is likely to be associated by
the public with the name of any other firm on account of similarity, or any name which, in the
opinion of the Registrar for reasons to be recorded in writing, is undesirable:
Provided that nothing in this sub-section shall apply to any firm registered under any such name
before the date of the commencement of the Indian Partnership (Maharashtra Amendment) Act,
1984 (Maharashtra Act 29 of 1984).
(4) Any person aggrieved by an order of the Registrar under sub- section (3) may, within 30 Days
from the date of communication of such order, appeal to the officer not below the rank of Deputy
Secretary to Government authorised by the State Government in this behalf, in such manner, and
on payment of such fee, as may be prescribed. On receipt of any such appeal, the authorised
officer shall, after giving an opportunity of being heard to the appellant decide the appeal, and his
decision shall be final.
(5)[Vide Maharashtra Act 29 of 1984, sec. 6 (w.e.f. 1-1-1985)]

Puducherry
In section 58, for sub-section (3), substitute the following sub-sections, namely:-
(3) The Registrar shall refuse to register,-
(a) a firm under sub-section (1), or
(b) an alteration of the firm name,
if the proposed name or alteration of the firm name is identical with the name of which any other existing firm has been
registered or in the opinion of the Registrar so nearly resembles such other name as to be likely to deceive or mislead
the public or the members of either firm.
(4) Any person who is aggrieved by an order of Registrar under sub- section (3) may file an appeal before such person
or authority, in such manner, within such time and on payment of such fees as may be prescribed. The appeal shall be
heard and decided in such manner as may be prescribed.
[Vide Pondicherry Act 8 of 1969, sec. 2 (w.e.f. 1-1-1970)].
Rajasthan
In section 58, for sub-section (3), substitute the following sub-sections, namely:-
(3) No firm shall be registered by a name which, in the opinion of the State Government, is undesirable.
(4) Except with the previous sanction, in writing, of the State Government, no firm shall be registered by a name which
contains any of the following words, namely:-
(a) ‘Union’, ‘State’, ‘President’, ‘Republic’ or any word expressing or implying the sanction, approval or patronage
of the Central or any State Government; and
(b) ‘Municipal’, ‘Chartered’ or any word which suggests or is calculated to suggest connection with any
municipality or local authority:
Provided that nothing in this sub-section shall apply to any firm registered before the date of commencement of the
Indian Partnership (Rajasthan Amendment) Act, 1971.
[Vide Rajasthan Act 10 of 1971, sec. 2 (w.e.f. 15-9-1971)]
Tamil Nadu
Same as in Rajasthan, except that in the proviso to sub-section (4), for the words “Indian partnership
(Rajasthan Amendment) Act, 1971” substitute the words “Indian Partnership (Tamil Nadu Amendment) Act,
1965”.
[Vide Tamil Nadu Act 35 of 1965, sec. 2 (w.e.f. 1-4-1966)]
Sub-section (3) corresponds to section 11, sub-section (3) of the Indian Companies Act, 1913, and enacts like
prohibitions in the case of registered firm names. The registration of a partnership is optional10 and one partner
cannot compel another partner to join in the registration of the firm. A firm can be registered irrespective of the
fact whether it has started business or not.11 Even if it is an implied term of the partnership agreement that the
partners should register the partnership, a suit to enforce such a contract would not lie, having regard to the
provisions of section 69(1).12 The Andhra Pradesh High Court held that the delivery of such a statement
contemplated by section 58(1) is effective. Once such a statement is delivered, registration is automatic and the
act of entry in the registry is only clerical.13 The High Court of Rajasthan has, however, held that the mere
delivery of such a statement in not enough and registration must be effected and the persons suing must be
shown as partners.14 The Supreme Court, however, has overruled the Andhra High Court view and has held
that the registration of the firm is effected only when the entry of the statement is recorded in the register of
firms and the statement is filed by the registrar as provided in section 59. Section 58(1) is not to be read in
isolation and has to be considered along with the scheme of the other provisions of the Act, namely sections 59
and 69. The latter section throws light on what was contemplated by the legislature with regard to the point of
time when the firm could be regarded as registered.15 It has, however, been held that omission to mention one
of the other places of business when the principal place is mentioned will not vitiate the registration and mistake
can be rectified under section 64.16 Under section 58(1)(b), “principal place” means office at which the business
of the company is managed.17
[s 58.2] NAME OF THE FIRM – UNDER SUB-SECTION (3)
In absence of a provision like section 20 of Companies Act, 1956 in the Partnership Act, a firm can be
registered with a name similar or identical to the name of a firm already registered. The Act neither provides
that partners cannot carry on a business in an identical or a similar firm name if some other persons are
carrying on business in that name nor is there any provision enabling the Registrar to refuse registration on
such ground.18
Sub-section (3) of section 58 states that a firm shall not contain any of the following words, viz., “Crown”,
“Emperor”, “Empress”, “Empire”, “Imperial”, “King”, “Queen”, “Royal” or other words expressing or implying the
sanction, approval or patronage of Government except when the State Government signifies its consent to the
use of such words as part of the firm name by order in writing. The Andhra Pradesh High Court has been held
that since the word “India” does not signify the same, the sanction of the Government is redundant. It has been
further held that the use of the word “South India” does not reflect upon any State or Government of India nor
signifies any patronage and “South India” is not a State and it is a common name for many firms or proprietary
concerns and therefore, it cannot be held that it amounts to improper use within the meaning of section 3 of the
Emblems and Names [Prevention of Improper Use] Act, 1950.19 The Indian Partnership Act, 1932 came into
being in the year 1932 and after independence, the words under section 58(3) of the said Act have not been
amended and therefore, the word “India” does not find place.20 Further, there is no bar for any citizen in carrying
on the business either as a firm in using the term “Bharath”.21
6 Words ‘the Crown or the Government of India or a Local Government,’ have been successively adapted by the AO
1937, AO 1948 and AO 1950 to read as above.
7 Substituted by the AO 1937, for words ‘when the Governor General-in-Council’.
8 Substituted by AO 1937, for word ‘his’.
9 Words ‘under the hand of one of the secretaries of the Government of India’ omitted by AO 1937.
10 Deepthi Granite Metals v State of Kerala, 2018 SCC OnLine Ker 1634 : (2018) 2 KLT 916.
11 Registrar of Firms, Societies and Non-Trading Corporations, West Bengal v Tarun Manna, 2009 SCC OnLine Cal 2699
: AIR 2010 Cal 79 : (2010) 1 CALLT 283 (HC).
12 Keshavlal & Co v Chunilal & Co, (1941) 196 IC 96 : AIR 1941 Rang 196.
13 Jayalakshmi Rice & Oil Mills Contractors Co v CIT, AIR 1967 AP 99.
14 Firm Sitaram Agarwal v Harnath, AIR 1970 Raj 99; Firm Ram Prasad v Firm Kamta Prasad, AIR 1935 All 898.
15 CIT Andhra Pradesh v Jayalakshmi Rice & Oil Mills, AIR 1971 SC 1015; Girdharilal v New Bharat Finance Co, AIR
1981 J&K 82; Kerala Road Lines Corpn v CIT Kerala, AIR 1964 Ker 251.
16 Girdharilal v Spedding Dinga Singh & Co, AIR 1954 HP 52; Sohanlal Pachisia & Co v Bilasrai Khemani, AIR 1954 Cal
179.
17 Dinesh Mehta v STA, 2015 SCC OnLine Ori 51 : AIR 2015 Ori 88.
18 Hiralal Agarwal v State of Bihar, AIR 1972 Pat 507, p 508.
19 South India Textiles v Govt of AP, 1987 SCC OnLine AP 71 : AIR 1989 AP 55.
20 National Engineering College v All India Council for Technical Education, 2016 SCC OnLine Mad 8970.
21 Bharat Chamber v General Manager, District Industries Centre, 2012 SCC OnLine Mad 3928 : 2012 (6) CTC 453.
End of Document
[s 59] Registration.—
When the Registrar is satisfied that the provisions of section 58 have been duly complied with, he shall record
an entry of the statement in a register called the Register of Firms, and shall file the statement.22
Maharashtra
Renumber section 59 as sub-section (1) of that section, and,-
(a) in sub-section (1) as so renumbered, after the words “file the statement”, insert the words “on the date
such entry is recorded and such statement is filed, the firm shall be deemed to be registered,”;
(b) after sub-section (1) as so renumbered, insert the following subsection, namely:-
(2) The firm, which is registered, shall use the brackets and word “(Registered)” immediately after
its name.
Andhra Pradesh
After section 59, insert the following section, namely:-
59A. Amendment of the Register of Firms.—(1) Notwithstanding anything in this Chapter, the Registrar of Firms,
Andhra Pradesh, may, by order in writing, amend the register by deleting therefrom the entries relating to any firm,
whose place of business has, by virtue of the provisions contained in the States Reorganisation Act, 1956 and the
Andhra Pradesh and Madras (Alteration of Boundaries) Act, 1959, ceased to be in the Andhra Pradesh; the Registrar
may likewise amend the register by adding thereto the entries relating to any firm included in the register of another
State but, whose place of business has, by reason of the said provisions, become included in the State of Andhra
Pradesh:
Provided that the Registrar shall, before passing an order under this subsection, give to the firm concerned an
opportunity of making its representation, if any.
(2) The Registrar shall cease to perform the functions of a Registrar under the Act in respect of any firm the entries
relating to which are deleted as aforesaid and shall perform the functions of a Registrar under the Act in respect of any
firm the entries relating to which are added as aforesaid.
(3) Any person aggrieved by an order under sub-section (1) may appeal to such authority and within such time as may
be specified in this behalf by an order made by the Government of the Andhra Pradesh, and such Authority shall pass
such order on the appeal as it thinks fit.
(4) An order of the Registrar under sub-section (1), or where an appeal has been referred against it under sub-section
(3), the order of the appellate authority, shall be final.
[Vide Andhra Pradesh Act 7 of 1965, sec. 2 (w.e.f. 10-3-1965)].
Kerala
59A. Amendment of Register.—(1) Notwithstanding anything contained in this Chapter, the Registrar of Firms
appointed by the State of Kerala may, be order in writing, amend the register by deleting therefrom the entries relating
to any firm whose place of business has, by reason of the reorganisation of States, ceased to be situated in the State
of Kerala.
The Registrar may likewise amend the register by adding thereto the entries relating to any firm included in the register
of the state of Madras but whose place of business has, by reason of the said reorganisation of States, become part of
the State of Kerala:
Provided that the registrar shall, before passing an order, make such inquiry as he deems necessary.
(2) After such amendment the Registrar shall cease to perform the functions of a Registrar in respect of any firm the
entries relating to which have been deleted as aforesaid and shall perform all the functions of a Registrar in respect of
all firms the entries relating to which are added as aforesaid.
(3) Any person aggrieved by an order sub-section (1) may appeal to such authority and within such time as may be
specified in this behalf by the State Government of Kerala, and such authority shall pass such order on the appeal as it
thinks fit.
(4) An order of the Registrar under sub-section (1), or where an appeal has been preferred against it under sub-section
(3), the order of the appellate authority, shall be final.
(5) The provisions of this section shall cease to be in force from such date as the State Government of Kerala may, by
notification in the Gazette, appoint.
[Vide Kerala Adaptation of Laws (No. 2) Order, 1957 (w.e.f. 30-10 1957)].
Madhya Pradesh
59A. (1) Notwithstanding anything contained in this Chapter, the Registrar of Firms appointed by the State of Madhya
Pradesh may, by order in writing, amend the register by deleting therefrom entries relating to any firm, whose place of
business has, by reason of the reorganisation of States, ceased to be situated in the State of Madhya Pradesh.
of another State but whose place of business has, by reason of the said reorganisation of States, become part of the
State of Madhya Pradesh:
Provided that the Registrar shall, before passing an order, make such inquiry as he deems necessary.
be specified in this behalf by the State Government of Madhya Pradesh, and such authority shall pass such order on
the appeal as it thinks fit.
(3), the order of the appellate authority shall be final.
(5) The provisions of this section shall cease to be in force from such date as the State Government of Madhya
Pradesh may, by notification in the State Gazette, appoint.
[Vide Madhya Pradesh Adaptation of Laws (State and Concurrent Subjects) (Third Amendment) Order, 1957
(w.r.e.f. 1-11-1956)]
Maharashtra
(i) After section 59, insert the following section, namely:-
59A. Deletion and addition of entries relating to certain firms, by reason of reorganisation of States.—(1)
Notwithstanding anything contained in this Chapter, a Registrar of Firms appointed for any area by the Government of
Bombay may, by order in writing, amend the Register of Firms maintained by him by deleting thereform the entries
relating to any firm, whose place of business has, by reason of the reorganisation of States under the States
Reorganisation Act, 1956, ceased to be situated in the State of Bombay. The Registrar may likewise and without any
charge or fee therefore amend the Register by adding thereto the entries relating to any firm included in the Register of
another State but whose place of business has, by reason for such reorganisation, become part of the area within his
jurisdiction in the State of Bombay:
Provided that the Registrar shall, before passing any order under this subsection, make such inquiry as he deems
necessary and give notice to the firm and the Registrar of the State concerned.
(2) After such amendment, the Registrar shall cease to perform the functions of a Registrar in respect of any firm the
entries relating to which have been deleted as aforesaid and shall perform the functions of a Registrar in respect of any
firm the entries relating to which are added as aforesaid.
(3) Any person aggrieved by an order under sub-section (1) may appeal to such authority, and within such time, as
may be specified in this behalf by the Government of Bombay by notification in the Official Gazette; and such authority
shall pass such order on the appeal as it thinks fit.
(4) An order of a Registrar under sub-section (1), or when an appeal has been preferred against it under sub-section
(5) The provisions of this section shall cease to be in force from such date as the Government of Bombay may, by
notification in the Official Gazette, appoint.
[Vide Central Acts on State and Concurrent Subjects (Bombay Adaptation) (Amendment) Order, 1957 (w.e.f.
17-10-1957)]
(ii) After section 59, insert the following section, namely:-
59A1. Late registration on payment of penalty.—If the statement in respect of any firm is not sent or delivered to the
Registrar within the time specified in subsection (1A) of section 58, then the firm may be registered on payment, to the
Registrar, of a penalty of 23[one thousand rupees] per year of delay or a part thereof.
[Vide Maharashtra Act 29 of 1984, sec. 8 (w.e.f. 1-1-1985)] After section 59A, insert the following section,
namely:-
59B.-Same as in Gujarat, except that-
(i) in the marginal note, for the words “re-organization of Bombay State”, substitute the words ‘formation of State
of Gujarat’;
(ii) in sub-sections (1) and (3), for the word “Gujarat”, substitute the word “Maharashtra”, and in the proviso, for
the word “Maharashtra”, substitute the word “Gujarat”;
(iii) in sub-section (1), for the words “by reason of re-organisation of the State of Bombay”, substitute the words
“by reason of the formation of the State of Gujarat.
[Vide Central Acts on State and Concurrent Subjects (Maharashtra Adaptation) (Amendment) Order, 1961
(w.e.f. 1-5-1960)]
Mysore (Karnataka)
In section 59A, in sub-section (1), for the words “by reason of the reorganisation of States”, the words, brackets,
etc., “by reason of the addition of the Bellary district to the State of Mysore under the Andhra Pradesh State
Act, 1953 (Central Act 30 of 1953), or of the reorganisation of Sates under the States Reorganisation Act, 1956
(Central Act 37 of 1956)” shall be substituted.
[Vide Mysore Act 19 of 1961, sec. 2 (w.e.f. 14-9-1961)].
Note.-This amendment relates to section 59A as introduced by Madras adaptation of Laws (Central Acts)
Order, 1957.
Tamil Nadu
59A. Special provision for amending the register.-(1) Notwithstanding anything contained in this Chapter, the Registrar
of Firms appointed by the State Government of Madras may, by order in writing, amend the register by deleting
therefrom the entries relating to any firm, the place of business of which has by reason of the formation of the State of
Andhra or of the addition of the Bellary district to the State of Mysore under the Andhra State Act, 1953 or of the
reorganisation of states under the States Reorganisation Act, 1956, or of the alteration of boundaries under the Andhra
Pradesh and Madras (Alteration of Boundaries) Act, 1959 (Central Act 56 of 1959), ceased to be located in the State of
Madras.
of another State but the place of business of which has, by reason of the said reorganization of States o of the said
alteration of boundaries, become part of the State of Madras:
Provided that the Registrar may, before passing an order, make such inquiry as he deems necessary.
(2) After such amendment the Registrar shall cease to perform the functions of the Registrar in respect of any firm the
be specified in this behalf by the State Government of Madras, and such authority shall pass order on the appeal as it
thinks fit.
(5) The provisions of this section shall cease to be in force from such date as the State Government of Madras may, by
notification in the Official Gazette, appoint.
[Vide Tamil Nadu (added Territories) Adaption of Laws Order, 1961 (w.r.e.f. 1-4-1960)]
Gujarat
After section 59A, insert the following section, namely:-
59B. Deletion of entries relating to certain firms by reason of reorganisation of Bombay State.-(1) Notwithstanding
anything contained in this Chapter, a Registrar of Firms appointed for any area by the Government of Gujarat may, by
order in writing, amend the Register of Firms maintained by him by deleting therefrom the entries relating to any firm
whose place of business has, by reason of the reorganisation of the State of Bombay, by the Bombay Reorganisation
Act, 1960, ceased to be situated in the State of Gujarat:
Provided that the Registrar shall, before passing any order this subsection, make such inquiry as he deems necessary
and give notice to the firm and the Registrar of the State of Maharashtra.
entries relating to which have been deleted as aforesaid.
be specified in this behalf by the Government of Gujarat, by notification in the Official Gazette; and such authority shall
pass such order on the appeal as it thinks fit.
(4) An order of a Registrar under sub-section (1), or where an appeal has been preferred against it under sub-section
[Vide Gujarat Adaptation of Laws (State and Concurrent Subjects) (Eighth Amendment) Order, 1961 (w.r.e.f. 1-
5-1960)]
This and the following sections including section 68 give executive directions, which speak plainly for
themselves.24 It can be taken to have been settled that the registration of a firm takes place, only when the
necessary entry is made in the Register of Firms under section 59, by the Registrar. Statement from the report
of the Special Committee to the effect that the Registrar was a mere recording officer and that he had no
discretion but to record the entry in the Register of Firms cannot be taken into consideration for the purpose of
interpreting the relevant provisions of this Act, as held by the Supreme Court.25
The word “satisfied” does not mean issuing a public notice, conducting an enquiry and consider rival stands to
register a firm. It only denotes that the Registrar should apply his mind to the requirements of section 58. There
is no provision under the Act which enables the Registrar to hold any enquiry by issuing notices to the parties,
forcing them to appear before him or then by examining them on oath or otherwise or by verifying the
documents which they produce.26
By some state amendments made in section 58, appeal is provided against the order of Registrar refusing
registration.27 Once there is registration under the Act, it continues so long as it is not cancelled in accordance
with law.28 Condition in a tender of a partnership firm being registered would mean registered before the
Registrar of Firms.29 Registration of a firm would relate back to the date of application for registration.30 The
Gujarat High Court has held that prima facie none of the provisions contained in Chapter VII of the Act provide
for compulsory registration of the amendments in the Partnership Deed31 in India except in the State of Jammu
& Kashmir32 where the partnership deed is compulsorily registrable in view of section 7(1)(d) of The
Registration Act, 1977 (Act no. 35 of 1977).33
22 In its application to the State of Madras, section 59A has been inserted by Madras Added Territories (Adaptation of
Laws) Order 1961.
23 Substituted by Maharashtra Act 16 of 2018, s. 2.
24 There is no power in the Registrar to refuse registration of a firm on the ground that a firm of the same name or an
approaching one has already been registered. Hiralal Agrawal v State of Bihar, AIR 1972 Pat 507. See notes under
section 58; a dissolved firm cannot be registered, Bilasroy v Scindia Steam Navigation Co, AIR 1940 Rang 294.
25 CIT, AP, Hyderabad v Jayalakshmi Rice & Oil Mills Contractor Co, AIR 1971 SC 1015; Girdhari Lal v New Bharat
Finance Co, AIR 1981 J&K 82.
26 Girish Sudhakarrao Bhelonde v State of Maharashtra, 2009 SCC OnLine Bom 1880.
27 See amendments made in section 58 in its application to the union territories of Goa, Daman & Diu as also to
Pondicherry.
28 Girdharman Kapur Chand v Dev Raj Madan Gopal, AIR 1963 SC 1587.
29 NB Krishna Kurup, UOI, Ker, 2006 SCC OnLine Ker 181 : AIR 2006 Ker 309 : (2006) 3 KLT (SN 56) 39.
30 Mulchand Kumawat & Sons v Rajasthan State Electricity Board, 2009 SCC OnLine Raj 1630.
31 Sanidhya v Dy CIT, 2018 SCC OnLine Guj 958.
32 State of Jammu & Kashmir v National India Construction Company, 2017 SCC OnLine J&K 20 : AIR 2017 J&K 66.
33 S 7. Documents of which registration is compulsory.– (1) The following documents shall be registered, namely :- (d) any
partnership deed;
End of Document
[s 60] Recording of alterations in firm name and principal place of

business.—
[s 60] Recording of alterations in firm name and principal place of

business.—
(1) When an alteration is made in the firm name or in the location of the principal place of business of a
registered firm, a statement may be sent to the Registrar accompanied by the prescribed fee,
specifying the alteration, and signed and verified in the manner required under section 58.
(2) When the Registrar is satisfied that the provisions of sub-section (1) have been duly complied with, he
shall amend the entry relating to the firm in the Register of Firms in accordance with the statement, and
shall file it along with the statement relating to the firm filed under section 59.
Maharashtra
In Section 60.
(a) for sub-section (1), substitute the following sub-section, namely:-
(1) When an alteration is made in the firm name or in the nature of business of a firm or in the
location of the principal place of business of a registered firm, a statement shall be sent to the
Registrar, within a period of 90 days from the date of making such alteration, accompanied by the
prescribed fee, specifying the alteration and signed and verified in the manner required under
section 58.”
(b) in the marginal note, for the words “firm name and”, substitute the words “firm name, nature of
business and”.
Any alteration in the firm after its registration will not affect the factum of its registration and the alterations can
be recorded in the register of firms as provided in sections 60 to 63 of the Act.
End of Document
[s 61] Noting of closing and opening of branches.—

[s 61] Noting of closing and opening of branches.—

When a registered firm discontinues business at any place or begins to carry on business at any place, such
place not being its principal place of business, any partner or agent of the firm may send intimation thereof to
the Registrar, who shall make a note of such intimation in the entry relating to the firm in the Register of Firms,
and shall file the intimation along with the statement relating to the firm filed under section 59.
Maharashtra
In section 61, for the words “may send intimation thereof to the Registrar, who shall”, substitute the following
the following words, namely:-
shall send intimation thereof to the Registrar, within a period of 90 days from the date of such discontinuance or, as the
case may be, from the date on which the firm begins to carry on business at such place. The Registrar shall then.
End of Document
[s 62] Noting of changes in names and addresses of partners.—

[s 62] Noting of changes in names and addresses of partners.—

When any partner in a registered firm alters his name or permanent address, an intimation of the alteration may
be sent by any partner or agent of the firm to the Registrar, who shall deal with it in the manner provided in
section 61.
Maharashtra
In section 62, for the words “may be sent”, substitute the words “shall be sent, within a period of 90 days from
the date of making shall alternation;”. [Vide Maharashtra Act 29 of 1984, sec. 11 (w.e.f. 1-1-1985).]
[s 62.2] INTRODUCED BY THE MAHARASHTRA ACT (29 OF 1984)
By an amendment, the State of Maharashtra introduced a new section, 69(2A) which reads:
No suit to enforce any right for the dissolution of a firm or for accounts of a dissolved firm or any right or power to
realise the property of a dissolved firm shall be instituted in any court by or on behalf of any person suing as a partner
in a firm against the firm or any person alleged to be or have been a partner in the firm, unless the firm is registered
and the person suing is or has been shown in the register of firms as a partner in the firm.
It may be noted that the Supreme Court has declared section 69(2A) as inserted by the Maharashtra
amendment invalid in V Subramaniam v Rajesh Raghuvandra Rao, (2009) 5 SCC 608 : AIR 2009 SC 1858 :
2009 (4) Scale 459.
The scope of the section has been discussed by the Bombay High Court in Ramniklal Mohanlal Chawda v
Sharad Vasant Kotak, (1997) 2 Mah LJ 731. The non-maintainability of the suit is a threshold question and no
amendment of the plaint is possible in such cases.
The earliest decision of the Bombay High Court in Pratapchand Ramchand & Co v Jehangiriji Bamanji Chinoy,
AIR 1940 Bom 257; Swiss Bank Corpn v Jai Hind Oil Mills Co, (1994) 1 Bom CR 371, and of the Calcutta High
Court in Sunderlal & Sons v Yogendra Nath Singh, AIR 1976 Cal 471, have been referred to along with the
decision of the Supreme Court in Shree Ram Finance Corpn v Yasin Khan, 1989 Mah LJ 849. This is also
evident in the decision in Gaganmal Ramchand v The Hongkong & Shanghai Corpn, AIR 1950 Bom 345.
[s 63] Recording of changes in and dissolution of a firm.—

(1) When a change occurs in the constitution of a registered firm any incoming, continuing or outgoing
partner, and when a registered firm is dissolved any person who was a partner immediately before the
dissolution, or the agent of any such partner or person specially authorised in this behalf, may give
notice to the Registrar of such change or dissolution, specifying the date thereof; and the Registrar
shall make a record of the notice in the entry relating to the firm in the Register of Firms, and shall file
the notice along with the statement relating to the firm filed under section 59.
Recording of withdrawal of a minor.—(2) When a minor who has been admitted to the benefits
of partnership in a firm attains majority and elects to become or not to become a partner, and the
firm is then a registered firm, he, or his agent specially authorised in this behalf, may give notice to
the Registrar that he has or has not become a partner, and the Registrar shall deal with the notice
in the manner provided in subsection (1).
Maharashtra
In section 63.-
(a) in sub-section (1),-

(i) for the word “any”, wherever it occurs, substitute the word “every”;
(ii) for the words “may give notice to the Registrar of such change or dissolution, specifying the date
thereof”, substitute the following words, namely:-
shall, within a period of 90 days from the date of such change or dissolution, give notice to the
Registrar of such change or dissolution, specifying the date thereof;
(b) after sub-section (1), insert the following sub-section, namely:-
(1A) Where a change occurs in the constitution of a registered firm, all persons, who after such
change are partners of the firm, shall jointly send an intimation of such change duly signed by them,
to the Registrar, within a period of 90 days from the date of occurrence of such change and the
Registrar shall deal with it in the manner provided by section 61;
(c) in sub-section (2), for the words “may give notice to the Registrar”, substitute the words “shall, within a
period of 90 days from the date of his election, give notice to the Registrar”.
[s 63.2] OBJECT
Object of section 63 is to prevent de novo registration. Only intimation to Registrar is needed in the event of a
change. Recording the change in the registration will not destroy the existence of the partnership. It is always
open to the members to constitute a new firm by agreement. Recording of a change is sufficient compliance
and the infirmity of no registration as contemplated under section 69 would not arise.34 In case of retirement of
some of the partners, the ongoing partners are obliged to give notice to the Registrar of Firms of such change.35
No de novo registration is required if the original firm is already registered and there was only a subsequent
reconstitution of the firm.36 In other words, by reconstitution of the firm, it cannot be said that the firm itself
ceased to be a registered firm.37 However, in the absence of a declaration which is mandatory under rule 3(A)
of the Tamil Nadu Partnership (Registration of Firms) Rules, 1932, the very existence of the firm itself is
doubtful.38
Where dissolution occurs by death, notice by a partner who has taken his place would be sufficient to keep the
continuity of the firm insofar as registration goes. The firm must be taken to be still registered and so long as
the partners suing are shown in the register as partners, then notwithstanding the retirement of the original
partners, it remains a registered firm.39
On the death of a partner where the partnership is of only two persons, the partnership automatically comes to
an end.40
No time limit is prescribed for the notice of change or dissolution required to be given to the Registrar under this
section. Moreover, no power is conferred by section 71 on the state government to make any rule prescribing
time limits for filing statements, intimations and notices under sections 60–63. On this reasoning, rules framed
by the state governments fixing time-limit for submission of notice or intimation under section 63(1) were held to
be ultra vires the rule making powers of the state governments in the undermentioned cases.41
The words “incoming and outgoing partners” indicate that notice must be given within a reasonable time. The
power of the Registrar under section 63 sub-clause (1) is not to make an entry that the firm is dissolved. He can
only make a record of the notice in the entry relating to the firm and file the notice along with the statement
relating to the firm under section 59. The notice must be given by a person who was a partner immediately
before the dissolution. The entry was set aside, in one case, on the ground that no hearing was given to the
partners and the entry was, therefore, made in violation of principles of natural justice.42
[s 63.3] POWER OF THE REGISTRAR
A dispute raised by an erstwhile partner cannot be adjudicated by the Registrar of firms while exercising power
under section 63(1). Such disputes ought to be raised before a civil court and cannot be agitated before the
Registrar of Firms.43
34 Sri Kameswari Rice Mill v Kothakota Goundam & Chakradharu, (1987) 1 Andh LT 589.
35 Jeevandas Laljee & Son, 98/103, Govindappa Naicken Street, Chennai/ v State of TN, 2008 SCC OnLine Mad 10 :
2008 (1) CTC 596.
36 Bharat Sarvodaya Mills v Mohatta Bros, AIR 1969 Guj 178; Pratapchand Ramchand & Cov Sehayiri Bomanji Chenoy,
AIR 1940 Bom 257; Kesrimal v Dolichand, (1997) 3 Mah LJ 63.
37 Tamil Nadu Water Supply and Drainage Board (TWAD) v Pioneer Engineering Syndicate, 2008 SCC OnLine Mad 379 :
(2008) Supp (2) Arb LR 158 : (2009) 1 Mad LJ 911.
38 VKS Transport v Tamil Nadu Civil Supplies Corporation, 2016 SCC OnLine Mad 29544 : (2016) 8 MLJ 618.
39 Firm Paras Ram Ram Ram Sarup v Firm Baldev Sahai Ram Bhagati, AIR 1963 Punj 215.
40 CIT v Seth Govindram Sugar Mills, AIR 1966 SC 24.

41 O Balanarayanan v The Registrar of Firms, AIR 1984 Ker 20, p 22, striking down the portion of sub-rule (2) of rule 4 of
Kerala Partnership (Registration of Firms) Rules, 1959, prescribing time limit of 15 days for every statement or notice
relating to a firm under sections 60–63; Rajasthan Trading Co v Registrar of Firms, AIR 1975 AP 232 holding that rule
4(2) of the Andhra Pradesh Partnership (Registration of Firms) Rules, 1957 is ultra vires the powers of the state
government under section 71(2), observing that the notice or intimation should, however, be given within a reasonable
time.
42 Durga Prasad Sarawagi v Registrar of Firms, West Bengal, AIR 1966 Cal 573.
43 KM Ahammed Nizar v Registrar, 2014 SCC OnLine Ker 1393 5.
End of Document

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[s 64] Rectification of mistakes.—

(1) The Registrar shall have power at all times to rectify any mistake in order to bring the entry in the
Register of Firms relating to any firm into conformity with the documents relating to that firm filed under
this Chapter.
(2) On application made by all the parties who have signed any document relating to a firm filed under this
Chapter, the Registrar may rectify any mistake in such document or in the record or note thereof made
in the Register of Firms.
The Registrar of Firms has power at all times to rectify any mistake in order to bring the entry in the Register of
firms into conformity with the documents relating to that firm filed under Chapter VII.44 It is observed that the
consent of all parties is essential to the Registrar’s authority to act under sub-section (2). He has no power to
deal with any disputed question of an alleged mistake. The power to rectify a mistake applies only to
documents filed under chapter VII. The power is apparently quasi judicial. Under rule 5, the word “alteration” is
used generally and would include even dissolution. However, rule 8 would indicate the quasi judicial nature of
the power in view of the provisions relating to enquiries and investigations. The Registrar has a power to correct
errors, whether made by himself or by the persons sending him statements or notices. If the Registrar commits
an error in wrongly making an entry of dissolution inconsistent with documents on which entries under sections
60 and 62 regarding the alteration of names and addresses of the partners and of the firms had already been
made, he would have ample power under section 64(1) to rectify the mistake that he had committed in order to
bring the entry in conformity with the documents relating to the firm filed under this chapter. His refusal to act
under sub-section (1) would be unjustified and unlawful.45 When the Registrar has failed to exercise the
statutory duty under section 64, the court is entitled to grant a positive direction.46 The requirement of signature
by all the parties would not be applicable in a situation where fraud has been committed on an individual.47
The Rajasthan High Court has held that the Registrar under section 64 can exercise the power only for
rectification of the mistake so as to bring the entries made into conformity with the documents relating to the
firm. While exercising such power, it has no authority to enter into roving and fishing inquiry into the rival claims
of the parties and pronounce upon the genuineness or validity of the documents produced. Suffice it to say that
if the alteration recorded in the register of the firms is in conformity with the statement made and documents
produced in terms of the provisions of section 63 of the Act, no proceedings for cancelling or deleting the
entries already made can be initiated by the Registrar in purported exercise of the power under section 64.
Moreover, as per the provisions of sub-section (2) of section 64, the proceedings for rectification of mistake can
be initiated by the Registrar only on application made by all the parties who have signed any document related
to the firm filed before him and not otherwise.48
44 Prem Singh v State of Rajasthan, 2016 SCC OnLine Raj 1490.

45 Durga Prasad v Sarwagi v Registrar of Firms, West Bengal, AIR 1966 Cal 573, p 575.
46 KC Palanisamy v The Registrar of Firms, AIR 2004 Mad 375, para 8.

47 Kolli Buchi Kotaiah v Registrar of Firms, 2012 SCC OnLine AP 593 : (2012) 5 ALD 234.
48 Lakha Granites v Eklavya Singh, 2010 SCC OnLine Raj 4689 : (2011) 1 RLW 923 : AIR 2011 Raj 49 : (2011) 1 WLC
235; Also see Balaji Marble Mines v State of Rajasthan, 2013 SCC OnLine Raj 2259 : 2013 (4) WLN 87; Sri Lakha
Granites v Eklavya Singh, 2011 (1) WLC (Raj) 235; Rakesh Dhariwal v Balaji Marble Mines, 2015 SCC OnLine Raj 835
: 2015 (3) RLW 2289 (Raj).
End of Document
[s 65] Amendment of Register by order of court.—

[s 65] Amendment of Register by order of court.—

A Court deciding any matter relating to a registered firm may direct that the Registrar shall make any
amendment in the entry in the Register of Firms relating to such firm which is consequential upon its decision;
and the Registrar shall amend the entry accordingly.
Where the Registrar of Firms is made a party in a judicial proceeding, eg, a proceeding under Article 226 of the
Constitution, it is incumbent upon him to appear and explain his conduct and also to help the court in the
proceedings having regard to this section, making it obligatory upon him to amend the entry as per the
directions of the court.49
49 Re Durga Prasad V Sarwagi v Registrar of Firms, West Bengal, AIR 1966 Cal 573.
End of Document
[s 66] Inspection of Register and filed documents.—

[s 66] Inspection of Register and filed documents.—
(1) The Register of Firms shall be open to inspection by any person on payment of such fee as may be
prescribed.
(2) All statements, notices and intimations filed under this Chapter shall be open to inspection, subject to
such conditions and on payment of such fee as may be prescribed.
The inspection is made subject to conditions, which may be prescribed because it would have been inadvisable
to allow untrammelled inspection of these important documents.
End of Document
[s 67] Grant of copies.—

[s 67] Grant of copies.—

The Registrar shall on application furnish to any person, on payment of such fee as may be prescribed, a copy,
certified under his hand, of any entry or portion thereof in the Register of Firms.
There is no right under this section to obtain certified copies of the original documents.
End of Document
[s 68] Rules of evidence.—

(1) Any statement, intimation or notice recorded or noted in the Register of Firms shall, as against any
person by whom or on whose behalf such statement, intimation or notice was signed, be conclusive
proof of any fact therein stated.
(2) A certified copy of an entry relating to a firm in the Register of Firms may be produced in proof of the
fact of the registration of such firm, and of the contents of any statement, intimation or notice recorded
or noted therein.
Statements made under sub-section (1), cannot be taken as evidence on account of the fact that persons on
whose behalf they were made are not partners. Persons not mentioned in such statements can prove that they
are partners, and equally can be proved by others to be partners.50 Section 68 does not preclude any party
from adducing other independent evidence to show that a particular person is a partner in the firm.51 Where it
was found that the application for registration of firms contained the signature of the plaintiff, it was held that he
can be said to be a partner of the firm.52
The fact regarding registration of the firm and that the person suing is a partner of firm on the date of filing of
suit, can be proved only by the certified copy of the entry relating to the firm in the Register of Firms and not by
otherwise.53 A photocopy of acknowledgment about registration of a firm issued by the Registrar of Firms is not
sufficient for this purpose.54 Where the law says that a particular kind of evidence would be conclusive as to the
existence of a particular fact it implies that that fact can be proved either by that evidence or by some other
evidence which the court permits or requires to be advanced. Where such other evidence is adduced it would
be open to the court to consider whether, upon that evidence, the fact exists or not. Where, on the other hand,
evidence which is made conclusive is adduced, the court has no option but to hold that the fact exists. If that
were not so, it would be meaningless to call a particular piece of evidence as conclusive evidence. Once the
law says that certain evidence is conclusive, it shuts out any other evidence which would detract from the
conclusiveness of that evidence. In substance, there is no difference between conclusive evidence and
conclusive proof; the aim of both being to give finality to the establishment of the existence of a fact from the
proof of another.55
50 Snow White Food Products Pvt Ltd v Sohanlal Bagla, AIR 1964 Cal 209, where in the remarks column it was clearly
stated that the deed of partnership was an operative document, it was not open to contend that the deed was not
intended to be given effect to; Sohanlal Pachisia & Co v Bilasrai Khemani, AIR 1954 Cal 179; Ali Mahommed Ebrahim
Shakoor v Adam Maji Peer Mahommed Essack, AIR 1940 Cal 134; Bilasroy v Scindia Steam Navigation Co Ltd, AIR
1940 Rang 294, pp 296–7; Chottelal v Md Hussain, AIR 1955 VP 44.
51 V Anjaneya Setty v MG Bros, AIR 1981 AP 250, p 259.
53 Narendra Kumar Saxena v Paper Traders, AIR 2003 MP 193, para 10; Kapurchand Bhagaji Firm v Laxman Trimbak,
AIR 1952 Ngp 57.
54 Ibid.
55 Somawanti v State of Punjab, AIR 1963 SC 115, p 160.
End of Document
[s 69] Effect of non-registration.—

(1) No suit to enforce a right arising from a contract or conferred by this Act shall be instituted in any court
by or on behalf of any person suing as a partner in a firm against the firm or any person alleged to be
or to have been a partner in the firm unless the firm is registered and the person suing is or has been
shown in the Register of Firms as a partner in the firm.
(2) No suit to enforce a right arising from a contract shall be instituted in any court by or on behalf of a firm
against any third party unless the firm is registered and the persons suing are or have been shown in
the Register of Firms as partners in the firm.
(3) The provisions of sub-sections (1) and (2) shall apply also to a claim of setoff or other proceeding to
enforce a right arising from a contract, but shall not affect—
(a) the enforcement of any right to sue for the dissolution of a firm or for accounts of a dissolved firm,
or any right or power to realise the property of a dissolved firm, or
(b) the powers of an official assignee, receiver or court under the Presidency-towns Insolvency Act,
1909 (3 of 1909) or the Provincial Insolvency Act, 1920 (5 of 1920), to realise the property of an
insolvent partner.
(4) This section shall not apply—
(a) to firms or to partners in firms which have no place of business in56 [the territories to which this Act
extends], or whole places of business in57 [the said territories] are situated in areas to which, by
notification under58 [section 56], this Chapter does not apply, or
(b) to any suit or claim of set-off not exceeding one hundred rupees in value which, in the Presidency-
towns, is not of a kind specified in section 19 of the Presidency Small Cause Courts Act, 1882, (5
of 1882) or, outside the Presidency- towns, is not of a kind specified in the Schedule II to the
Provincial Small Cause Courts Act, 1887 (9 of 1887), or to any proceeding in execution or other
proceeding incidental to or arising from any such suit or claim.
Maharashtra
(1) section 69,-

(a) in sub-section (1), insert the following proviso, namely:—
Provided that the requirement of registration of firm under this sub-section shall not apply to the
suits or proceedings instituted by the heirs or legal representatives of the deceased partner of a
firm for accounts of the firm or to realise the property of the firm.”;
(b) after sub-section (2), insert the following sub-section, namely:—
2A) No suit to enforce any right for the dissolution of a firm or for accounts of a dissolved firm or
any right or power to realise the property of a dissolved firm shall be instituted in any court by
or on behalf of any person suing as a partner in a firm against the firm or any person alleged to
be or to have been a partner in the firm, unless the firm is registered and the person suing is or
has been shown in the Register of Firms as a partner in the firm:
Provided that the requirement of registration of firm under this sub-section shall not apply to the
suits or proceedings instituted by the heirs or legal representatives of the deceased partner of a
firm for accounts of a dissolved firm or the realise the property of a dissolved firm.;
(c) In sub-section (3),—

(2) for the words, brackets and figures “sub-section (1) and (2)”, substitute the words, brackets, figures
and letter “Sub-Sections (1), (2) and (2A)”;
(ii) for clause (a), substitute the following clause, namely:-
“(a) the firms constituted for a duration up to six months or with a capital up to two thousand rupees;
or.”
[Vide Maharashtra Act 29 of 1984, sec. 13 (w.e.f. 1-1-1985].
(2) For section 69A, substitute the following section, namely:-
69A. Charges for delay in compliance of section 60, 61, 62 or 63.— If any statement, intimation or notice under section
60, 61, 62 or as the case may be, 63, in respect of any registered firm is not sent or given to the Registrar, within the
period specified in that section, the Registrar may, make suitable amendments in the records relating to the firm, upon
payment of charges for delay in sending or giving the same, at the rate of rupees two thousand per year or part thereof
in respect of the period between the date of expiry of the period specified in that section and the date of making the
payment.
[Vide Maharashtra Act 16 of 2018, sec. 3].
[s 69.2] PRELIMINARY
The section thinks in terms of (a) suits and (b) claims of set-off, which are in a sense of the nature of suits and
(c) of other proceedings. The section first provides for exclusion of suits in sub-sections (1) and (2). Then it
says that the same ban applies to a claim of set-off and other proceeding to enforce a right arising from a
contract. Next it excludes the ban in respect of the right to sue: (a) for the dissolution of a firm, (b) for accounts
of a dissolved firm and (c) for the realisation of the property of a dissolved firm. The emphasis in each case is
on dissolution of the firm. Then follows a general exclusion of the section. The fourth sub-section says that the
section as a whole, is not to apply to firms or to partners and firms which have no place of business in the
territories of India or whose places of business are situated in the territories of India but in areas to which
chapter VII is not to apply and to suits or claims of set off not exceeding Rs 100 in value. Here there is no
insistence on the dissolution of the firm.59 A bare glance at the section is enough to show that it is mandatory in
nature and its effect is to render a suit by a plaintiff in respect of a right vested in him or acquired by him under
a contract which he entered into as a partner of an unregistered firm, whether existing or dissolved, void.60
In V Subramaniam v Rajesh Raghuvandra Rao, (2009) 5 SCC 608 : AIR 2009 SC 1858 : 2009 (4) Scale 459,
the Supreme Court held that the primary object of registration of a firm is protection of third parties who were
subjected to hardship and difficulties in the matter of proving as to who were the partners. Under the earlier law,
a third party obtaining a decree was often put to expenses and delay in proving that a particular person was a
partner of that firm. The registration of a firm provides protection to the third parties against false denials of
partnership and the evasion of liability. Once a firm is registered under the Act the statements recorded in the
register regarding the constitution of the firm are conclusive proof of the fact contained therein as against the
partner. A partner whose name appears on the register cannot deny that he is a partner except under the
circumstances provided. Even then registration of a partnership firm is not made compulsory under the Act. A
partnership firm can come into existence and function without being registered.
This section came into force on 1 October 1933. The Supreme Court held that this section is mandatory in
character and its effect is to render a suit by a plaintiff in respect of a right vested in him or acquired by him
under a contract which he entered into as a partner of an unregistered firm, whether existing or dissolved, void.
In other words, a partner of an erstwhile unregistered partnership firm cannot bring a suit to enforce a right
arising out of a contract falling within the ambit of section 69.61 The conditions required by this section are
mandatory, and the bar of the section applies both to suits by the firm as well as on behalf of the firm.62 Section
69 is a penal provision and has to be strictly construed.63
It would not apply if the suit is filed in personal capacity and not on behalf of the firm.64 No separate registration
is necessary where there is reconstitution of a continuing firm, but the second condition must be complied with
by showing that not only the continuing firm is a registered firm but that all the partners at the date of the
accrual of the cause of action are, or have been, shown in the register as partners. Whether a firm is registered
or not is essentially a question of fact.65 Mere filing an application for registration would not amount to
registration of the firm.66 Burden is on the plaintiff to show that the firm is registered and that he is showing the
Register of Firms as partners in the firm.67 Registration of the partnership deed under the provisions of the
Registration Act, 1908 will not amount to registration of the firm under section 58.68 Unless facts prove the
existence of a partnership and the intention for the same, an action or plea under section 69 is not
maintainable.69
[s 69.3] SUB-SECTION (1)—EFFECT OF NON-REGISTRATION
A suit by a partner of an unregistered firm for enforcement of right as a partner under the contract is barred.70
The Supreme Court has held that the sub-section contains embargos which must coexist before a plaintiff can
be non-suited under this sub-section. The two embargoes relevant for this case are: (1) that the suit should be
filed by person “suing as a partner in a firm”71 and (2) that the suit must be to enforce a right arising from a
contract. On facts, a suit for declaration of the existence of the partnership is not a suit for enforce a right
arising from a contract.72
The Supreme Court in Sharad Vasant Kotak v Ramniklal Chawda, (1998) 2 SCC 877 : AIR 1998 SC 877.
Followed in PN Shanmugam v PD Vadivelu, 2006 SCC OnLine AP 21 : (2006) 4 ALT 485 : (2007) 2 ALD (NOC
43) 18, has taken the view that when a partnership firm was initially registered, even though after induction of a
new partner it was not registered again, the suit filed by a partner of the firm whose name appeared in the
Register of Firms was maintainable.
Under the Act, an unregistered firm is not illegal; there is no direct compulsion that a partnership firm must be
registered. The effect of section 69, stated broadly, is to put a firm if it does not choose to be registered, and
also its partners, under disabilities, which may be extremely inconvenient.73 There is no direct compulsion but a
strong persuasive pressure to come on the register. No member of an unregistered firm can enforce his rights
under the partnership contract against either the firm or any present or past member of it, nor can the firm sue
its customers on their contracts.74 Registration of a firm is optional. There is no penalty on non-registration of
firms but an unregistered firm is burdened with certain disabilities,75 would be certainly an inconvenient one.76
The firm remains liable to be sued by persons outside it, and cannot plead a set-off. Only suits for dissolution of
the firm, and the powers of official assignees under the insolvency Acts, are exempt from the prohibition. A
small and harmonious firm dealing in a small way and mainly for ready money might be content to take these
risks, mitigated as they are by the proviso of sub-section (4)(b) as to claims not exceeding Rs 100 in value. For
a business of any considerable magnitude, they appear sufficiently deterrent. “Person suing is or has been
shown in the Register of Firms as a partner in the firm” would not include such person whose application is
pending consideration before the Registrar of Firms for such inclusion pursuant to reconstitution of the firm.
Action ought to have been taken under section 63(1) by the Registrar by making necessary entry in the
Register of Firms before one falls within the requirement of section 69 as a partner of the firm.77
Section 69(2) requires that a registered firm can only file a suit against a third party and the persons suing have
been in the Register of Firms as partners in the firm.78 An unregistered firm cannot sue to enforce contractual
rights against a third party.79 A suit for recovery of money by an unregistered firm is not maintainable.80 When
section 69(2) speaks of a dispute arising out of contract it necessarily has a nexus to a contract entered in the
course of a business transaction with customers by an unregistered firm, the idea being to protect those who
deal with the firm to know the names of partners before they engage in business with them and are made
aware with whom they may deal with to predict to guard themselves before entering into business
relationships.81 Where suit was filed in name of a person shown as the Managing Partner though he was
neither the managing partner nor had anything to do with the firm, the plaint was found to be defective.82 The
suit filed by a partner would be maintainable under section 69 of the Act of 1932 if the admission of new partner
upon change of constitution of the firm was prior in point of time then the date of filing of the suit.83 A suit for
possession84 or specific performance85 of a contract is barred.
Compliance of the provisions of section 69(2) is mandatory and if the person who has verified and signed the
plaint is not shown as a partner in the Register of Firms or no power of attorney is given by the partner of the
firm to him to verify and sign the plaint on behalf of the firm, the very institution of the suit is bad for non-
compliance of mandatory provisions. The defect cannot be cured by subsequent amendment incorporating that
the suit is verified and signed by a partner of the firm.86
The use of the word “persons” instead of “person” show that section 69 prohibits institution of a suit filed by a
partnership firm against a third party unless at least two qualified partners represent the plaintiff partnership
firm. Qualified partners would mean partners whose names are mentioned in the registration certificate of the
partnership firm.87
[s 69.4.1] Whether Registration is a Condition Precedent for Filing Suit
There have been differing opinions on the question whether registration of a partnership is a condition
precedent to the filing of a suit or whether the defect can be remedied by the registration of the firm subsequent
to the filing of the suit. In some cases, the courts have been of the opinion that a suit by an unregistered firm
could be validated by the subsequent registration of the firm.88 On the other hand, it has been held that a
subsequent registration could not cure the defect, which existed at the time of the institution of the suit.89 It is
submitted that the latter view is correct and is supported by the preponderance of authorities, and has been
approved by the Supreme Court.90 The Apex Court reiterated in Purushottam v Shivraj Fine Arts Litho Work91
that subsequent registration would not cure initial defect in filing of the suit, because the proceedings were ab
initio defective as they could not have been instituted since the firm was not a registered firm on the date of
institution of the proceedings. When the partnership firm not being registered and the suit being barred under
section 69(2) of the Partnership Act, 1932 the plaintiff could sue afresh subject to registration of the firm and
subject to the law of limitation including section 14 of the Limitation Act, 1908.92
In Shreeram Finance Corporation v Yasin Khan93 there was a change in the constitution, of the firm, after
change in constitution, but before the change was notified in the Register, the suit was instituted. The Supreme
Court has held that a suit, verified and signed by the parties who, as on the date of the suit, were not shown as
partners in the Register of Firms, is not maintainable in view of section 69(2). A suit filed by the firm must fail, if
the name of one of the partners has not been shown in the Register of Firms on the date of filing of the suits.94
Section 69 debars filing of the suit on behalf of the firm by the person who is neither one of its partners nor the
duly authorised person.95 An authorised person, though not a partner, can sign, verify and institute a suit for
recovery of agency commission.96
However, the Supreme Court subsequently in Raptakos Brett & Co Ltd v Ganesh Property, (1998) 7 SCC 184 :
AIR 1998 SC 3085, has observed as under:
It is obvious that even if the suit is filed by an unregistered partnership firm against a third party and is treated to be
incompetent as per Section 69 subsection (2) of the Partnership Act, if pending the suit before a decree is obtained,
the plaintiff puts its house in order and gets itself registered, the defect in the earlier filing which even though may
result in treating the original suit as stillborn, would no longer survive if the suit is treated to be deemed to be instituted
on the date on which registration is obtained. If such an approach is adopted, no real harm would be caused to either
side. As rightly submitted by Dr Singhvi, Order 7 Rule 13 of the CPC would permit the filing of a fresh suit on the same
cause of action and if the earlier suit is permitted to be continued, it would continue in the old number and the parties to
the litigation would be able to get their claim adjudicated on merits earlier while on the other hand, if such subsequent
registration is not held to be of any avail, all that would happen is that a fresh suit can be filed immediately after such
registration, and then it will bear a new number of a subsequent year. That would further delay the adjudicatory
process of the court as such a new suit would take years before it gets ready for trial and the parties will be further
deprived of an opportunity to get their disputes adjudicated on merits at the earliest and the arrears of cases pending in
the court would go on mounting. It is axiomatic to say that as a result of protracted litigation spread over tiers and tiers
of court proceedings in the hierarchy, the ultimate result before the highest court would leave both the parties
completely frustrated and financially drained off.
But, in spite of the above observations, the Supreme Court, refrained from referring its decision in Shreeram
Finance Corporation97 to a larger Bench. It is submitted that the apparent conflict of decisions of the Supreme
Court in Shreeram Finance Corporation and Raptakos Brett & Co has the potential of creating further divergent
opinions from different high courts. For instance, the Bombay High Court,98 after taking note of the above two
decisions, has held that Shreeram Finance still holds the field and hence, a suit filed by a firm, found
unregistered on the date of filing of the suit, was held to be not maintainable.
The Calcutta High Court has held that a plaint filed by an unregistered firm would not be a plaint at all and all
the proceedings thereunder will be without jurisdiction. It was held that the decree obtained by an unregistered
firm was a nullity and cannot be executed.99 The defect not being formal, suit filed by such a firm could not be
allowed to be withdrawn under O XXIII, rule 1 as held by the Orissa High Court.100
Where the question of registration was raised in the trial court and an application was made in the second
appeal for withdrawal of suit with liberty to file a fresh suit under O XXIII, rule 1(2), it was held that such a
prayer could not be granted.101 In a case where the relief claimed was based on the terms of partnership
contract but was independent of the relief of dissolution nor did it flow from it, the court held that it was hit by
section 69(1) and the suit to that extent was prima facie not maintainable.102
However, an existing unregistered firm can get over the disability imposed by section 69 by registering before it
brings a suit.103 An unregistered firm can give a valid notice under section 80 of the Code of Civil Procedure
1908.104
[s 69.4.2] Procedure to file a suit by or against a firm
The law governing suits against partnership firm and execution of decree against a partnership firm is broadly
covered by O XXX rules 1-10, O XXI rule 50 CPC.105 In view of O XXX, CPC, a suit filed in the name of the firm
is a suit by all the partners of the firm. rules 1 and 2 of O XXX, CPC are enabling provisions to permit several
persons who are doing business as partners to sue or be sued in the name of the firm.106 It is clear from rule
1(1) that any two or more persons claiming to be partners and carrying on business may sue or be sued in the
name of the firm and any party to the suit may in such case apply to the court for a statement of the names and
addresses of the partners. Sub-rule (2) provides that where persons sue or are sued in the name of the firm, it
will be sufficient if such pleading or other document is signed, verified or certified by any one of such
persons.107 A registered firm can file a suit through its authorised representative.108
An unregistered firm can be sued under O XXX, rule 1 (1) and (2) read with section 10 of the Code of Civil
Procedure.109 When a suit is filed against the partnership firm, it is not necessary to state the names of the
partners of the defendant firm in the plaint. What is mandatory is that summons issued to the firm should be
served upon one or more of the partners or upon the person having at the time of service, the control and
management of the partnership business at a place wherein the partnership business is carried on within
India.110 Where a suit is filed against a firm under the provisions of O XXX CPC and it is found that one of its
partners cannot be sued or cannot be adjudged a judgment-debtor (for instance, in case an infant111) the
creditor may in such a suit obtain a decree against the firm other than the partner who cannot be adjudged a
debtor.112 A suit can be validly filed against the firm even though one of the partners at the time of accrual of
cause of action was dead at the time of institution of the suit and the legal representatives of the deceased
partner have not been joined. However, the decree is such suit will bind the partnership and the surviving
members and not the separate property of the deceased partner.113 Notwithstanding the death of one of the
partners during pendency of the suit, in view of O XXX, rule 4, the suit will not abate.114 But if the death occurs
pending execution proceedings and if the attachment is against the property of the partners, then, the legal
heirs of the deceased partners ought to be brought on record, if the proclamation is not issued. If proclamation
is issued and the partner who is already on record died, before sale, then, under O XXI, rule 22A CPC, the
court can proceed with sale, notwithstanding the decree holder’s failure to bring on record the legal
representatives, provided, no prejudice is caused to the legal representatives of the deceased judgment
debtor.115
[s 69.4.3] Applicability of section 69(2)—”Suit to Enforce a Right Arising From a Contract”
Section 69(2) applies to a suit to enforce a right arising out of contract.116 Bar operates against suit seeking
enforcement of a contract by the unregistered partnership firm with the third party in course of business dealing
with it. It does not arise if the claim is based upon common law117 or statutory law (for instance, Copyright
Act118) or not being in course of dealings with such third party.119 When statutory rights and common law
doctrines are pressed together in a suit, then it cannot be said that the cause of action arises out of contract, if it
were one by definition.120 The provision does not take away the right of the partners of an unregistered firm to
enforce their right under other enactments.121 The purpose behind section 69(2) was to impose a liability on the
unregistered firm or its partners to enforce rights arising out of contracts entered into by the plaintiff firm with the
third-party defendant in the course of the firm’s business transactions.122
“Arising out of a contract” does not mean each and every kind of contract with a third party. It refers only to
such contracts as entered during the course of business transaction between the firm and the third party. The
idea is to protect those who were in commerce who deal with such a partnership firm to know the names of the
partners of the firm before they deal with them in business.123
The bar contained under section 69 does not insist that the transactions, which are subject-matter of the suit, in
relation to, or by a firm, shall be those which take place after the firm is registered. Once a firm is registered,
there is nothing in law to disable it from bringing about claims or from pursuing remedies in a court of law, in
relation to transactions, which preceded such registration.124
It may be noted that when the cause of action is intertwined, namely, one cause of action brings the suit within
the prohibition of section 69 and the other one taken it out of it, then the court should tilt towards the
maintainability of the suit, especially when no right arising out of a contract is sought to be enforced.125
Where a minor admitted to the benefits of the partnership of a registered firm became major and was deemed
to have become a partner, under section 30(5), at the time when cause of action arose, his name was not
shown in the Register of Firms, it was held that the bar of sub-section (2) of section 69 would come into
operation.126
The registration of a firm carrying on business at Khanna in the Punjab, before the partition of India, was held
good in divided India “so long as the registration was not cancelled by law”.127
It would appear from section 5 that in order to escape the mischief of section 69, the persons concerned must
be members of a Hindu undivided family carrying on a family business. Where the severance of a joint family
takes place by the filing of a partition suit, but the family business continues to be conducted as before, a
contractual partnership based upon an implied agreement, would be deemed to come in existence, and in such
a situation the bar under section 69 would come into play.128
Illustrations where Suit is not Barred by Section 69(2)
(i) A suit for specific performance of agreements brought by an unregistered firm is barred by section
69.129
(ii) A suit based on infringement of statutory right under the Trade Marks Act, 1999 and upon the common
law principles of tort applicable to passing-off actions filed by an unregistered firm is not barred under
this section.130 Where an unregistered firm filed a suit for permanent injunction for passing off against
the defendant, it was held that sub-section (2) of section 69 did not apply to such suit.131
(iii) A suit for recovery of damages for a misconduct committed by another partner by his act of forcibly
breaking the lock of the shop of the partnership firm and taking away certain articles lying therein is not
a suit for enforcing a right arising out of contract or for enforcing a right conferred by the Act and
hence, not barred by section 69.132
(iv) A suit filed by an unregistered firm for recovery of amount of a cheque issued by the defendant but not
honoured is not barred under this section. The right of action available to an endorsee of a cheque who
comes to hold the cheque in due course is based upon conferment on him by the statutory provisions,
the right to sue the maker of the cheque and also the endorser.133
(v) A suit for recovery of loan, not being a suit for enforcement of any “right arising out of contract”, is
maintainable even if names of some suing partners did not appear in Register of Firms on date of filing
of suit.134
(vi) Section 69 would have no application in a suit for recovery of money advanced by a proprietor in a
personal capacity prior to conversion of the proprietorship to partnership firm, when such advance was
not taken over by the partnership firm.135
(vii) There is no bar to an eviction suit where it was neither pleaded, nor proved that a contract of tenancy
existed.136 A suit for eviction is maintainable by an unregistered firm as, such a suit is not a suit to
enforce an agreement but a right here for accrues to a landlord by reason of the provisions of the
statute namely Rent Act.137 A firm can also be a landlord, though in the strict legal sense, the firm has
no juristic personality and is only a compendious expression to describe the relationship between the
partners. Once it is shown that a partner is receiving the rent an unregistered firm also be a landlord.138
(viii) In Umaram Sen v Sudhir Kumar Datta, AIR 1984 Cal 230, where the suit was filed by partners of an
unregistered firm, who were also not the owners of the goods, against the common carrier for loss of
goods entrusted for transport, it was held that though they were not entitled under section 69(2) to
enforce any right arising from a contract between the said unregistered firm and the common carrier,
the obligation of the common carrier to deliver the goods within a reasonable time and to insure their
safety during their carriage and until delivery was not founded upon contract and the court would be
justified in applying principles of Common Law for deciding who may sue a common carrier for loss or
damage to the goods and award damages.
(ix) The assignment of its rights to indemnification by the consignor would not be invalid on the ground that
the consignor, being an unregistered firm, could not institute a suit to recover damages from the carrier
on account of the bar engrafted under section 69(2), because there is no prohibition against an
unregistered firm assigning its rights to third parties and the third parties suing on the basis thereof. In
other words, the embargo under section 69(2) would not apply to third party assignees of the rights of
an unregistered firm. It was, therefore, held that, the suit against the carrier for recovery of damages
would be maintainable individually by the assignee insurance company alone without impleading the
consignor unregistered firm as a co-plaintiff.139
(x) A suit filed by an unregistered firm for a declaration that the partnership deed entered into was fake
and fictitious since one of the partners committed interpolation by incorporating his name with the
name of some other person is maintainable since the same does not amount to seeking to enforce any
right arising from contract.140
(xi) The liability of the railways for compensation of damages in case of non-delivery of goods arise from
section 93 of the Railways Act, 1989 and not from a contract.141 It is rather a claim of damages for
tortious liability of railways, as common carrier, which is a Common Law liability.142 Hence, a suit of
such kind is maintainable by an unregistered firm.
(xii) Where a registered partnership firm carried on business in various items and had got common
partnership account reflecting the entire assets and liabilities with regard to all business transactions in
different items, it was held that a suit in respect of an award given in relation to one of its activities
which was carried on under a slightly different name and style by the same firm, was maintainable.143
(xiii) A suit filed seeking declaration of a partnership deed to be null and void by a person who is not a
partner under the deed is not barred.144
(xiv) It is not attracted if a suit has been filed not in the capacity of a partner of a firm.145
(xv) A suit seeking cancellation of sale deed relates to enforcement of a common law right and not barred
by section 69(2).146
(xvi) A suit for possession by eviction and for restoration of possession which is a common law right in
determining tenancy at the will of the landlord in absence of an agreement to the contrary is not
barred.147
(xvii) A suit for eviction is maintainable by an unregistered firm since it is not under a contract but under
the provisions of a statute.148
(xviii) Eviction suit under the provisions of the Bihar Buildings, Lease, Rent and Eviction (Control) Act,
1983, by an unregistered firm is not for enforcement of agreement. The right to sue for eviction is a
statutory right and therefore, section 69(2) does not apply thereto.149
(xix) A suit for enforcing rights under the provisions of the Transfer of Property Act, 1882150 is maintainable,
for instance a suit under section 106151 or under section 108(q) read with section 111(a)152 or section
111(h)153 or for possession and mesne profits after issuing a quit notice under section 111(h).154
(xx) Section 69(2) has no application in a situation where a partner owns the property in its individual
capacity and therefore, objecting to the recovery of the firm’s dues through such property.155
(xxi) A suit filed by one partners against his other partners praying for declaration of his absolute right, title
and interest in respect of the suit property is not barred.156
(xxii) A suit filed seeking a decree of permanent injunction from creating any sort of disturbance,
interference in respect of entrance and exit of the plaintiff in the schedule property and free movement
and access thereupon is not barred.157
(xxiii) A suit to enforce an agreement to release the rights in an unregistered partnership firm by a partner
in favour of another partner is not barred.158
(xxiv) A suit arising out of misconduct and not contract is not barred.159
(xxv) A suit filed by one of the partners for recovery of the suit property from the lessee by sufferance is
maintainable.160
(xxvi) Section 69 is inapplicable when a suit pertains to grant of injunction not arising out of a contract
with the Defendant.161
(xxvii) Writ petition under Article 226 of the Constitution of India is maintainable162 by an unregistered firm
treating the same as being filed by the partners.163 However, the Allahabad High Court struck a
discordant note by holding that a writ petition is not maintainable.164
(xxviii) Proceedings under section 17, Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interests Act, 2002 initiated by an unregistered partnership firm is
maintainable and not barred under section 69(2) since it does not involve enforcement of rights under a
contract but only provides protection against any action taken by the bank under the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.165
(xxix) An unregistered firm can enforce its statutory right under section 12 of the Chhattisgarh
Accommodation Control Act, 1961 (41 of 1961) [This Act has now been repealed by the Chhattisgarh
Rent Control Act, 2011 (19 of 2012)] against its eviction.166
(xxx) Where a suit is filed by an unregistered firm (the alleged tenant) for injunction against the landlord
for proposed construction and landlord claims no privy of contract with such firm, then the suit would
not arise out of a contract and thus, not barred.167
(xxxi) A claim under the Motor Vehicles Act, by an unregistered firm is not barred.168
(xxxii) A suit by an unregistered firm for enforcement seeking mandatory injunction against the defendant
is maintainable.169
(xxxiii) X and Y are partners of an unregistered firm. Their firm acquired a plot of land for development. Y,
however, without knowledge of X, entered into a joint venture with a third party on behalf of the firm for
development of the said land. X sued Y and the third party. First prayer seeking declaration of the
partnership between X and Y as subsisting and valid was not found to be barred by section 69. The
second prayer for declaration of title and interest of the firm in the plot of land was also found to be not
one seeking enforcement of right arising from a contract. The third prayer seeking declaration of the
joint venture as illegal, null and void and not binding on X was found to be arising out of a common law
right of an owner of a property against a third party who seeks to set up a claim adverse to the owner
of the property and therefore, not barred.170
(xxxiv) An unregistered firm can maintain a winding up petition sections 433 and 439 of the Companies
Act, 1956. A winding up petition is not filed to enforce a right arising from a contract. It is based on a
statutory right. The bar cannot be applied to a case where the unregistered firm, being a creditor,
chooses to file a winding up petition instead of a money recovery suit.171
(xxxv) Claim to declaratory reliefs not having its direct basis on contract but on the succeeding tenancy
interest claimed under the contract by operation of law not barred.172
The provisions of section 69 do not stand in the way of an unregistered firm defending a proceeding against it.
It only precludes the initiation of any proceedings by such a firm.173
[s 69.4.4] Stage of Raising of Objection Under Section 69
The defendant need not plead such a defence in the written statement in order to take up the same at hearing.
The defence that a suit by a firm which is not established to be a registered firm is not maintainable, is not
defence based on facts on which the party relies, but which forms upon the existence or otherwise of
jurisdictional facts. The burden to plead and prove that the firm is a registered firm and therefore entitled to
maintain the suit against a third party is always on the firm in view of the legislative mandate under section
69(2)—otherwise the cause of action for such a suit is not complete.174 However, the Karnataka High Court has
held that when a plea is not raised in the written statement, it is not open to the court to go into the question of
maintainability of the suit under section 69(2).175 On similar lines, the Delhi High Court has held that defence
under section 69 is capable of being waived and there is no inherent lack of jurisdiction of the court if the
partnership firm is not registered and all such objections have necessarily therefore to be raised in the suit and
not before the executing court.176 Suit by a partner, made a partner prior to the filing of the suit but shown in the
Register of Firms as a partner after such filing, is a mere procedural defect and not a material irregularity.177
An application under O VII, rule 11(d) CPC, 1908 for rejection of plaint on the ground of the firm being
unregistered was not entertained keeping in view the averments made in the plaint and that they have not
pleaded specific performance in the name of the firm but rather in individual capacity.178
If no issue has been raised in the trial court with regard to the registration of the firm, the question cannot be
raised for the first time in the Court of Appeal,179 nor can the document of registration be allowed to be
produced for the first time in appeal without making application for additional evidence.180 The Madras High
Court has held that a decree obtained by a plaintiff claiming to be the sole proprietor suppressing the fact that
he was a partner of the unregistered firm was not a nullity. It was also held that such suppression by itself did
not constitute fraud vitiating the decree, though in the special facts it was held to be a fraud.181
The section relates to an unregistered firm, which has been dissolved.182 In the case of a dissolved firm, the
ban of section 69 cannot be got rid of by subsequent registration. The Act does not contemplate the registration
of a dissolved firm.183 The sole surviving partner can, in such a case, file a suit. Where a partnership is
dissolved by the death of a partner, a suit by the surviving partner to enforce a bond that had been executed in
favour of the firm is not barred by sub-section (2).184 “It seems that the intention of the legislature was to inflict
disability for non-registration only during the subsistence of the partnership”.185 Whilst it is clear from section 42
that in the absence of special agreement, a partnership is dissolved by the death of any partner, the provisions
of section 63 show that the existing registration is not thereby cancelled. If notice of change is given under
section 63(1), the continuity of the firm is maintained so far as registration is concerned. So long as the partners
who are suing are shown in the register as partners, action is maintainable.186 It is not necessary that the
names of the subsequent partners be entered in the register. This provision read with O XXX, rule 1 of the
Code of Civil Procedure only means that persons whose names are in the register alone can get benefit of the
decree.187 For the institution of a suit, all those who are partners at the time of institution must be or have been
shown in the register; “persons suing” in section 69(2) means the partner.188 In the undermentioned case, it was
held that it is open to the surviving partner to enter into a new partnership with the heir of the deceased partner,
but unless such new partnership is registered a suit brought by either of the partners against the other, seeking
to enforce a preemption clause contained in the agreement of partnership is barred under section 69(1).189
When there is registration, there is no compulsion to file the registration certificate at the time of filing the suit. It
could be filed at a later stage, unless the opposite party is prejudiced. This decision of the Bombay High
Court,190 noticed the decision of the Madhya Pradesh High Court in Kantilal Chandmal Dhanmandi Ratlam v
Gopal Lal, (1996) Cal LT 488, which took the view that the certificate of registration cannot be filed at a later
stage, Padmanabhan J surveyed the case law on the point in KRM Money Lenders v Manoharan Alia Doss,
(1992) 2 Mad LJ 51.
[s 69.4.5] Interpreting Section 69
In interpreting the provisions of the Act, it may be necessary to read together some of the cognate provisions.
Thus, sections 58 & 59 should be read together. Reading section 58 in isolation or without bearing in mind the
scheme of other provisions of the Act, such as sections 59 and 69, would be wrong. Section 59 may not have a
direct bearing, but it throws light on what was contemplated by the legislature, with regard to the point of time
when a firm would be regarded as registered. This approach in interpretation is commended for acceptance by
the Supreme Court in CIT v Jayalakshmi Oil Mills Contractor Co, AIR 1971 SC 1015, that decision, according to
the Bombay High Court in Sivaraj Fine Art v Purushottam, (1992) Mah LJ 1263, endorses the view taken by the
Kerala High Court in Kerala Roadlines Corpn v CIT, Kerala, AIR 1964 Ker 251. Even though the firm might be
registered, it is equally necessary that the concerned partner’s name ought to figure as a partner in the firm as
per the Register of Firms.191
[s 69.5] NON-REGISTRATION AND CRIMINAL PROCEEDINGS
Non-registration of a firm is of no consequence in criminal proceedings.192 The Punjab & Haryana,193 Kerala,194
Karnataka,195 Delhi,196 Gauhati,197 Madras,198 Calcutta199 and Allahabad200 High Courts have held that an
unregistered firm can file a complaint under section 138, Negotiable Instruments Act, 1881 since the bar under
section 69 applies only to civil proceedings and not criminal. However, the Andhra Pradesh201 and Bombay202
High Courts have taken a divergent view and held that such complaint is not maintainable by an unregistered
firm on the ground that section 138, Negotiable Instrument Act, 1881 is applicable only to legally enforceable
debts and an unregistered firm cannot enforce its dues under a contract in view of the bar under section 69. It
most humbly submitted that the former view seems to be the correct one for two reasons: (i) section 138,
Negotiable Instrument Act, 1881 is a criminal proceeding, which is not barred by section 69; (ii) the foundation
of a criminal complaint under section 138, Negotiable Instrument Act, 1881 is the cheque, which was returned
unpaid and does not have its foundation203 in a suit which directly concerns enforcement of a right arising from
a contract. Also, as a matter of judicial precedence, the Supreme Court has held that where the predominant
majority of the High Courts have taken certain view on the interpretation of certain provisions, one would lean in
favour of the predominant view.204
[s 69.6] NON-REGISTRATION AND ARBITRAL PROCEEDINGS
Under the Arbitration Act, 1940, arbitral proceedings would not be maintainable at the instance of an
unregistered firm having regard to the mandatory provisions contained in section 69.205 On a plain reading of
section 69 of the Act and section 20 of the Arbitration Act, 1940, it is clear that an application filed by an
unregistered firm under section 20 of the Arbitration Act, 1940 would also be treated as a suit and would be hit
by section 69(2) if the firm filing the application is not registered with the Registrar of Firms.206 Embargo does
not operate when intervention of court is not sought.207
As regards arbitration under the Arbitration and Conciliation Act, 1996, it has been held that it is not covered by
the bar under section 69.208 In Umesh Goel v Himachal Pradesh Cooperative Group Housing Society
Limited,209 the Supreme Court has affirmatively laid down that arbitral proceedings will not come under the
expression “other proceedings” of section 69(3) of the Partnership Act, 1932 and the ban imposed under
section 69 will have no application to arbitral proceedings as well as the arbitration award. At para 21, it held:
Based on the close analysis of section 69 in its different parts, we are able to discern and hold that in order to attract
the said section, first and foremost the pending proceeding must be a suit instituted in a court and in that suit a claim of
set-off or other proceedings will also be barred by virtue of the provision set out in sub-sections (1) and (2) of section
69 as specifically stipulated in subsection (3) of the said section. Having regard to the manner in which the expressions
are couched in sub-section (3), a claim of set-off or other proceedings cannot have independent existence. In other
words, the foundation for the application of the said sub-section should be the initiation of a suit in which a claim of set-
off or other proceedings which intrinsically connected with the suit arise and not otherwise.
The Court also took note of the sea change in arbitration law from Arbitration Act, 1940 to the 1996 Act and
distinguished Jagdish Chander Gupta v Kajaria Traders (India) Limited, AIR 1964 SC 1882 : 1964 66 Bom LR
709:
27. The scope and ambit of the power and jurisdiction of “court” defined under section 2(e) of the Arbitration and
Conciliation Act, 1996 is circumscribed to certain specified extent as set out in sections 8, 9, 14, 27, 34, 36, 37, 39, 42,
43, 47, 48, 49, 50, 56, 58 and 59. A comparative consideration of the 1940 Act and the 1996 Act disclose the extent of
control and operation of a court under the former Act was far more intensive and elaborate than the latter Act. The
more significant distinction as between the 1940 Act and the 1996 Act is clear to the position that the former Act does
not merely stop with the initiation and enforcement of an arbitration and its award, but effectively provides for
intervention at every stage of the arbitral proceedings up to its final consideration and enforcement as if it were a
regular civil suit, whereas under the 1996 Act, the scope of intervention is not that of a civil court as it could do in the
matter of a suit. Such clear distinction could be discerned from the reading of the various provisions of both the Acts.
Therefore, in the light of such distinctive features that prevail in respect of an arbitral proceeding which emanated
under the 1940 Act, this Court held in Jagdish Chander case [Jagdish Chander Gupta v Kajaria Traders (India) Ltd,
AIR 1964 SC 1882 : (1964) 8 SCR 50] to the effect that an arbitral proceeding governed by the 1940 Act would
squarely fall under the category of “other proceedings” as specified in section 69(3) of the Partnership Act. To be more
precise, in Jagdish Chander case [Jagdish Chander Gupta v Kajaria Traders (India) Ltd, AIR 1964 SC 1882 : (1964) 8
SCR 50], inasmuch as the initiation of the proceedings were under section 8 of the 1940 Act before a civil court having
jurisdiction to decide the question forming the subject-matter of suit and the respondent therein being an unregistered
partnership firm, the ingredients set out in sections 69(1) to (3) of the Partnership Act, 1932 applied in all force and
consequently, held that the prohibition set out in the said section squarely applied.
28. We only wish to add that though in the said decision in Jagdish Chander case [Jagdish Chander Gupta v Kajaria
Traders (India) Ltd, AIR 1964 SC 1882 : (1964) 8 SCR 50], this Court did not specifically mention as to the requirement
of pendency of a proceeding in the nature of a suit in a civil court as the basic ingredient to be satisfied as stipulated in
sub-sections (1) and (2) of section 69 in order to extend the specific prohibition even to “other proceedings” under sub-
section (3), this Court was fully aware of the fulfilment of those mandatory requirements having regard to the nature of
proceedings that existed under the provisions of the 1940 Act. Therefore, our conclusion based on the interpretation of
section 69 on the whole as set out in paras 10 to 18, are fully supported by the above decision. We have, therefore, no
hesitation to hold that the ratio laid down in Jagdish Chander case [Jagdish Chander Gupta v Kajaria Traders (India)
Ltd, AIR 1964 SC 1882 : (1964) 8 SCR 50] does not in any way conflict with the view which we have taken herein,
having regard to the advent of the 1996 Act, under which the nature of arbitration proceedings underwent a sea
change as compared to the 1940 Act, what is stated in Jagdish Chander case [Jagdish Chander Gupta v Kajaria
Traders (India) Ltd, AIR 1964 SC 1882 : (1964) 8 SCR 50] can have application in the special facts of that case and
that it can have no application to a proceeding which emanated under the 1996 Act, for which the interpretation to be
placed on section 69(3) will have to be made independently with specific reference to the provisions of the 1996 Act,
where the role of the Court is limited as noted earlier to the extent as specified in sections 8, 9, etc.
With Umesh Goel, the law seems to be clear that section 69 has no application to arbitral proceedings. The
Apex Court has held in Ananthesh Bhakta v Nayana S Bhakta, (2017) 5 SCC 185 : 2016 (10) SCJ 486 : AIR
2016 SC 5359, that when the partners and those who claim through partners agreed to get the dispute settled
by arbitration, it is not open for them to contend that partnership being unregistered partnership, the dispute
cannot be referred. The prohibition contained in section 69 is in respect of instituting a proceeding to enforce a
right arising from a contract in any court by an unregistered firm, and it has no application to the proceedings
before an arbitrator.
An application under section 9 of the Arbitration and Conciliation Act, 1996 was prima facie found by the
Supreme Court to be not affected by the bar enacted by section 69.210 Similarly, section 11 petition for
appointment of an arbitrator by an unregistered firm is maintainable,211 but not by a firm of doubtful validity.212
Once it is noticed in a request for appointment of arbitrator under section 11 of the Arbitration and Conciliation
Act, 1996 that the physical existence of the arbitration agreement is not in doubt, the validity thereof on a legal
issue can be looked into by the arbitrator under section 16.213 Further, postarbitral award proceedings cannot
be considered by any means, to be a suit or proceedings to enforce any rights arising under a contract. The
Apex Court has held that at the stage of enforcement of an arbitral award by passing a decree in terms thereof
what is enforced is the award itself which crystallises the rights of parties under the Indian Contract Act.214
Similarly, the bar under section 69 was found to be not attracted to arbitration proceedings without intervention
of the court and the reference and the award cannot be impinged on the ground of non-registration of the
firm.215
The expression “other proceedings to enforce a right” was held to include an application under section 20 of the
Arbitration Act, 1940 for appointment of arbitrator. The court observed that when a partner has to enforce the
right against the other arising out of the contract which had been reduced into writing, necessarily there is no
option for the court but to state that the partnership should have been registered before any such application
under section 20 would be maintainable.216
The right of a partner to ask the dissolution of a firm is a right the enforcement of which is otherwise forbidden
under section 69(1). It is because of the exception under subsection (3) of section 69 that a person suing as a
partner can enforce a right under the contract for dissolution217 of the firm and rendition of accounts,218
distribution of assets219 and realisation of share.220 However, if a suit is only for declaration, accounts and
permanent injunction and no prayer for dissolution of the firm is sought for, then such suit, if filed by a partner of
an unregistered firm, would be barred.221 Sub-section (3) enacts that the provisions of the two previous sub-
sections shall not affect any right or power to realise the property of a dissolved firm. It is the right of all the
partners, or by some arrangement as between themselves, one or more, to realise the property of their late
partnership. The intention of the legislature was to inflict disability for non-registration only during the
subsistence of the partnership and, in doing that, at the same time there is provisions that the partnership can
cause the disability to be removed by registration before action is brought, although there was disability, by
reason of non-registration, existing at the time the contract was made or the debt incurred. When a partnership
has been dissolved the disability cannot be removed.222 The language of clause (a) of sub-section (3) of section
69 shows that suits for dissolution of an unregistered firm or for accounts223 of a dissolved firm or for any right
or power to realise the property of a dissolved firm224 have been expressly excluded from the embargo put on
the filing of suits by an unregistered firm or by any partner of an unregistered firm.225 It is an exception to the
prohibition under sub section (1) and (2).226 The words “any right or power to realise the property of a dissolved
firm” in section 69(3)(a) would include the right to recover the property from a partner.227 The possession of the
firm may be that of a licensee but one of the partners is competent to enforce a clause in the partnership deed
to claim possession as property of the dissolved firm.228
The Supreme Court has laid down the scope of section 69(3) in Umesh Goel v Himachal Pradesh Cooperative
Group Housing Society Limited:229
10........ When we read sub-section (3) of section 69 carefully, we find that the provisions of sub-sections (1) and (2)
have been impliedly incorporated in sub-section (3). When the opening set of expression in sub-section (3) states that
the provisions of sub-sections (1) and (2) shall apply, the entirety of the said two subsections should be held to be
bodily lifted and incorporated in sub-section (3). It is difficult to state that any one part of sub-sections (1) and (2) alone
should be held to be incorporated for the purpose of sub-section (3). Therefore, we are convinced that when we read
sub-section (3), it is imperative that all the ingredients contained in sub-sections (1) and (2) should be read into sub-
section (3) and thereafter apply the said sub-section when such application is called for in any matter.
11.... To put it in a nutshell the ban imposed under sub-section (1) of section 69 is on any person in his capacity as the
partner of an unregistered firm against the said firm or any of its partners, in the matter of filing a suit to enforce a right
arising from a contract or conferred by the provisions of the Indian Partnership Act, 1932. In effect, the ban is in respect
of filing a suit against that unregistered firm itself or any of its partners by way of a suit under a contract or under the
Partnership Act. Under sub-section (2), the very same ban is imposed on an unregistered firm or on its behalf by any of
its partners against any third party by way of a suit to enforce a right arising from a contract in any court.
12....The common feature in both the sub-sections are filing of a suit, in a court for the enforcement of a right arising
from a contract or conferred by the Indian Partnership Act, 1932 either on behalf of an unregistered firm or by the firm
itself or by anyone representing as partners of such an unregistered firm. While under sub-section (1) the ban imposed
would operate against the firm itself or any of its partners, under sub-section (2) the ban would operate against any
third party.
16 Keeping the above outcome of the legal position that can be derived from a reading of sub-sections (1), (2) and (3)
of section 69 in mind we can draw further conclusions by making specific reference to clauses (a) and (b) of subsection
(3) as well as the exceptions set out in clauses (a) and (b) of sub-section (4) as well. When under sub-section (3) which
also relates to a ban concerning “other proceedings”, the law-makers wanted to specifically exclude from such ban
such of those proceedings which are also likely to arise in a suit, but yet the imposition of ban of an unregistered firm
need not be imposed. Keeping the said intent of the law-makers in mind, when we read clauses (a) and (b) of
subsection (3), it can be understood that even though such other proceedings may be for the enforcement of any right
to sue but yet if it is for the dissolution of a firm or for accounts of a dissolved firm or any right or power to realise the
property of a dissolved firm, the same can be worked out by way of a suit in a Court or by way of other proceedings in
that suit and the same will not be affected by the ban imposed under sub-section (3). Similarly, any steps initiated at
the instance of an official assignee, a receiver or Court under the Presidency Towns Insolvency Act, 1909 (3 of 1909)
or the Provincial Insolvency Act, 1920 (5 of 1920) to realise the property of an insolvent partner in a pending suit of a
Court also stand excluded from the ban imposed under sub-section (3). The specific exclusions contained in clauses
(a) and (b) of sub-section (3), therefore, makes the position clear to the effect that even though such proceedings may
fall under the expression “other proceedings” and may be intrinsically connected with a suit in a Court, yet the ban
would not operate against such proceedings.
Legal representatives of the deceased partner are necessary party to a suit for dissolution and rendition of
accounts because their rights and liabilities are also involved.230 A suit for recovery of money231 by an
unregistered dissolved firm is maintainable, even without impleading the legal heirs of a deceased partner.232
The words “but shall not effect” require to be given meaning and effect in the operation of the main part of sub-
section (3). The exceptions engrafted in subsection (3) intend to exclude the embargo created by sub-section
(3) and intended to effectuate the exceptions enumerated therein. The proviso gives an exception stating that
the main part of sub-section (3) shall not affect the enforcement of any right arising from dissolution of a firm or
for accounts of a dissolved firm, or any right or power to realise the property of a dissolved firm; it conferred
interest to the partners, i.e., parties to the contract.233
Object intended by the legislature in engrafting sub-section (3) of section 69 of Indian Partnership Act, 1932
appears to be that in spite of the defect of non registration and the prohibition created in the main part of non
enforceability of the right arising from a contract, parties having worked under the contract to the limited extent
of enforcement of a right to realise assets, settlement of the accounts of dissolved firm or any right or power to
realise the property of the dissolved firm are exceptions engrafted therein and gives rights to the parties to
enforce the same independent of the right arising from the contract.234 The legislature in its wisdom has created
these exemptions because the disability which will operate qua an outsider or third party will not operate with
regard to the filing of a suit to enforce a right arising from a contract on behalf of any person suing as a partner
in a firm against the firm or any person alleged to be or to have been a partner in the firm.235 Therefore, in the
case of a dissolved firm, the disability contemplated by the non- registration of the firm is not to apply.236 One
has a right to file a suit for dissolution of partnership even though the said partnership is an unregistered
partnership.237 A suit filed by a partner of an unregistered firm for declaration of share, proper administration of
firm and rendition of accounts, from its very inception, is not maintainable due to section 69(1) and hence,
would not bar filing of a subsequent suit for dissolution of the partnership firm, which is permissible in view of
section 69(3)(a).238
The words “power to realise the property of a dissolved firm” have to be construed in the widest sense and they
undoubtedly include a right to realise a debt due to the firm.239 Where an unregistered partnership was
dissolved, and in the division of the assets a debt due to the defendant was allotted to partner A, it was held
that section 69(3) entitled A to sue, and further that the suit was not strictly a suit by the partnership at all.240
A suit for realising the assets of a dissolved firm is not barred under sub-section (3).241 A suit claiming to be a
partner of the firm and praying for accounts and dissolution thereof is not barred.242
However, it may noted that clause (a) of sub-section (3) of section 69 would not save a suit for accounting of
the dissolved firm which is otherwise barred by section 69(1).243 Section 69(3) has been discussed by the High
Courts of Gujarat, Bombay, Madhya Pradesh, Delhi and Madras.244 The Gujarat and Bombay High Courts have
considered the bar under section 69(1) and (2) and an escape valve available under section 69(3). Accordingly
it has been held by the Gujarat High Court that a suit by a partner of an unregistered firm claiming damages for
contract, instituted after the dissolution of the firm would fall within the exception to section 69 and would be
maintainable, even though the partnership is not registered. The decision has been laid down245 and
distinguished by the Supreme Court decision in Loonkaran Sethia v Ivan E John, AIR 1977 SC 336. A later
decision of the Madras High Court in Somu and Somu Vessels Merchant v Arumugham, (1999) 2 Mad LJ 623
adopts the view and has distinguish, the decision of very same High Court.246 A suit seeking accounts of a
dissolved firm (though claimed to have been wrongly dissolved) is maintainable.247
[s 69.7.1] “Other proceeding” under sub-section (3)
The question whether the words “other proceeding” in sub-section (3) should be construed as ejusdem generis
with “a claim of set-off” has been the subject of conflicting decisions. In a considered judgment, the Allahabad
High Court, after reviewing the authorities, held that the ejusdem generis rule did not apply, and accordingly
rejected an application to enforce an arbitration clause in the partnership deed of an unregistered firm.248 On
the other hand, the Bombay High Court held that an application under section 8 of the Arbitration Act, 1940
does not come within the words “or other proceeding”;249 and the Calcutta and Patna High Court held that a
reference to arbitration by an unregistered firm is not barred by the sub-section.250 The conflict, however, has
been resolved by the Supreme Court251 which, after a detailed discussion, held that the word “proceeding” is
not limited to a proceeding in the nature of a suit or a claim of set-off. The Apex Court held that:
Interpretation ejusdem generis or noscitur a sociis need not always be made when words showing particular classes
are followed by general words. Before the general words can be so interpreted there must be a genus constituted or a
category disclosed with reference to which the general words can and are intended to be restricted. Here the
expression “claim of set-off” does not disclose a category or a genus. Set-offs are of two kinds - legal and equitable -
and both are already comprehended and it is difficult to think of any right “arising from a contract” which is of the same
nature as a claim of set-off and can be raised by a defendant in a suit.
The “dispute” and the terms of reference need to be ascertained very cautiously when there is an objection
under section 69(3). An arbitration clause in a partnership deed of an unregistered firm can be enforced for the
purpose of securing, inter alia, a dissolution and accounts of the partnership or for enforcing any right or power
for obtaining the property of a dissolved firm.252 At the same time, when section 69(3) has created a clear bar of
referring some disputes to Arbitration, it needs to be ascertained whether the dispute raised is also barred due
to this provision, for reference.253 Where the request for arbitration goes beyond the arbitration clause and even
the partnership deed, the same would be barred at the instance of a partner of an unregistered firm.254
The expression “right to sue for dissolution of a firm” would include all consequential reliefs also.255 There is no
reason why proceedings under section 20 of the Arbitration Act, 1940 should also not be covered by sub-
section 3. Assuming that the expression “to sue” in clause (a) of sub-section (3) shall include proceedings other
than suits, those proceedings shall be for the dissolution of a firm or for the accounts of a dissolved firm and
therefore when the application under section 20 of the Arbitration Act, 1940 is only for enforcement of the right
of getting a dispute settled by arbitration, the application was hit by the prohibitory provision of section 69(1)
read with sub-section (3).256 The remedy to get the arbitration clause enforced in the matter of appointment of
an arbitrator by way of an application under section 11 of the Arbitration and Conciliation Act, 1996 is covered
by the word “other proceedings” in section 69(3).257
However, the Supreme Court has made it clear that the words “to sue” used in subsection (3)(a) cannot be
construed narrowly to refer only to suits for dissolution of partnership and accounts. The exception contained in
sub-section (3)(a) applies not merely to sub-sections (1) and (2) but also to the first part of sub-section (3)
which deals with proceedings other than suits. Therefore, in order that sub-section (3)(a) would apply to all
these provisions, the words “to sue” in sub-section (3)(a) must be understood as applying to any proceedings
for dissolution of partnership or for accounts of a dissolved firm or to realise the property of a dissolved firm.
This proceeding may be either by way of a suit or it can even be a proceeding under the Arbitration Act, 1940 to
secure these rights through arbitration.258
Similarly, the Delhi High Court in Jagat Mitter Saigal v Kailash Chander Saigal held that if the dispute which is
to be referred is of the nature mentioned in clause (a) of sub-section (3), then the non-registration of the firm will
not stand in the way of the arbitration agreement being filed in court for enforcement of those rights arising out
of the contract. Such an application under section 20 of the Arbitration Act, 1940 may not be basically for the
dissolution of a firm or for accounts of a dissolved firm, nevertheless, it is for enforcement of the right arising out
of the contract of getting those disputes settled by arbitration. The court held that the case before the Supreme
Court in Jagdish Chandra v Kajaria Traders (India) Ltd (above) was not a suit or other proceeding by a partner
of an unregistered firm to enforce any right to sue for the dissolution of the firm or for accounts of a dissolved
partnership or for realising the property of a dissolved firm and clause (a) of sub-section (3) was therefore not
before the Supreme Court for consideration. Therefore, the ratio could not be extended or applied to the case of
the exceptions provided by clauses (a) and (b) of sub-section (3) of section 69.259
The provision contained in the Act regarding the registration of the firm before filing any matter in the court
refers to suit and not to the proceedings under sections 14 and 17 of the Jammu & Kashmir Arbitration Act.
Such objection could have been relevant in a matter under section 20 of the Arbitration Act, 1940 which is
considered suit in the eyes of law.260
The Punjab High Court has held that an application under section 13 of the Displaced Persons (Debts
Adjustment) Act, 1951) does not come within the words.261 The word “property” in sub-section 3(a) would
include a debt due to the partnership from a third party.262 It is held that a suit by the legal heir of a deceased
partner who was admitted to the partnership, for enforcement of right to sue for dissolution of an unregistered
firm was saved by sub-section 3(a).263
The Supreme Court has laid down the scope of section 69(4) in Umesh Goel v Himachal Pradesh Cooperative
Group Housing Society Limited:264
When we read sub-section (4), the ban imposed under sub-sections (1), (2) and (3) will have no application to any of
those proceedings set out in clauses (a) and (b) of the said sub-section (4). A specific reference to clause (b) of
subsection (4) disclose that in the last part of the said sub-clause it is specifically provided that other proceedings
incidental to or arising from any suit or claim of set-off not exceeding Rs 100 in value under those specific statute
referred to in the said sub-clause can also be launched without any ban being operated as provided under sub-
sections (1), (2) and (3). The said part of clause (b) of subsection (4) thus gives a vivid picture as to the position that
the “other proceeding” specified in the said sub-section can only relate to a pending suit in a court and not to any other
different proceeding which can be categorised as “other proceedings”.
A suit for injunction and for accounts of the partnership was not cognisable by a court of small causes.
Therefore, notwithstanding the fact that the relief for accounts had been tentatively valued at Rs 100 in such a
suit, it was not covered by clause (b) of sub-section 4 and was therefore hit by sub-section (1).265
Notes to section 74 can be further referred.
The modern trends in employing the partnership arrangements for illegitimate purposes had caused concern
among the states which have brisk activities of firms. Attempts have been made by some of them to checkmate
such illegitimate activities.
Maharashtra
By an amendment, the State of Maharashtra introduced a new sections 69(2A).266 Effect of amendment is that if
party failed to comply with the provisions, they are bond to face penal consequences. However, it cannot be
made applicable if the events took place prior to the date of amendment.267
The scope of the section has been discussed by the Bombay High Court in Ramniklal Mohanlal v Sharad,
(1997) 2 Mah LJ 731. The non-maintainability of the suit is a threshold question and no amendment of the plaint
is permissible in such cases.268 The earlier decisions of Bombay High Court in Gandhi & Co v Krishna Glass
Pvt Ltd,269 have been referred to along with decisions of Supreme Court in Shree Ram Finance Corpn v Yasin
Khan, (1989) Mah LJ 849, and the decision in Gaganmal Ram Chand v Hong Kong & Shanghai Banking Corpn,
AIR 1950 Bom 345. Non-intimation of death of a partner (where there are more than two) to the Registrar does
not automatically dissolve the partnership when partnership, by conduct, continues since such failure to
intimate only attracts a penalty under section 69A.270
The Supreme Court in V Subramaniam v Rajesh Raghuvandra Rao271 has declared that the Maharashtra
Amendment Act 29 of 1984 inserting section 69(2-A) and substituting 69(3)(a) violates Articles 14, 19(1)(g) and
300-A of the Constitution of India and held it to be unconstitutional. Exception in section 69(3)(a) was made on
the principle that while registration of a firm is designed primarily to protect third parties, the absence of
registration does not mean that the partners of an unregistered firm lose all rights in the said firm or its property
and hence cannot sue for accounts or for its dissolution or for realising their property in the firm. The Supreme
Court held that sub-section (2A) virtually deprives a partner of a firm from his share in the property of the firm
without any compensation. It also prohibits him from seeking dissolution of the firm although it may want it
dissolved. The Supreme Court has held:
24. However, the Maharashtra Amendment effects such stringent disabilities on a firm as in our opinion are crippling in
nature. It lays down that an unregistered firm cannot enforce its claims against third parties. Similarly, a partner who is
not registered is unable to enforce his claims against third parties or against his fellow partners. An exception to this
disability was a suit for dissolution of a firm or a suit for accounts of a dissolved firm or a suit for recovery of property of
a dissolved firm. Thus a partnership firm can come into existence, function as long as there is no problem, and
disappear from existence without being registered. This is changed by the 1984 Amendment extending the bar of the
proceedings to a suit for dissolution or recovery of property as well.
25. The effect of the 1984 Amendment is that a partnership firm is allowed to come into existence and function without
registration but it cannot go out of existence (with certain exceptions). This can result into a situation where in case of
disputes amongst the partners the relationship of partnership cannot be put to an end by approaching a court of law. A
dishonest partner, if in control of the business, or if simply stronger, can successfully deprive the other partner of his
dues from the partnership. It could result in extreme hardship and injustice. Might would be right. An aggrieved partner
is left without any remedy whatsoever. He can neither file a suit to compel the mischievous partner to cooperate for
registration, as such a suit is not maintainable, nor can he resort to arbitration if any, because the arbitration
proceedings would be hit by Section 69(1) of the Act [Jagdish Chandra Gupta v Kajaria Traders (India) Ltd, [AIR 1964
SC 1882]].
26. In our opinion the restrictions placed by sub-section (2-A) of Section 69 introduced by the Maharashtra Amendment
Act, for the reasons given above, are arbitrary and of excessive nature and go beyond what is in the public interest.
Hence the restrictions cannot be regarded as reasonable.
Madras
In Madras, some attempt was made to keep a close watch over the functioning of the firms. That state invoked
the rule making power to achieve the limited object. New rules were accordingly made in exercise of the power
under section 71 of the Act. By an amendment of the rules made effective from 6 February 1991, a duty was
cast on every firm to file a declaration about the continuance of the firm every year.
The validity of the new rule was challenged before the Madras High Court. An analysis of sections 58 to 71 was
made by the court in the case. It held that the rule is not ultra vires section 71. The intention of the amendment
was to know exactly how many firms registered under the Act are functioning at a given point of time.272
56 Substituted by Act 3 of 1951, section 3 and Sch., for the words ‘Part A States and Part C States’.
57 Substituted by Act 3 of 1951 for the words ‘such States’.
58 Substituted by Act 24 of 1934, section 2 and the First schedule. for ‘section 55’.
59 Jagdish Chander Gupta v Kajaria Traders (India) Limited, AIR 1964 SC 1882.
60 Seth Loonkaran Sethiya v Ivan E John, (1977) 1 SCC 379, p 393; See also ESI Corporation v Varun Impex Ltd, 2017
SCC OnLine Ker 27187 : (2018) 156 FLR 72 : (2017) 4 LLJ 425 [Held, If the partnership firm is not a registered one, its
entity cannot be recognised to enforce a right either arising from a contract or conferred by Indian Partnership Act,
1932. The registration of a partnership firm would be a sine qua non to enforce a right arising from a contract or
conferred by the Indian Partnership Act, 1932, through a suit or proceedings.].
61 Loonkaran Sethia v Ivan E John, AIR 1977 SC 336, p 347; Ram Adhar v Rama Kirat Tiwari, AIR 1981 All 405; Rahul
Jain v Pradeep Kumar, 2006 SCC OnLine Del 945 : 2007 (94) DRJ 89; Hirendra Bhola v Gulati Marketing Company,
2007 SCC OnLine MP 117 : AIR 2007 MP 165 : (2007) 5 AIR Kant R (NOC 657) 242 : (2007) 5 All LJ (NOC 786) 281 :
(2007) 5 AIR Bom R (NOC 880) 336; Rai Bharat Das and Brothers v State of UP, 2008 SCC OnLine All 2049 : (2008)
105 RD 174 : (2009) 1 ALL LJ (NOC 1) 1.
62 Bharat Sarvodaya Mills Co Ltd v Mohatta Bros, AIR 1969 Guj 178. The Supreme Court reversed the decision on
different point and observed that it was not necessary to go into the legal question as to what should be the proper
construction of section 69(2); Mohatta Bros v BS Mills, AIR 1976 SC 1703, p 1710; Ram Kumar Shew Chand Rai v
UOI, AIR 1977 Cal 37; Ghanshyam Vijay Oil Mills v Thackar Ranchhodas Ratanshi, AIR 1985 NOC 17 (Guj).
63 Global Aviation Services Private Limited v Airport Authority of India, 2018 SCC OnLine Bom 233 : LNINDORD 2018
BOM 7.
64 Multimetals Ltd v KL Jolly, AIR 2003 Raj 8.
65 Uttar Pradesh State Sugar Corpn Ltd v Jain Construction Co, (2004) 7 SCC 332, para 7.
66 All India Road Transport Agency v Indian Oil Corporation Ltd, 2015 SCC OnLine Gau 958 : (2016) 1 GLR 229; See
also Malati Kashinath Singh v Bhikari Kedar Singh, 2016 SCC OnLine Bom 15074; Sai Nath Enterprises v North Delhi
Municipal Corporation, 2015 SCC OnLine Del 14400.
67 Navabharath Kuries & Trading Co v CE Job, 2006 SCC OnLine Ker 501 : (2007) 1 KLJ 22 : (2006) 4 KLT (SN 113) 81.
68 N Marappan v VST Sengottaian, 2016 SCC OnLine Mad 6967 : 2016-3-L.W 248.
69 Leela Shashikant Purandare v Arvind Vishnu Govande, (2014) 3 SCC 645 : 2013 (14) Scale 65 : JT 2013 (15) SC 167.
70 Velji Narayan Patel v Jayanti Lal Patel, 2008 SCC OnLine Cal 782 : AIR 2009 Cal 164 : (2009) 2 ICC 334 (Cal);
Laljibhai Ramjibhai Hamirani v Lavjibhai Haribhai Mandanka, 2009 SCC OnLine Guj 576 : (2009) 50 (1) GLR 879;
Achhru Ram v Narinder Kumar Jain, 2009 SCC OnLine P&H 9141; Rajnikant Vishwambharlal Kediya v Ramakant
Vishwambharlal Kediya, 2010 SCC OnLine Guj 5718; Ashish Verma v Neeraj Vyas, 2011 SCC OnLine MP 2404 : AIR
2012 MP 9 (suit for accounts barred); Devendra Singh v Singh Enterprises, 2017 SCC OnLine Cal 2913 : (2017) 174
AIC 449 : AIR 2017 (NOC 655) 222; Soorajmull Nagarmull v Dalhousie Properties Ltd, 2006 SCC OnLine Cal 16 :
(2006) 2 Cal LT 1. The Jharkhand High Court in Keshavlal Rathore v Chhaganlal Rathore, 2018 SCC OnLine Jhar
1291 held a suit filed by a partner of an unregistered firm for partition of the firm’s properties and a further declaration of
Plaintiffs being lawful partners, maintainable. With respect, this finding seems to be in teeth of section 69(1), which bars
such suits by a partner of an unregistered firm. The prayer for partition of partnership properties would be based upon
the partnership agreement between the parties and therefore, would be a claim to enforce a right arising from a
contract, that is, the partnership deed.]
71 Manubhai Vadilal Shah v Noopur Developers, 2015 SCC OnLine Bom 3454 : (2015) 4 Bom CR 373. [Where the
Plaintiff is not suing as a partner of the firm, the bar under section 69(1) is not attracted.]
72 Mukund Balakrishna Kulkarni v Kulkarni Powder Metallurgical Industries, (2004) 13 SCC 750, para 9.
73 Badri Prasad v Nagarmal, AIR 1959 SC 559.
74 Afsar Hussain v Trilokchand Premchand, AIR 1975 Ori 84. All partners must join in a suit upon contract, suit liable to be
dismissed if brought by some of them only, suit by some partners under firm name at ‘J’, evidence disclosing that firm
at ‘J’ was branch of another firm at ‘K’ with different name and more partners, suit held was not tenable. Bar of suit, suit
by firm, names of some persons suing as partners not included in Register of Firms, suit not maintainable Chandrabhan
Bansilal v Bikaner Municipality, AIR 1975 Raj 35.
75 Ramanjot Singh v State of Punjab, 2016 SCC OnLine P&H 7999 : LNIND 2016 PNH 4838.
76 New Kruba Jeweller v Kanchana, 2016 SCC OnLine Mad 31644 : [2017] 139 SCL 264 (Madras).
77 Syed Irfan Sulaiman v New Amma Hospitals, 2016 SCC OnLine Hyd 377 : AIR 2017 Hyd 18 : (2017) 1 ALT 335 (DB).
78 JK Finance e5’ Chit Funds v R Surya Kumar, AIR 2004 AP 190, para 6; New Sarkar Beedi Factory v Sabir Ali, 2012
SCC OnLine All 2196 : (2012) 95 ALR 153 : (2013) 1 All LJ (NOC 56) 18; International Business Corporation v
Bhagirath Dolkheria, 2009 SCC OnLine Del 863 : (2009) 159 DLT 145; Naresh Kumar Bansal v Trimurthi Hightech Co
Pvt Ltd, 2018 SCC OnLine Del 7079 : LNIND 2018 DEL 560; Sapna Ganglani v RS Enterprises, 2008 SCC OnLine Kar
260 : ILR 2008 KAR 3928.
79 Kuljinder Singh Ahluwalia v Sandeepkaur Ahluwalia, 2008 SCC OnLine Bom 1203 : (2009) 3 Bom CR 418 : (2009) 5
AIR Bom R 131; Sadaram Visweswara Rao v Malla Seetha Ratnam, 2010 SCC OnLine AP 169 : (2010) 5 ALD 578 :
(2010) 6 ALT 198; Sandip Agarwal v Simplex Infrastructure Limited, 2009 SCC OnLine Cal 676; Mulchand Kumawat
e5’ Sons v Rajasthan State Electricity Board, 2009 SCC OnLine Raj 1630; Punjab State Civil Supplies Corp Ltd v KS
Trading Co, 2014 SCC OnLine P&H 3823 : (2014) 175 (1) PLR 67; Maa Jagdamba Tempo Services v Sharda Motor
Industries Ltd, 2014 SCC OnLine Del 4817; Kumud Kachari v Rajdhani Tractors and Agencies, 2017 SCC OnLine Gau
143 : (2017) 3 GLR 547; Jambu Bisoiani alias Jambhubati Bisoi v General Traders, 2019 SCC OnLine Ori 56.
80 Motors v Eicher Motors Limited, 2009 SCC OnLine HP 2055; Amrik Singh v NK Srivastava, 2011 SCC OnLine P&H
3830; Satish Sharma v Hem Chand Sharma, 2015 SCC OnLine HP 4172 : ILR2016 1 HP 59.
81 Ravi Bansal v Maa Bhagwati Associates, 2014 SCC OnLine P&H 7643.
82 Jyothi Trading Company v Potnuru Rameswara Rao, 2014 SCC OnLine Hyd 1301 : (2015) 150 AIC 782 : (2016) 5 ALT
759 : (2015) 2 ALT 669.
83 Jale Khan v Nemichand & Co, 2014 SCC OnLine Raj 5817 : AIR 2015 Raj 39.
84 Suraj Deo Parsad v Prem Lata, 2017 SCC OnLine Del 9668 : LNIND 2017 DEL 2807.
85 People Charity Fund, Chennai v K Raghava Reddy and Associates, 2008 SCC OnLine Kar 239 : (2009) 3 Kant LJ 562
(DB) : (2009) 1 AIR Kant R 367.
86 Popular Automobiles v GK Chami, AIR 2002 Ker 33, para 13.
87 Vijay Kumar v Shriram Industries, 2016 SCC OnLine MP 9811 : 2016 (4) MPLJ 397.
88 Varadarajulu Naidu v Rajamanika Mudaliar, (1937) 2 Mad LJ 273 : AIR 1937 Mad 767; Jakiuddin Baduddin v Vithopa
Jagannath Gadali, AIR 1939 Ngp 301; Radha Charan Saha v Matilal Saha, (1937) 41 Cal WN 534; overruled in
Durjendra Nath Singh v Govinda Chandra, AIR 1953 Cal 497.
89 Subramania Mudaliar v East Asiatic Co Ltd, (1936) 71 Mad LJ 663 : 165 IC 939 : AIR 1936 Mad 991; Lokramdas
Chatomal v Tharumal, (1939) Kant 765 : 184 IC 88 : AIR 1939 Sind 206; Syed Ibrahim Sahib v Gurulinga Aiyar, (1937)
2 Mad LJ 717 : 175 IC 811 : AIR 1938 Mad 185; Laduram Sagarmal v Jamuna Prasad Chaudhuri, (1939) 18 Pat 114 :
182 IC 796 : AIR 1939 Pat 239; Chhagan Lal v Mangal Sain Raj Narain, (1938) 179 IC 363 : AIR 1938 Lah 767;
Ponnuchami Goundar v Muthusami Goundar, (1942) Mad 355 : 199 IC 99 : AIR 1942 Mad 252 : (1941) 2 Mad LJ 968;
Guno Prosad v Abhoy Hari (suit for a declaration that plaintiff is a partner with defendant), 52 Cal WN 15; Shanmugha
Mudaliar v PV Rathina Mudaliar, (1948) Mad 481 : AIR 1948 Mad 187; Prithvisingh v Hasan Alli, AIR 1951 Bom 7; Firm
Des Raj v Firm Hira Lal, AIR 1952 Punj 415; Nand Kishorev Maheshwari Mills, AIR 1953 MB 42; Puran Mal v Central
Bank of India, AIR 1953 Punj 235; Chimanram Bhatar v Ganga Saha, AIR 1961 Ori 94.
90 CIT, Andhra Pradesh Hyderabad v Jayalakshmi Rice & Oil Mills Contractor Co, AIR 1971 SC 1015. Where a registered
firm was carrying on business in Cuttack in different names, ie, Bharadia Bros, held that as Bharadia Bros was not a
firm name nor partners, the suit was barred in Bharadia Bros v UOI, AIR 1973 Ori 28. See also Kelson Construction v
Versha Spinning Mills Ltd, (1994) 1 Arb LR 385 : 1994 Civil CC 592 : (1994) ILR 2 Delhi 110; Prakashchand v
Velmurugan Constructions, 2014 SCC OnLine Mad 11585.
91 (2007) 15 SCC 58 : 2007 (66) ALR 672 : JT 2007 (4) SC 564; Anil Kumar v Anuradha Singh, 2016 SCC OnLine Del
4026 : (2016) 232 DLT 150 : (2016) 167 AIC 726; Also see Sai Nath Enterprises v North Delhi Municipal Corporation,
2015 SCC OnLine Del 14400; Hill Motors v Eicher Motors Limited, 2009 SCC OnLine HP 2055 : LNIND 2014 MAD
7226.
92 American President Lines Ltd v Board of Trustees of the Port of Bombay, 2015 SCC OnLine Bom 3420; New India
Assurance Co Ltd v Varsha Aqua Farm Sarvasiddi, 2017 SCC OnLine Hyd 464 : (2018) 1 ALT 684 : (2018) 2 ALD 291
: (2018) 186 AIC 492 : (2015) 2 AIR Bom R 508 : AIR 2015 (NOC 653) 244 : (2015) 4 Bom CR 415.
93 (1989) 3 SCC 476 : AIR 1989 SC 1769; followed in Delhi Development Authority v Kochhar Construction Work, (1998)
8 SCC 559 and Thawariya v Firm Rajesh Kumar Heera Lal, 2007 SCC OnLine Raj 421 : (2007) 1 RLW 598 : (2007) 2
RLR 464 : (2007) 1 WLC 762 (Held, suit filed by a firm who obtained registration on the same day after the suit was
filed was held to be not maintainable.].
94 Sree Balaji Enterprises v Greeta Exports, AIR 2007 NOC 48 (Mad); Nevatharath Kuries & Trading Co v CE Job, AIR
2007 NOC 124 (Ker).
95 Gandhi & Co v Krishna Glass Pvt Ltd, (1987) Mah LJ 885 : AIR 1987 Bom 348.
96 Continental and Eastern Agencies v Coal India Limited, AIR 2003 Del 387.
97 See above.
98 Balaji Constructions Co v Lira Siraj Shaikh, AIR 2006 Bom 106, para 10.
99 Sunderlal & Sons v Yogendra Nath Singh, AIR 1976 Cal 471, pp 473, 474; Also see Jagadamba Singh v Kalawati Devi,
2015 SCC OnLine Cal 3348 : 2016 (1) CHN (CAL) 357; Re Abani Kanta Pal, AIR 1986 Cal 143, p 146 holding that such
void plaint cannot be amended under O VI, rule 17 of the Code of Civil Procedure.
100 Khatura v Ramsewak Kashinath, AIR 1986 Ori 1, p 4; but see Sri Baba Commercial Syndicate v Channamasetti Dasu,
AIR 1968 AP 378 holding that the decision of a suit under section 69 is not one on merits, which view appears to be
correct.
101 Firm Sitaram Agarwal v Harnath, AIR 1970 Raj 99; but see, Malhotra & Co Chandigarh v Ramesh Mistri, AIR 1971 P&H
212.
102 Uma Shankar Bajaj v Narain Das, AIR 1983 Pat 329.
103 State of Uttar Pradesh v Hamid Khan & Bros, AIR 1986 All 130; Sir Baba Commercial Syndicate v Channamasetti, AIR
1960 AP 378; Ram Prasad Thakur Prasad v Kanita Prasad Sita Ram, AIR 1935 All 898.
104 Bhattacharjee & Co v UOI, AIR 1957 Assam 159.
105 KTV Handloom Centre v Seenivasa Investments, 2017 SCC OnLine Mad 18281.
106 Bombay Trading Co v Jaisantoshimaa Enterprises, 2012 SCC OnLine Bom 1268 : 2012 (6) Mh.Lj. 670.
107 Mayil Traders v Thiyagarajan, 2011 SCC OnLine Mad 682 : 2011 (6) CTC 474.
108 Chendur Forgings (P) Ltd v Bhandari Interstate Carriers, 2008 SCC OnLine Mad 393 : 2008 (4) CTC 75; Sapna
Ganglani v RS Enterprises, 2008 SCC OnLine Kar 260 : ILR 2008 KAR 3928.
109 Trimurti Cargo Movers Pvt Ltd v Auto Cars, 2016 SCC OnLine Cal 4396 : (2017) 1 Cal LT 281 : (2017) 1 Cal LJ 561 :
(2017) 2 ICC 288.
110 Murugaram Transport v Kaveri Tyres, 2010 SCC OnLine Mad 3434 : 2010-4-LW193.
111 Lovell and Christmas v Beauchamp, [(1891) AC 607 , 612 (HL)].
112 Her Highness Maharani Mandalsa Devi v M Ramnarain Private Ltd, AIR 1965 SC 1718 : (1965) 3 SCR 421 (in this
case, it was held that the suit can proceed against the firm but for one of partners, the Maharaja of Sirmur, since a suit
against him without the consent of the Central Government is barred by sections 86 and 87-B of CPC. It was held that
as the suit was instituted without the requisite consent of the Central Government, no decree could be passed in the
suit against the Maharaja of Sirmur. But the suit against the firm other than the Maharaja of Sirmur was competent, and
a decree could be passed against the firm.]
113 Parvatibai Shivajirao Shendge v Sangali Sahakari Bank Ltd, 2009 SCC OnLine Bom 1694 : 2010 (2) Mh LJ 642. Foll.
Her Highness Maharani Mandalsa Devi v M Ramnarain Private Ltd, AIR 1965 SC 1718.
114 Theeda Ramaswamy v State of Orissa, 2017 SCC OnLine Ori 153 : AIR 2017 ORI 77 : (2017) 124 CLT 119.
115 KTV Handloom Centre v Seenivasa Investments, 2017 SCC OnLine Mad 18281.
116 Farooq v Sandhya Anthraper Kurishingal, (2018) 12 SCC 580 : AIR 2017 SC 2945 [Held, having found that the basis of
the suit is the factum of partnership and having relied upon clause 25(d) of the partnership deed, it is clear that the trial
court correctly found that the bar of section 69 of the Act was attracted in the facts of this case.]
117 Hotel Satkar v Krishnanath Nanu Chavdikar, 2015 SCC OnLine Bom 599 : (2015) 4 AIR Bom R3 : AIR 2015 Bom 167.
118 Blueberry Books v Bharti Goyal, 2019 SCC OnLine Del 6533.
119 Purushottam v Shivraj Fine Arts Litho Works, (2007) 15 SCC 58 : 2007 GLH (2) 406 : JT 2007 (4) SC 564; State Bank
of India v Rajesh Chandra, 2016 SCC OnLine Del 94 : (2016) 227 DLT 110 : (2016) 160 AIC 659; Hindustan
Infrastructure Construction Corporation Limited v RS Woods International, 2018 SCC OnLine Del 12960 : LNINDORD
2018 DEL 4166.
120 Raptakos Brett Co Ltd v Ganesh Property, (1998) 7 SCC 184 : AIR 1998 SC 3085; Nemai Enterprise v State of West
Bengal, 2013 SCC OnLine Cal 22925 : (2014) 1 cal LJ 469.
121 Sandhya Anthraper v Manju Kathuria, AIR 2014 Kar 21 : 2014 (1) AKR 254; Satyajit Kowar v Anima Kower, 2017 SCC
OnLine Cal 11620 : (2017) 179 AIC 788 : (2017) 4 CHN 217.
122 Haldiram Bhujiawala v Anand Kumar Deepak Kumar, (2000) 3 SCC 250, paras 21-23.
123 Vesco Product Company v Rajinder Nath Pathak, 2010 SCC OnLine Del 4344 : LNIND 2010 DEL 1254.
124 Samyuktha Cotton Trading Co v Bheemineni Venkata Subbaiah, AIR 2005 AP 1, para 8.
125 Raptakos Brett & Co Ltd v Ganesh Property, (1998) 7 SCC 184 : AIR 1998 SC 3085.
126 VJ Masarwala v P Sheth & Co, (1981) 22 Guj LR 689.
127 Girdhamal Kapur Chand v Dev Raj Madan Gopal, AIR 1963 SC 1587.
128 Mahendra Prasad Sah v Manjelal Mahto, AIR 1981 Pat 262, p 263.
129 Balaji Construction Co v Lira Siraj Shaikh, AIR 2006 Bom 106.
130 Ibid, para 27.
131 Virendra Dresses v Varinder Garments, AIR 1982 Del 482, p 486; Bade Miya v Mubin Ahmed Zahurislam, 2011 SCC
OnLine Bom 430 : 2011 (3) Mh.L.J. 813; Precious Jewels v Varun Gems, 2013 SCC OnLine Del 225 : (2013) 197 DLT
337 (DB).
132 Chandrayya Mutwayya Irabatti v Sidram Ganpat Ingale, AIR 2006 Bom 76, para 5. Relied on Navinchandra v
Moolchand, AIR 1966 Bom 111; see also Beharilal Shyamsunder v UOI, AIR 1960 Pat 397 where suit for damages
against a third party was held maintainable.
133 Kerala Arecanut Stores v Ramkishore and Sons, AIR 1975 Ker 144; following Narendra Kumar Saxena v Paper
Traders, AIR 2003 MP 193.
134 S Prakashchand v Sha Harakchand Misrimull, AIR 2002 Mad 372.
135 BB Patel v Nexim Exports Pvt Ltd, AIR 2003 Del 183.
136 Saifuddin Hussinbhay Siamwala v The Burma Cycle Trading Co, (1971) 3 SCC 881, para 6.
137 Padam Jain v Chandra Bros, AIR 1990 Pat 95.
138 Dungarsi Ranchhodas Jayesh Niwas, Kozhikode v Moolji Visanji, AIR 2004 Ker 314, p 316.
139 United India Fire and General Insurance Co Ltd v Palaniappa Transport Carriers, AIR 1986 AP 32, p 37; Shanmugha v
Rathina, AIR 1948 Mad 187; Appaya Nijlingappa v Subrao Babaji, AIR 1938 Bom 108; Mohan Singh v Janki Dass, AIR
1937 Lah 241.
140 IBP Company v Uday Singh Jeet Ram, AIR 2004 P&H 300.
141 Bharat Kumar v UOI, AIR 2005 Raj 124.
142 UOI v Dhariwal & Co, AIR 2007 NOC 496 (Raj).
143 V Anjaneya Setty v MG Bros, AIR 1981 AP 250.
144 Shivpujan Yadav v Bishnudeo Prasad, 2010 SCC OnLine Jhar 1096 : AIR 2011 Jhar 40 : 2011 AIR CC 736 : (2011) 1
AIR Jhar R 236 : (2010) 4 JLJR 36 (HC).
145 Atchut Shirodkar v Dias Luis & Associates, 2011 SCC OnLine Bom 76 : 2011 (113) BomLR 273.
146 Gopalji Gupta v Additional District Judge, 2013 SCC OnLine All 14305 : (2014) 106 ALR 139 : (2014) 124 RD 355.
147 Ravi Bansal v Maa Bhagwati Associates, 2014 SCC OnLine P&H 7643.
148 Rukhiben v Dipakkumar Thakorelal C Adhuria, 2010 SCC OnLine Guj 12860; AT Goyee Enterprises v Nand Lal Rathi,
2011 SCC OnLine Cal 656.
149 Padam Singh Jain v Chandra Brothers, AIR 1990 Patna 95 : 1990 (1) PLJR 797.
150 Sandhya Anthraper Kurishingal v Manju Kathuria, 2013 SCC OnLine Kar 10122 : (2014) 1 KCCR 347 (DB) : (2014) 1
AIR Kant R 254 : AIR 2014 Kar 21 [Held, each of the partner is entitled to claim his right to the immovable property of
the firm, as co-owner.]
151 Hindi Printing Press v Manjit Singh Sole Proprietor, 2010 SCC OnLine Del 200 : 2010 (115) DRJ 193
152 SB Steel Industries v India Re-Rolling Mills, A Partnership firm, 2009 SCC OnLine Mad 1448 : 2009-5-LW 422.
153 Central Bank of India v Sagdeo Towers, 2007 SCC OnLine Bom 437 : 2007 (4) MhLJ 123.
154 Yessay Foodoils v PA Moosa, 2008 SCC OnLine Kar 491 : ILR 2009 KAR 724.
155 Mohd Laiquiddin v Kamala Devi Misra, (2010) 2 SCC 407 : JT 2010 (1) SC 440.
156 Saikat Dey v Dukhiram Paul, 2015 SCC OnLine Cal 6578 : AIR 2015 Cal 351.
157 Tapas Hazra v Subir Mullick, 2015 SCC OnLine Cal 1870 : (2015) 4 ICC 696.
158 Kaiparath Achuthan v Kaiprath Kumaran, 2016 SCC OnLine Ker 20813 : (2016) 4 KLT 546 : (2016) 4 KLJ 608.
159 Rupchand v Laxman, 2018 SCC OnLine Bom 34 : 2018 (2) MhLJ 356; See also Chandraiyya Mutwayya Irabolti v
Sidram Ganpat Ingle, AIR 2006 Bom 76 : 2006 (1 ) BomCR 36.
160 SB Steel Industries v India Re-rolling Mills, 2017 SCC OnLine Mad 1390 : (2017) 3 CTC 449.
161 Pochareddy Radhakrishna Reddy v Gopalakrishna Rice Mill, Gudur, 2007 SCC OnLine AP 50 : (2007) 5 ALD 162.
162 Ashutosh Chakraborty v UOI, 2009 SCC OnLine Cal 2354; Vivekananda Enterprises v State of West Bengal, 2010
SCC OnLine Cal 1243 : (2010) 4 CHN 923 (Cal).
163 Hindustan Shipping Agency v UOI, 2009 SCC OnLine Cal 671 : (2009) 2 CHN 319 : (2009) 2 Cal LJ 241.
164 Khalid Nizami alias Sullu v State of UP, 2010 SCC OnLine All 888 : (2010) 4 All LJ 476 : (2010) 110 RD 368. It is most
respectfully submitted that judgment seems to be erroneous. Even on facts, the unregistered firm had inter alia prayed
for declaring certain statutory byelaw to be ultra vires the Constitution of India. The Court, in most respectful
submission, erred in not appreciating that the writ petition did not arise out of enforcement of rights under a contract but
sought enforcement of fundamental rights of the individual partners and a declaration of a delegated legislation being
unconstitutional.
165 RS Leather Exports v Central Bank of India, 2009 SCC OnLine Mad 3033 : (2009) 4 BC 350 (DB); Indian Bank, Adyar
Branch v Nippon Enterprises South, 2011 SCC OnLine Mad 359 : 2011 (2) CTC 474.
166 Rathore Trading Co v Harminder Kaur, 2010 SCC OnLine Chh 193 : (2010) 96 AIC 504 : 2010 AIHC (NOC 992) 305.
167 Kewal Kishan v Khurana Kaj House, 2010 SCC OnLine Del 3534 : ILR (2011) I DELHI 543.
168 Haryana Glue Works v Kapoor Singh, 2011 SCC OnLine P&H 1794 : 2012 ACJ 982.
169 Bharat Heavy Electricals Ltd v Sanjay Paliwal, 2012 SCC OnLine Utt 1658 : 2013 (2) UC 1137.
170 Valji Shamji Chheda v Bhuderbhai Bajidas Patel, 2012 SCC OnLine Bom 1683 : 2013 (1) MhLJ 650.
171 Vee Bee Industries v Sanghi Spinners (India) Ltd, 2012 SCC OnLine AP 1121 : (2014) 184 Comp Cas 88 : (2014) 122
CLA 69.
172 Arun Chorone Roqitte v Oriental Venetian Blinds, 2014 SCC OnLine Cal 21399 : (2015) 145 AIC 772 : (2015) 1 Cal LT
6 : (2015) 1 Cal LJ 546 : (2015) 2 ICC 1 : (2015) 1 CHN 453.
173 Annapoorna Fertilizers v Arunodaya Fertilizers, AIR 1994 AP 157; P Venkateswarlu v C Lakshmi Narasimha Rao, AIR
2002 AP 62, para 15.
174 Andhra Pradesh Co-operative Wool Spinning Mills Limited v G Mahanandi and Company Wool Merchants, AIR 2003
AP 418.
175 Andavar Finance Corporation v Murthy, AIR 2000 Kar 236, para 6.
176 Preeti Chandra v Kauten Kraft, 2014 SCC OnLine Del 4226 : LNIND 2014 DEL 3006.
177 MSPL Limited v SB Minerals, 2007 SCC OnLine Kar 507 : AIR 2008 Kar 60 : (2008) 2 Kant LJ 131 : (2008) 2 AIR Kant
R 207.
178 Mangilal Jagrupji Jain v Bharat Shankarlal Dhakad (HUF), 2011 SCC OnLine Bom 1234 : 2012 (1). MhLJ 587; See also
Goverdhandoss Takersey v M Abdul Rahiman, AIR 1942 (29) Mad 634 : LNIND 1942 MAD 108; VR Wonder Electricals
and Electronics v C-Quest Capital Green Ventures Pvt Ltd, 2012 SCC OnLine Del 3708.
179 Kalyan Sahai v Firm Lachminarain, AIR 1951 Raj 11. Parties directed to raise the requisite pleadings with regard to the
effect of section 69(1); Agostinho D’Mello v Pratap Srinivas Bakal, AIR 1976 Goa 6, p 8; Arunachalam & Co v
Sadasivam, AIR 1985 Mad 354, p 357 holding that the question whether name of a partner is shown in the Register of
Firms or not cannot be raised for the first time in a Second Appeal; NA Munavar Hussain Sahib v ER Narayanan, AIR
1984 Mad 47, p 60, holding that, if the plea of bar of section 69 is not taken in the written statement, it would not be
allowed to be raised at a later stage in the proceedings, KC Bishwas & Sons v Central Alkusa Colliery Co, AIR 1973
Pat 184. In a suit by a partnership firm, the issue whether the firm is registered must be determined as a preliminary
issue, since the suit is liable to be dismissed if it is not registered by virtue of section 69(2). In a case where the trial
court dismissed the suit solely on the ground that the palintiff firm was not registered under section 69 and the appellate
court rejected the application made in the course of the appeal by which a prayer was made to implead a party as co-
plaintiff to indicate that the transaction was with his sole proprietary concern and not with the plaintiff firm, the Orissa
High Court allowed such amendment holding that though a new case was sought to be introduced by the plaintiff, no
irreparable loss or injury was caused to defendant, General Traders v Tambhu Bisoi, AIR 1986 Ori 125.
180 Basant Lal Jain v UOI, AIR 1965 Pat 426; MJ Velu Mudaliar v Sri Venkateswara Finance Corpn, AIR 1971 AP 63, to
the extent that this case holds that the plea of want of registration can be waived is doubtful.
181 Jalal Mohammed Ibrahim v Kaka Mahommed Ghouse Sahib, AIR 1972 Mad 86.
182 Sheo Dutt v Pushi Ram, (1946) All 591 : AIR 1947 All 229.
183 Sri Baba Commercial Syndicate v Channammasetti Dasu, AIR 1968 AP 378.
184 Ram Kumar v Kishorilal, AIR 1946 All 259 : 222 IC 231; Punnaya v Bhadraiya, AIR 1948 Mad 441 : (1948) 1 Mad LJ
394; Appaya Nijalingappa Hattargi v Subbarao Babaji Teli, 39 BLR 1214; Bilasroy v The Scindia Steam Navigation Co
Ltd, AIR 1940 Rang 294.
185 Shanmugha Mudaliar v Rathina Mudaliar, AIR 1948 Mad 187.
186 Paras Ram Ram Sarup v Baldev Sahai Ram Bhagati, AIR 1963 Punj 215.
187 Plaintiff obtaining a lease of right to collect market dues, plaintiff subsequently admitting two other persons as co-
plaintiffs in the contract. The suit for enforcing the contract not barred by the section on account of the partnership not
having been registered as partnership came into existence after lease was taken by the plaintiff in his individual
capacity; Dropadi Devi v Ram Das, AIR 1974 All 473; Chimanlal v Firm New India Traders Mica Merchants, AIR 1962
Pat 25, but see Badrimal Ramcharan & Co v Gana Kaul & Sons, AIR 1971 J&K 109; Firm Alwar Iron Syndicate v UOI,
AIR 1970 Raj 86; Krishna Chandra Agarwalla v Shanti Prasad Jain, AIR 1981 Cal 199.
188 Butamal Dev Raj v Chanan Mal, AIR 1964 Punj 270; Ram Kumar Shew Chand Rai v UOI, AIR 1977 Cal 37, para 7;
Mohatta Bros v The Bharat Sarvodaya Mills Co Ltd Ahmedabad, AIR 1976 SC 1703.
189 P Ananda Rao v G Raja Rao, AIR 1976 AP 256.
190 Reta Steel v Jamuddin & Bros, (1998) 1 Mah LJ 416.
191 Syed Irfan Sulaiman v New Amma Hospitals, 2016 SCC OnLine Hyd 377 : AIR 2017 Hyd 18 : (2017) 1 ALT 335 (DB).
192 Abdul Gaffoor v Abdurehiman, (1999) 2 Ker LT 634; See also Jothi Sarees v Pon Muruganatham, 2006 SCC OnLine
Mad 147 : 2006 (1) MWN (Cr) (DCC) 45; BS Bakshi v State of Delhi, 2006 SCC OnLine Del 1306 : 2006 (92) DRJ 525;
Metal Aids v State of Uttarakhand, 2014 SCC OnLine Utt 119; New Kruba Jeweller v Kanchana, 2016 SCC OnLine
Mad 31644 : [2017] 139 SCL 264 (Madras); Karthick & Co v Vadivel Sizing & Weaving Mills Private Ltd, 2012 SCC
OnLine Mad 1276 : 2012-4-LW 510.
193 Mehta Credit v Deeraj Dua, 2013 SCC OnLine P&H 8181 : ILR (2014) 2 P&H 197 [Held, section 69 of the Partnership
Act, 1935 confined to the right arising out of the contract for instituting a civil suit and the said provision is not applicable
in respect of complaint under section 138 of the Act.]: Capital Leasing and Finance Co v Navrattan Jain, 2005 (4) RCR
(Criminal) 330 : 2005 (4) RCR (Civil) 208 [Held, In the case in hand the complainant has a statutory claim in terms of
section 138 N.I. Act. Even otherwise section 69 of the Partnership Act, 1932 is confined to enforcement of a right
arising out a contract by instituting a suit or other proceedings by an unregistered firm. The criminal complaint that has
been filed cannot be treated as a suit or other proceedings to enforce any rights arising under a contract. Therefore,
there is no bar to the criminal complaint that has been filed and the nonregistration of the firm would not bar the
prosecution of an accused on the ground that the firm was not registered.] See also, Rama Rice Mill v Ram Dia Mal
Shiv Dhan Mal, 2010 SCC OnLine P&H 7094.
194 Abdul Gaffoor v Abdurehiman, (1999) 2 Ker LT 634 [Held, the effect of non-registration of the Partnership Firm under
section 69 of the partnership Act, 1932 is applicable only to cases involving civil rights and it has no application to
criminal cases.] Also see Kerala Arecanut Stores v Ramkishore and Sons, AIR 1974 Ker 144.
195 Beacon Industries v Anupam Ghosh, ILR 2003 KAR 4325 : LNIND 2003 KANT 675; [Rel on BSI Ltd v Gift Holdings Pvt
Ltd, 2000 SCC (Cri) 538, which held: “.... A criminal prosecution is neither for recovery of money nor for enforcement of
any security etc. Section 138 of the Negotiable Instruments Act, 1881 is a penal provision the commission of which
offence entails a conviction and sentence on proof of the guilt in duly conducted criminal proceedings. Once the offence
under section 138 is completed the prosecution proceedings can be initiated not for recovery of the amount covered by
the cheque but for bringing the offender to penal liability.”] Foll. in Gowri Containers v SC Shetty, 2007 SCC OnLine Kar
624 : 2008 Cr LJ 498.
196 Smt Rani Kapoor v Silvermount, 2017 SCC OnLine Del 8985 : (2017) 242 DLT 363 : (2017) 180 AIC 763 [Held,
proceedings under section 138 of the Negotiable Instrument Act, 1881 are not recovery proceedings and in a given
case the criminal Court may only award sentence of imprisonment.] Also see BS Bakshi v State of Delhi, 2006 SCC
OnLine Del 1306 : (2006) 92 DRJ 525 : (2006) 134 DLT 707.
197 Indrajit Gogoi v Auto Sales and Services Station, 2008 SCC OnLine Gau 417 : (2008) 3 GLR 440; Dabasree Das
Baishnab v FI Multimedia Consultants, 2009 SCC OnLine Gau 564 : (2010) 2 BC 637.
198 Joti Sarees v Pon Muruganatham, 2006 SCC OnLine Mad 147 : (2006) 1 MWN (Cri) DCC 45 : (2006) 1 Mad LJ 390;
Karthick & Co V Vadivel Sizing & Weaving Mills Private Ltd, 2012 SCC OnLine Mad 1276 : (2012) 4 LW 510 : (2012) 3
MWN (Cri) DCC 49; Pandiyan Finance v K Periyasamy, 2017 SCC OnLine Mad 18595 : 2017-1-LW (Crl) 769 : 2017 (2)
MLJ (Crl) 598 : [2017] 141 SCL 98(Madras).
199 Asit Dutta v State of WB, 2010 SCC OnLine Cal 588 : (2010) 93 AIC 762 : (2010) 2 Cal LT 567 : (2010) 2 Cal LJ 4 :
(2010) 70 ACC (Sum 71) 20 : (2010) 4 BC 243.
200 Gurcharan Singh v State of UP, 2002 Cr LJ 3682 : LNIND 2002 DEL 766.
201 Amit Desai v Shine Enterprises, 2000 Cr LJ. 2386 : (2000) 4 ICC 224 (AP) (DB) : (2001) 107 Comp Cas 22 [Held,
Explanation to section 138 of the Negotiable Instruments Act, 1881 specifically lays down that the debt or other liability
means a legally enforceable debt or other liability. Enforcement of legal liability has to be in the nature of civil suit
because the debt or other liability cannot be recovered by filing a criminal case and when there is a bar of filing a suit by
unregistered firm, the bar equally applies to criminal case as laid down in explanation (2) of section 138 of the
Negotiable Instruments Act.]
202 Sai Accumulator Industries v Sethi Brothers, 2016 SCC OnLine Bom 2287 : 2016 (5) Mh.L.J. 936. See also Sadashiv
Pandurang Chavan v Ramakant Mahadeo Manerkar, 2009 SCC OnLine Bom 1265 : 2009 (6) Mh.L.J. 783 where it is
held that a complaint under section 138, Negotiable Instrument Act, 1881 for dishonour of a cheque issued under a
Memorandum of Understanding after the dissolution of the firm is not hit by section 69(1).
203 The Supreme Court has held in Umesh Goel v Himachal Pradesh Cooperative Group Housing Society Limited, (2016)
11 SCC 313 : 2016 (5) Scale 844 : AIR 2016 SC 3116; that the foundation for the application of the said sub-section
should be the initiation of a suit in which a claim of set-off or other proceedings which intrinsically connected with the
suit arise and not otherwise.
204 Synco Industries Ltd v Assessing Officer, Income Tax, (2008) 4 SCC 22 : JT 2008 (4) SC1, pr. 26
205 Jagdish Chander Gupta v Kajaria Traders (India) Limited, AIR 1964 SC 1882.
206 Delhi Development Authority v Kochhar Construction Work, (1998) 8 SCC 559.
207 Ninan & Co v National Projects Construction Corporation Ltd, 2007 SCC OnLine Del 97 : ILR (2007) II DELHI 14.
208 Indian Oil Corporation Limited v Devi Constructions, Engineering Contractors, 2009 SCC OnLine Mad 685 : 2009 (2)
CTC 791 [Held, bar is applicable to a suit or other proceeding instituted in any Court and would not include a reference
to an Arbitrator.].
209 (2016) 11 SCC 313 [reversed Himachal Pradesh Cooperative Group Housing Society v Umesh Goel, 2007 SCC
OnLine Del 1532 : ILR (2008) I DELHI 1353]; See also Texfield Engineers v Texteema Engineering Industries, 2010
SCC OnLine Mad 2699 : 2010 (6) CTC 46. The judgment of Chhattisgarh High Court in CM Makhija v South Eastern
Coalfields Ltd, (2015) 1 HCC (Chh) 404 : AIR 2016 Chh 63 holding that application for appointment of an arbitrator by
an unregistered firm being not maintainable would stand impliedly overruled in view of the Supreme Court judgment in
Umesh Goel (supra).
210 Firm Ashok Traders v Gurumukh Das Saluja, (2004) 3 SCC 155 at paras 12 to 14. It may be noted that at para 10, the
court clarified that it is only a prima facie opinion without going in depth into the issue since a prolonged hearing and
decision would have taken time and that would have had a devastating effect on the rights of the parties. [Noted in
Arvind Constructions Co (P) Ltd v Kalinga Mining Corpn, (2007) 6 SCC 798 : AIR 2007 SC 2144 : JT 2007 (8) SC 32
and Jayraj Devidas v Nilesh Shantilal Tank, 2014 SCC OnLine Bom 900 : 2014 (6) Mh.L.J. 156]. The prima facie view
of the Supreme Court was also noted by the Calcutta High Court in Magma Fincorp Ltd v Bunty JCB Earth Movers,
2010 SCC OnLine Cal 118 by holding that the Supreme Court did not express any definite opinion as regards non-
applicability of section 69 to an application under section 9, Arbitration and Conciliation Act, 1996. In SK Vijayakumar v
SK Ravikumar, 2006 SCC OnLine Kar 598 : ILR 2006 KAR 4611, section 9 application is held to be not barred when
the final claim relates to dissolution of partnership. The Delhi High Court in ESS VEE Traders v Ambuja Cement
Rajasthan Ltd, 2006 SCC OnLine Del 699 : 2006 (90) DRJ 29, without taking note of the Supreme Court judgment in
Firm Ashok Traders (supra) and by relying upon Jagdish Chander Gupta (supra) held that an application under section
11, Arbitration and Conciliation Act, 1996 by an unregistered firm is not maintainable. See also, Abhishek Soni v
Sanjeev Soni, 2016 SCC OnLine Raj 2816 : AIR 2016 Raj 102 : (2016) 3 WLC 759; Apex Realty Pvt Ltd v Government
of Republic of Maldives, 2017 SCC OnLine Bom 8072. The Bombay High Court has, in Masood Mohmmed Husain v
Gulam Rasul Mohammedali Shaikh, 2006 SCC OnLine Bom 1239 : 2007 (2) Mh. L.J. 116, held that an application
under section 9 of the Arbitration and Conciliation Act, 1996 moved by a partner of an unregistered firm is maintainable
is more appropriate as it enables the parties to avail of a remedy which otherwise would not have been available by
virtue of sub-section (2A) of section 69 introduced by the Maharashtra Legislature. This was further followed in
Ravinder Singh Ahluwalia v Kuljinder Singh Ahluwalia, 2009 SCC OnLine Bom 712 : 2009 (5) Mh.L.J. 170. It may be
noted that the Supreme Court has declared section 69(2A) as inserted by the Maharashtra amendment invalid in V
Subramaniam v Rajesh Raghuvandra Rao, (2009) 5 SCC 608 : 2009 (4) Scale 459 : AIR 2009 SC 1858 [for details,
see ‘State Amendments – Maharashtra’ below].
211 Jayamurugan Granite Exports v SQNY Granites, 2015 SCC OnLine Mad 6848 : 2015-4-L.W. 385; Abhishek Soni v
Sanjeev Soni, 2016 SCC OnLine Raj 2816 : AIR 2016 Raj 102 : (2016) 3 WLC 759; Monojit Das v Sujit Roy
Chowdhury, 2017 SCC OnLine Cal 3781 : AIR 2017 Cal 246 [on facts, an arbitrator was appointed]; Columbia Holdings
Private Limited v SSP Developers Pvt Ltd, 2016 SCC OnLine Del 4433 : (2016) 159 DRJ 81; Dattatray N Sawant v
Nitida A Mehta, 2015 SCC OnLine Bom 1366 : (2015) 4 Bom CR 283 : (2016) 1 AIR Bom R 565 : AIR 2016 (NOC 403)
193.
212 Sunrise Industries v Roshan Lal Aggarwal, 2012 SCC OnLine Del 788 : 2012 (128) DRJ 235.
213 Abhishek Bhiwaniwala v Yumto Bui, 2013 SCC OnLine Cal 2402 : LNINDORD 2013 CAL 16632.
214 Kamal Pushpa Enterprises v DR Construction Company, (2000) 6 SCC 659 : AIR 2000 SC 2676; P Venkateswarlu v C
Lakshmi Narasimha Rao, AIR 2002 AP 62. See also Chanduki Nathibai Shah v Champaklal Ambalal Parikh, (1993)
Mah LJ 1267 : AIR 1994 Bom 16; Kamal Pushp Enterprises v DR Const Co, Guna, Madhya Pradesh, (1996) MP LJ
240; Satya Nirmata v UOI, 2011 SCC OnLine Del 1432 : (2011) 179 DLT 747.
215 Ram Nandan Prasad Sinha v KM Consultants, AIR 2002 Bom 90, para 8.
216 Om Prakash v Usha Rani, AIR 2002 NOC 62 (Del).
217 Prem Chand v Ankita Soni, 2010 SCC OnLine HP 2430; Ponnusamy v KK Subramaniam, 2010 SCC OnLine Mad
3516.
218 Mukund Balakrishna Kulkarni v Kulkarni Powder Metallurgical Industries, (2004) 13 SCC 750, para 10; Pinky Jain v
Ameya Universal Project Pvt Ltd, 2017 SCC OnLine Del 8560 : (2017) 240 DLT 631 (DB); Satyajit Maity v RSS Bricks
Works (Brand Deep), 2008 SCC OnLine Cal 38 : (2008) 3 Cal LT 504 : (2009) 1 ICC 852 (CAL); Sarla Bala Sinha v
Sarat Chandra Sinha, 2015 SCC OnLine Del 9097 : LNIND 2015 DEL 2928; Shantappa v Irappa Shankarappa, 2009
SCC OnLine Kar 64 : (2009) 6 Kant LJ 257; Hukumchand Bhaulal Patani v Dhanlal Premraj Kale, 2010 SCC OnLine
Bom 108 : (2010) 3 Bom CR 162 : (2010) 4 AIR Bom R 200; Justin CK v Sealand Timbers, 2017 SCC OnLine Ker 9454
: (2017) 3 KLJ 657.
219 Lekh Ram v Lajya, 2010 SCC OnLine HP 2596; Nagesh Kumar v Kapoor Chand, 2011 SCC OnLine P&H 5844.
220 Shavak Burjorjipatell v Jamshid Kersidalal, 2011 SCC OnLine Bom 877 : 2011 (6) Mh. L.J.548.
221 Narmada Pipes Pvt Ltd v Harshadbhai Himatbhai Rupani, 2010 SCC OnLine Guj 4251.
222 Shanmugha Mudaliar v PV Rathina Mudaliar, AIR 1948 Mad 187 (DB).
223 KK Khosla v Addl District Judge XIV, 2013 SCC OnLine All 14040 : (2014) 2 All LJ 117 [Held, a suit for rendition of
accounts after dissolution by a partner of an unregistered firm is maintainable.] Sunita Dogra v Puran Chand, 2013
SCC OnLine HP 2518 [Held, When a decree of dissolution is passed, it must be followed by an order of rendition of
accounts.]
224 State Bank of India v Rajesh Chandra, 2016 SCC OnLine Del 94 : (2016) 227 DLT 110 : (2016) 160 AIC 659.
225 Bhartesh Chandra Jain v Shoiab Ullah, (2004) 13 SCC 358, para 5.
226 Gurdip Kaur v Jaswant Kaur Virk, 2008 SCC OnLine P&H 1582 : (2009) 2 RCR (Civil) 766.
227 Bhadraben Vinodray Modi v Narendra Maganlal Shah, 2009 SCC OnLine Guj 11581 : 2010 AIHC 903.
228 Kanwaljit Singh v Jarnail Singh, 2006 SCC OnLine P&H 1467 : (2007) 2 RCR (Civil) 79 : PLR (2007) 145 P&H 65.
229 (2016) 11 SCC 313 [Held, counter-claim in an arbitration is not barred by section 69(3) since the foundation of such
proceeding is not a suit.] It is submitted that the judgment of the Madras High Court in Texteema Engineering Industries
v Texfield Engineers, 2016 SCC OnLine Mad 17772 holding that arbitral proceedings are not maintainable in view of
section 69(3) would stand impliedly overruled in view of the Supreme Court judgment in Umesh Goel (supra). The Delhi
High Court has held in Raj Pal Manchanda v Kamal Kishore Manchanda, 2010 SCC OnLine Del 2690 : 2010 (119) DRJ
522 that arbitration proceedings can be initiated by a partner of an unregistered firm seeking dissolution of the firm. It
distinguished the judgment of the Supreme Court in Krishna Motor Service v HB Vittala Kamath, (1996) 10 SCC 88 :
AIR 1996 SC 2209 : JT 1996 (5) SC 162; by holding that the said case dealt with the Arbitration Act, 1940, which did
not contain a provision similar to section 16, Arbitration and Conciliation Act, 1996.
230 Om Parkash v Narinder Kumar Sharma, 2011 SCC OnLine P&H 5765 : 2012 AIR CC 723.
231 Chhagan Lal Gupta v State of Uttar Pradesh, 2008 SCC OnLine All 426 : (2008) 5 ALL LJ 89 : (2008) 72 ALR (SUM 83)
35.
232 Sat Pal v Puran Singh, 2008 SCC OnLine P&H 287 : (2008) 3 RCR (CIVIL) 433 : PLR (2008) 150 P&H 651; Mirza
Najm Effindi v Firm Kohinoor Footwear Co, AIR (33) 1946 All 489 : (1946) 16 AWR 619.
233 Krishna Motor Service v HB Vittala Kamath, (1996) 10 SCC 88 : AIR 1996 SC 2209 : JT 1996 (5) SC 162, para 6;
Kirtikumar Fakrichand Mehta v Dilipkumar Jayantilal Sanghvi-Huf, 2013 SCC OnLine Guj 2942 [Held, The right to seek
dissolution is a matter of interpretation of contract and would, therefore, not come under the exception under.
234 Dinesh Jangid v Laxmi Kant Jangid, 2007 SCC OnLine Raj 32 : AIR 2007 Raj 203 : (2007) 5 All LJ (NOC 912) 323 :
(2007) 4 Arb LR 434.
235 Mulakh Raj v Shashi Rani, AIR 2005 Del 374, para 10; Columbia Holdings Private Limited v SSP Developers Pvt Ltd,
2016 SCC OnLine Del 4433 : (2016) 159 DRJ 81.
236 Vaiyapuri v M Sundaresan, AIR 2002 Mad 28, p 32.
237 Ramesh Choubey v Dulari Kuer, AIR 2006 Pat 167, para 5.
238 Ramesh Kumar Bhalotia v Lalit Kumar Bhalotia, AIR 2001 Pat 174.
239 Sri Baba Commercial Syndicate v Channamasetti Dasu, AIR 1968 AP 378.
240 Bharat Prasad v Paras Singh, AIR 1964 All 15. Where a suit is dismissed for want of registration, a fresh suit is not
barred; Sri Baba Commercial Syndicate v Channamasetti Dasu, AIR 1968 AP 378. Suit to realise property from a
partner or third party, Basantlal Jalan v Chiranjilal Sarawgi, AIR 1968 Pat 96; Navinchandra Jethabhai v Mulchand
Sadaram Gindodiya, AIR 1966 Bom 111; Rampa Devi v BN Puri, AIR 1976 All 19, holding that non-registration of a firm
is a bar to proceedings mentioned in section 69(1), (2), but non-registration of a firm does not bar proceedings under
section 69(3), (4). A suit for rendition of accounts under section 69(3) of an unregistered firm held maintainable.
241 Radheysham v Beni Ram Moolchand, AIR 1967 All 28; Krishnan Neelakantan v Krishnan Kochukannon, AIR 1967 Ker
96; Shanmugha Mudaliar v PV Rathina Mudaliar, AIR 1948 Mad 187; Ram Kumar Shew Chand Rai v UOI, AIR 1977
Cal 37, para 7; Nirmal Chand v Jagan Nath, AIR 1982 NOC 139 (HP), suit for possession of premises of partnership
business, rent as damages and damages for unauthorised use of goodwill of an unregistered partnership firm held to
be maintainable; Budheswar v Jatindra Nath, AIR 1976 Gau 12, holding that bar under section 69(1), (2) does not apply
to a dissolved firm and partner of such a firm can sue his erstwhile partner for rendition of accounts.
242 Rajabali Jadavji Popatiya v Karim Rajabali Popatiya, 2014 SCC OnLine Guj 5483 : (2014) 142 AIC 697 : (2015) 2 CCC
634.
243 Shoib Ullah v Bhartesh Chandra Jain, AIR 2003 All 31.
244 (1991) 2 Guj LR 825; Bhagwanji Morarji Gokuldas v Alembic Chemical Works Co Ltd, AIR 1943 Bom 385; Loonkaran
Sethia v Evan E John, AIR 1977 SC 336; Kavita Trehan v Balsara Hygiene Prod Ltd, AIR 1992 Del 92; T Savariraj Pillai
v RSS Vastrad & Co, AIR 1990 Mad 198.
245 Bhagwanji Morarji Goculdas v Alembic Chemical Works Ltd, AIR 1943 Bom 385.
246 T Savariraj Pillai v RSS Vastrad & Co, AIR 1990 Mad 198 and of the Delhi High Court in Kavita Trehan v Balsara
Hygiene Products Ltd, AIR 1992 Del 92.
247 Abdul Salim v Shamim Ahmad, 2017 SCC OnLine MP 1757 : 2018 (1) MPLJ 337.
248 Wahid Hussain v Md Hasan, AIR 1961 All 409.
249 Kajaria Traders (India) Ltd v Foreign Import and Export Assn, AIR 1961 Bom 65; Rampa Devi v BN Puri, AIR 1976 All
19, holding that a dispute may be referred to arbitration without a court’s intervention but an unregistered firm cannot
move a court to enforce the arbitration clause. An arbitration clause in the partnership deed is not invalidated by the
non- registration of a firm.
250 Babulal v Gautam & Co, AIR 1950 Cal 391; Mahendra Lal v Gurdeyal Singh, AIR 1951 Pat 196.
251 Jagdish Chandra v Kajaria Traders (India) Ltd, AIR 1964 SC 1882. (The Delhi High Court in HC Chopra v VC Mehta,
(1999) DLT 537 found a conflict between the decision of Supereme Court in Jagdish Chandra and a later decision in
Premlata v Ishar Dass Chamanlal, AIR 1995 SC 714 and adopted the law laid down in Jagdish Chandra).
252 Neeraj Khullar v Virender Kumar Khullar, 2012 SCC OnLine Del 1901 : LNIND 2012 DEL 339.
253 Tapadiya Construction Ltd v Sanjay Suganchand Kasliwal, 2015 SCC OnLine Bom 6781 : 2016 (6) Mh.L.J. 768 [On
facts, it was found that Sanjay did not want the relief of dissolution of the partnership in the adjudication. Thus, the
partnership was in existence and Sanjay had no intention to go for dissolution of the partnership. In view of this nature
of dispute raised by Sanjay, the Bombay High Court held that the bar given by section 69(3) is applicable against
Sanjay.]
254 Kiran Agrawal v Ashok Kr Agrawal, 2013 SCC OnLine All 13334 : (2013) 100 ALR 482 : (2013) 132 AIC 283 : (2014) 1
All LJ (NOC 67) 23.
255 Mazibar Rahman Khan v Dharma Kanta Das, AIR 1981 NOC 47 (Gau).
256 Iqbal Singh v Ram Narain, AIR 1977 All 352, p 353; Paras Ram Darshan Lal v UOI, AIR 1979 Del 135; Ramji Dass v
Durga Dass, (1979) 81 Punj LR 673.
257 Mohd Monirul Hasan v Mohd Iftikar Ahmed, AIR 2000 Gau 108, para 13.
258 Premlata v Ishar Dass Chaman Lal, (1995) 2 SCC 145; Prabhu Shankar Jaiswal v Sheo Narain Jaiswal, (1996) 11 SCC
225; Mulakh Raj v Shashi Rani, AIR 2005 Del 374.
259 Jagat Mittar Saigal v Kailash Chander Saigal, AIR 1983 Del 134, pp 141, 142; Iqbal Singh’s case above dissented from.
260 Lal Chand Roshanlal v Ghulam Mahommed Nazir Ahmed, AIR 1986 J&K 53, p 54.
261 First National Bank v Industrial Oil Co, AIR 1962 Punj 170; Kerala Arecanut Stores v Ramkishore & Sons, AIR 1975
Ker 144. Unregistered firm, suit by partner for recovery of money on dishonour of cheque endorsed in favour of firm is
not barred, Negotiable Instruments Act, 1881, sections 36, 37 and 93.
262 Sri Baba Commercial Syndicate v Chennamasetti Dasu, AIR 1968 AP 378.
263 Pradip Kumar Dutta v Gopal Chandra Bose, AIR 1981 Cal 85.
264 (2016) 11 SCC 313 [reversed Himachal Pradesh Cooperative Group Housing Society v Umesh Goel, 2007 SCC
OnLine Del 1532 : ILR (2008) I DELHI 1353].
265 Md Khalil Rahaman v Bhagabati Charan Roy, AIR 1978 Cal 321, p 323.
266 The amendment has been held to be unconstitutional by the Supreme Court (for details, see below).
267 Adamji Lookmanji & Co v State of Maharashtra, 2006 SCC OnLine Bom 967 : AIR 2007 Bom 56 : (2007) 1 Mah LJ 408.
268 Surjansingh v Jasbir Kaur, 2007 SCC OnLine Bom 1046 : 2008 (2) Mh.L.J. 763.
269 (1987) Mah LJ 885 : AIR 1987 Bom 348; and Swiss Bank Corpn v Jai Hind Oil Mills Co, (1941) 1 Bom CR 371; and of
Calcutta High Court in Sunderlal & Sons v Yogendra Nath Singh, AIR 1976 Cal 471.
270 Pawan v Asian Dye Chemicals, 2007 SCC OnLine Bom 955 : (2008) (1) Mh.L.J. 290.
271 (2009) 5 SCC 608; Shavak Burjorjipatell v Jamshid Kersidalal, 2011 SCC OnLine Bom 877 : 2011 (6) Mh. L.J.548.
272 Salem Chit Funds & Financiers Assn v State of Tamil Nadu, 1991 Mad LJ 46.
End of Document
[s 70] Penalty for furnishing false particulars.—


Any person who signs any statement, amending statement, notice or intimation under this Chapter containing
any particular which he knows to be false or does not believe to be true, or containing particulars which he
knows to be incomplete or does not believe to be complete, shall be punishable with imprisonment which may
extend to three months, or with fine, or with both.
Maharashtra
(1) In section 70, for the words “shall be punishable with imprisonment Which may extend to three months, or
with fine, or with both,” substitute the following words, namely:-
shall, on conviction, the punished with imprisonment for a term which may extend to one year, or with fine, or with both:
Provided that in the absence of special and adequate reason to the contrary to be mentioned in the judgment of the
Court, the fine shall not be less than one thousand rupees.
[Vide Maharashtra Act 29 of 1984, sec. 15 (w.e.f. 1-1-1985)]. (2) After section 70, insert the following section,
namely:-
70A. Maximum fees and power to amend Schedule 1.—(1) The fees payable under this Act and the rules made
thereunder shall not exceed the maximum fees as specified in Schedule 1.
(2) Subject to the provisions of this section, the State Government may, having regard to the expenditure incurred or to
be incurred for carrying out the purposes of this Act, from time to time, by notification in the Official Gazette, vary any of
the amounts of maximum fees and other particulars specified in Schedule I, and, thereupon, the said Schedule shall be
deemed to be amended accordingly.
(3) Every notification issued under sub-section (2) shall take effect from the date of its publication in the Official
Gazette, unless some other date is specified therein for this purpose.
(4) Every notification issued by the state Government under sub-section (2) shall be laid, as soon as may be after it is
issued, before each House of the State Legislature, while it is in session, for a total period of thirty day, which may be
comprised in one session or in two successive sessions, and if, before the expiry of the session in which it is so laid or
the session immediately following, both Houses agree in making any modification in the notification or both Houses
agree that the notification should not be issued, and notify such decision in the Official Gazette, the notification shall,
from the date of publication of such decision, have effect only in such modified form or be no effect, as the case may
be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything
previously done or omitted to be done in pursuance of that notification.
This section requires no comment.
End of Document
[s 71] Power to make rules.—

(1) The 273[State Government] 274[may by notification in the Official Gazette make rules] prescribing the
fees which shall accompany documents sent to the Registrar of Firms, or which shall be payable for
the inspection of documents in the custody of the Registrar of Firms, or for copies from the Register of
Firms:
Provided that such fees shall not exceed the maximum fees specified in Schedule 1.
(2) The State Government may 275[also] make rules,—

(a) prescribing the form of statement submitted under section 58, and of the verification thereof;
(b) requiring statements, intimations and notices under sections 60, 61, 62 and 63 to be in prescribed
form, and prescribing the form thereof;
(c) prescribing the form of the Register of Firms, and the mode in which entries relating to firms are to
be made therein, and the mode in which such entries are to be amended or notes made therein;
(d) regulating the procedure of the Registrar when disputes arise;
(e) regulating the filing of documents received by the Registrar;
(f) prescribing conditions for the inspection oforiginal documents;
(g) regulating the grant of copies;
(h) regulating the elimination of registers and documents;
(i) providing for the maintenance and form of an index to the Register of Firms; and
(j) generally, to carry out the purposes of this Chapter.
(3) All rules made under this section shall be subject to the condition of previous publication.
276[(4) Every rule made by the State Government under this section shall be laid, as soon as it is made,
before the State Legislature.]
Andhra Pradesh
In section 71 in sub-section (1), after the proviso, insert the following proviso, namely:-
Provided further that the Fees payable under this Act, shall be collected in the form of Court-fee stamps which shall be
affixed to the documents sent to the Registrar of Firms.
[Vide Andhra Pradesh Act 27 of 1994, sec. 2 (w.e.f. 22-12-1994)].
Maharashtra
In section 71,—
(a) for sub-section (1), substitute the following sub-section, namely:-

(1) Subject to the provisions of section 70A, the State Government may, by notification in the Official
Gazette, make rules prescribing the fees which shall accompany documents sent to the Registrar
or which shall be paid in respect of any intimation, notice or application given to the Registrar or
which shall be payable for the inspection of documents in the custody of the Registrar or for copies
from the Register of Firms or which shall be paid for supply of any prescribed forms.;
(b) in sub-section (2),—
(i) in clause (a), for the words and figures “under section 58”, substitute the words, brackets and
figures “under sub-section (1) of section 58”;
(ii) after clause (a), insert the following clause, namely:—
(aa) prescribing the manner of filing an appeal under sub-section (4) of section 58;
(c) for sub-section (4), substitute the following sub-section, namely:—
(4) Every rule made under this section shall be laid, as soon as may be after it is made, before each
House of the State Legislature, while it is in session, for a total period of thirty days, which may be
comprised in one session or in two successive sessions, and if, before the expiry of the session in
which it is so laid or the session immediately following, both Houses agree in making any
modification in the rule or both Houses agree that the rule should not be made, and notify such
decision in the Official Gazette, the rule shall, from the date of publication of such decision, have
effect only in such modified from or be of no effect, as the case may be; so, however, that any such
modification or annulment shall be without prejudice to the validity of anything previously done or
omitted to be done in pursuance of that rule.
Section 71 does not empower the state government to prescribe the minimum period of limitation for the
submission of the intimations or notices under the Act. In the under mentioned cases rule framed by the state
governments prescribing time-limit for sending notice were held to be beyond the rule making power of the
state government and ultra vires the powers under section 71(2).277
273 Substituted by the AO 1937, for words ‘Governor-General in Council.’

274 Substituted by Act 20 of 1983, section 2 and Sch., for “may make rules” (wef 15 March 1984).
275 Inserted by AO 1937.
276 Inserted by Act 20 of 1983, section 2 and Sch. (wef 15 March 1984).
277 O Balanarayanan v Registrar of Firms, AIR 1984 Ker 20; Rajasthan Trading Co v Registrar of Firms, AIR 1975 AP 232.
End of Document
[s 72] Mode of giving public notice.—

Act, 8th ed > The Indian Partnership Act, 1932 > Chapter 8 Supplemental
CHAPTER 8 Supplemental

A public notice under this Act is given—
(a) where it relates to the retirement or expulsion of a partner from a registered firm, or to the dissolution of
a registered firm, or to the election to become or not to become a partner in a registered firm by a
person attaining majority who was admitted as a minor to the benefits of partnership, by notice to the
Registrar of Firms under s 63, and by publication in the Official Gazette and in at least one vernacular
newspaper circulating in the district where the firm to which it relates has its place or principal place of
business, and
(b) in any other case, by publication in the Official Gazette and in at least one vernacular newspaper
circulating in the district where the firm to which it relates has its place or principal place of business.
The contents of this final chapter, so far as are material to the application of particular operative provisions of
the Act, have already been referred to in the appropriate places.
A retiring partner who has not given notice as per the mode1 indicated in this section cannot escape liability on
the ground of his having given some notice in a different manner. He may, however, resort to some other
principle of law such as when the third party already knows the fact of his retirement from the partnership, there
is no scope for the application of the rule of estoppel to make such partner liable for the subsequent acts of the
firm.2 The Supreme Court in Kovai Yarn Traders v P Subramanium has held that it would not make the retiring
partner liable for future transactions since the firm was later continued as a proprietorship firm and then, a new
partnership firm was constituted.3
However, notice of death of a partner is not requisite to prevent liability from attaching to his estate for what
may be done by the co-partners after his death. Moreover, as seen, if one partner becomes insolvent, his
authority ends and his estate cannot be made liable for the subsequent acts of his solvent co-partners. Even
when a dormant partner (who is not known to be a partner) retires, the authority of his late partners to bind him
ceases on his retirement, although no notice be given.4
1 Kamangar and Company v AL Byahatti and Sons, 2011 SCC Online Kar 22 : ILR 2011 KAR 1576. [The mode of giving
notice has been laid down in section 72 of the Act, which says that, a public notice has to be given by intimation to the
Registrar of Firms under section 63 and by publication in the official gazette and in at least one vernacular newspaper
circulating in the district where the firm to which it relates has its place or principal place of business.]
2 Rama Rao v Venkateswara Rao, AIR 1963 AP 154, p 157; Nanna Lal v Bal Mokand, AIR 1933 Lah 591; Natwarlal
Ambalal & Co v D Chaturbhai, (1977) 18 Guj LR 127; Jani Nautamlal Venishankar v Vivekanand Co-op Housing
Society Ltd, AIR 1986 Guj 162, pp 171–172.
3 Kovai Yarn Traders v P Subramanium, (2009) 16 SCC 322.
4 Lindley on Partnership, 15th Edn, pp 382–83; proviso to sub-section (3) of section 32; sections 34, 35, 45 proviso.
End of Document
[s 73] Repeals.—
[s 73] Repeals.—
[Rep. by the Repealing Act, 1938 (1 of 1938), sec. 2 and Sch.].
End of Document
[s 74] Savings.—
[s 74] Savings.—
Nothing in this Act or any repeal effected thereby shall affect or be deemed to affect,—
(a) any right, title, interest, obligation or liability already acquired, accrued or incurred before the
commencement of this Act, or
(b) any legal proceeding or remedy in respect of any such right, title, interest, obligation or liability, or
anything done or suffered before the commencement of this Act, or
(c) anything done or suffered before the commencement of this Act, or
(d) any enactment relating to partnership not expressly repealed by this Act, or
(e) any rule of insolvency relating to partnership, or
(f) any rule of law not inconsistent with this Act.
Goa, Daman and Diu
Renumber section 74 as sub-section (1) thereof and after sub-section (1) as so renumbered, insert the
following sub-section, namely:—
(2) Notwithstanding anything contained in sub-section (1) and in any other law in force in the Union territory of Goa,
Daman and Diu, the provisions of sub-section (1) and (2) of section 69 shall apply to all suits instituted in the Union
territory of Goa, Daman and Diu after the 1st January, 1965, even if the cause of action with respect to the said suits
had arisen before that date.
[Vide Goa, Daman and Diu Act 6 of 1966, sec. 4 (w.e.f. 22-8-1966)].
This is the “abundant caution” clause, as it may be called, which for many years has been a common form of
conclusion for codifying and consolidating legislation, with the modifications of detail required by the special
subject matter.
There have been divergent interpretations of the section in some cases. In a Madras case, the view was
expressed that a suit by an unregistered firm to recover a sum of money due on a promissory note executed
before the commencement of this Act was bad if the suit was filed after the passing of the Partnership Act, 1932
and without the registration of the firm under section 69.5 On the other hand, it has been held that if the right to
sue accrued in favour of an unregistered firm before the commencement of this Act, it is not necessary that the
firm should be registered even though the suit was filed after the commencement of the Act.6 It is submitted that
the latter view is correct. In a Sind case, the view was taken that the Act commenced on 1 October 1933, on the
[s 74] Savings.—
ground that section 69 did not come into force until that date.7 This it is submitted, is not a correct view of the
commencement of the Act, which was on 1 October 1932. However, it was decided that a suit by an
unregistered firm for rent due before the commencement of the Act was not barred, but was expressly saved by
this section.
It is held in the undermentioned case that the words “or anything done or suffered before the commencement of
the Act” in section 74(b) are governed by previous words ‘any legal proceeding or remedy in respect of any
such right and those words apply to legal proceedings to enforce any subsisting rights which are saved by
section 74(c). Sub-clauses (a) and (c) save existing rights, and sub-clause (b) saves any legal proceedings or
remedy in respect of any such rights. Sub-clause (b) deals with the method of enforcing rights and not with the
right themselves.8
5 Perakam Catholic Sangham v Ravi Varma Thirumalpad, (1937) 171 IC 821 : AIR 1937 Mad 419; Firm Ramprasad
Thakur Prasad v Firm Kamta Prasad Sitaram, AIR 1935 All 898.
6 Gurdinomal Chandulal v Usto Mahammed Hyat Allahando Khan, (1942) Kant 442 : 204 IC 481 : AIR 1943 Sind 26;
Ramgopal Sriniwas v Net Ram, (1941) All LJ 107 : 194 IC 344 : AIR 1941 All 178; Nand Kishore v Maheshwari Mills,
AIR 1953 MB 42.
7 Lokramdas v Tharumal, AIR 1939 Sind 206.
8 Revappa Nandappa Hattarki v Babu Sidappa Erandole, AIR 1939 Bom 61 (DB); Gulab Chand v Hanuman Bux, AIR
1959 Raj 223; Nandkishore v Maheshwari Mills, AIR 1953 MB 42.
End of Document
SCHEDULE I
SCHEDULE I
Maximum Fees
[See sections 70A and 71]
Document or act in respect of which Maximum fees

the fee is payable
(1) Statement under section 58 ... Fifty rupees
(2) Memorandum of appeal under ... Twenty five rupees

subsection (4) of section 58
(3) Statement under section 60 ... Fifteen rupees
(4) Intimation under section 61 ... Fifteen rupees
(6) Notice under section 63(1) ... Fifteen rupees
(7) Intimation under section 63 (1A) ... Fifteen rupees
(9) Application under section 64 ... Fifteen rupees
(10) Inspection of the Register of Firms ... Sven rupees and fifty paise for
under sub-section (1) of section 66 inspecting one volume of the Register
(11) Inspection of documents relating to ... Seven rupees and fifty paise for the
a firm under sub-section (2) of section inspection of all documents relating to
66 one firm
(12) Copies from the Register of Firms ... Two rupees for each hundred words or
under section 67 part thereof.
(13) Price of Forms prescribed under the ... One rupees per Form
rules
STATE AMENDMENTS
[Andhra Pradesh]
For Schedule I, substitute the following new Schedule, namely:-

SCHEDULE I
“SCHEDULE I
MAXIMUM FEES
[See sub-section (1) of section 71]
Sl. No. Document or act in respect Maximum fee

of which the fee is payable
Rs. P.
1. Statement under section 58 for each partner. 100.00
2. Statement under section 60 100.00
3. Intimation under section 61 100.00
4. Intimation under section 62 100.00
5. Notice under section 63 100.00
6. Application under section 64 100.00
7. Inspection of the Register of For inspecting the entry of 20.00

Firms under sub-section (1) each firm in the Register
of section 66
8. Inspection of documents For each inspection of all 20.00

relating to a firm under documents relating to one
subsection (2) of section 66 single firm
9. Copies from the Register of For each hundred words or 4.00

Firms part thereof.”
[Vide Andhra Pradesh Act 27 of1994, section 3 (w.e.f. 7-4-1995)]
[Goa]
In its application to the State of Goa, for Schedule I, the following Schedule shall be substituted, namely:-
“SCHEDULE I
MAXIMUM FEES
Document or act in respect of which Maximum fee

the fee is payable
(1) Statement under section 58 ... Seventy rupees
(2) Statement under section 60, 61 and ... Twenty rupees

62
(3) Notice under section 63 ... Twenty-five rupees

SCHEDULE I
(4) Application under section 64 ... Thirty-five rupees
(5) Inspection of volume under ... Fifteen rupees
section 66 (1) for inspecting one volume ...

of register
(6) For inspection of all documents ... Thirty rupees

relating to one firm
(7) Copies from the Register of Firms, ... Twenty rupees”

other than by xerox
[Vide Indian Partnership (Goa Amendment) Act, 2002 (12 of 2002), section 2 (w.e.f. 19.3.2002).]
[Gujarat]
In its application to the State of Gujarat, for Schedule I, the following Schedule shall be substituted, namely:-
“SCHEDULE I
MAXIMUM FEES

the fee is payable
Statement under section 58 ... Fifty rupees
Statement under section 60 ... Twenty-five rupees
Intimation under section 61 ... Twenty-five rupees
Notice under section 63 ... Twenty-five rupees
Application under section 64 ... Twenty-five rupees
Inspection of the Register of Firms under ... Ten rupees for inspecting one volume of
sub-section (1) of section 66 the Register
Inspection of documents relating to a ... Ten rupees for the inspection of all
firm under sub-section (2) of section 66 documents relating to one firm
Copies from the Register of Firms ... Five rupees for each hundred words or
part thereof.”
[Vide Gujarat Act 13 of 1991, Section 2 (w.e.f 6-4-1991).]
[Karnataka]
In its application to the State of Karnataka, for Schedule I, the following Schedule shall be substituted, namely:-
“SCHEDULE I
MAXIMUM FEES
SCHEDULE I

the fee is payable
Statement under section 58 ... One hundred rupees
Statement under section 60 ... Fifty rupees
Notice under section 63 ... Twenty-five rupees
Application under section 64 ... One rupee
Inspection of the Register of Firms under ... Twenty rupees for inspecting one
sub-section (1) of section 66 volume of the Register.
Inspection of documents relating to a ... Ten rupees for the inspection of all
firm under sub-section (2) of section 66 documents relating to one firm
Copies from the Register of Firm ... One rupees for each hundred words or
part thereof.”
[Vide Karnataka Act 1 of1987, Section 2 (w.e.f. 30-4-1987).]
[Kerala]
In its application to the State of Kerala, for Schedule I, the following Schedule shall be substituted, namely:-
“SCHEDULE I
MAXIMUM FEES

the fee is payable
Statement under section 58 ... Five hundred rupees
Statement under section 60 ... Two hundred rupees
Intimation under section 61 ... Two hundred rupees
Intimation under section 62 ... Two hundred rupees
Notice under section 63 ... Two hundred rupees
Application under section 64 ... Two hundred rupees
Inspection of the Register of Firms under ... Fifty rupees for inspecting one volume of
sub-section (1) of section 66 the Register
Inspection of the documents relating to a ... One hundred rupees for the inspection
firm under sub-section (2) of section 6 of all documents relating to one firm
SCHEDULE I
Copies from the Register of Firms ... One hundred rupees for each hundred
words or a part thereof.”
[Vide Indian Partnership (Kerala Amendment) Act, 2013 (Act 32 of 2013), section 2 (w.e.f. 27-9-2013).]
[Madhya Pradesh]
In its application to the State of Madhya Pradesh, for Schedule I, the following Schedule shall be substituted,
namely:-
“SCHEDULE I
MAXIMUM FEES

the fee is payable
Statement under section 58 ... Five hundred twenty five rupees
Statement under section 60 ... One hundred five rupees
Intimation under section 61 ... One hundred five rupees
Intimation under section 62 ... Fifty three rupees
Notice raider section 63 ... One hundred five rupees
Application under section 64 ... Fifty three rupees
Inspection of the Register of Firms under ... Twenty six rupees

sub-section (1) of Section 66
Inspection of documents relating to a ... Twenty six rupees

firm under stab-section (2) of section 66
Copies from the Register of Firms under ... Eleven Rupees (For each hundred
section 67 words or part thereof).”
Provided that the State Government may increase the rate subject to a maximum of five percent of the above rate
in every two years.
Note. - In case where the applicant requires copies from the Registrar of Firms and Societies under Section 67
early i.e. within five working days, he shall file separate application along with double amount of fee and the
Competent Authority shall grant Copies within five working days.
[Vide Notification No. 1(1)-62-2000-XI, dated 15-3-2001).]
[Maharashtra]
In its application to the State of Maharashtra, for Schedule I, the following Schedule shall be substituted, namely:-
“SCHEDULE I
MAXIMUM FEES
SCHEDULE I
[See sections 70-A and 71]

the fee is payable
(1) Statement under section 58 (1) ... Fifty rupees
(2) Memorandum of appeal under ... Twenty-five rupees

section 58 (4)
(3) Statement under section 60 ... Fifteen rupees
(4) Intimation tinder section 61 ... Fifteen rupees
(7) Intimation under section 63(1-A) ... Fifteen rupees
(9) Application under section 64 ... Fifteen rupees
(10) Inspection of the Register of Firms ... Seven rupees and fifty paise
under sub-section (1) of section 66, for
inspection of one volume of the Register
of Firms
(11) Inspection of documents relating to ... Seven rupees and fifty paise
a firm under sub-section (2) of section
66, for the inspection of all documents
relating to one firm
(12) Copies from the Register of Firms ... Two rupees

under section 67, for each hundred
words or part thereof
(13) Price of Forms prescribed under the ... One rupee per Form.”
rules
[Vide Maharashtra Act 29 of1984, Section 18 (w.e.f 1-1-1985).]
[Rajasthan]
In its application to the State of Rajasthan, for Schedule I, the following Schedule shall be substituted, namely:-
“SCHEDULE I
MAXIMUM FEES
Document or act in respect Maximum fee

1. Statement under section 58 ... Three hundred rupees

SCHEDULE I
2. Statement tinder section 60 ... One hundred rupees
3. Intimation tinder section 61 ... One hundred rupees
4. Intimation under section 62 ... One hundred rupees
5. Notice under section 63 ... One hundred rupees
6. Application under section 64 ... One hundred rupees
7. Inspection of the Register of ... One hundred Rupees for

Firms under sub-section(1) of inspection of one volume of
section 66 register
8. Inspection of documents ... One hundred Rupees for

relating to a firm under sub- inspection of all documents
section (2) of section 66 relating to one firm
9. Copies from the Register of ... Fifteen Rupees for each

Firms hundred words or part
thereof.”
[Vide Rajasthan Act 7 of2007, Section 2]
[Tamil Nadu]
In its application to the State of Tamil Nadu, for Schedule I, the following Schedule shall be substituted, namely:-
“SCHEDULE I
MAXIMUM FEES

1. Statement under section 58 ... Two hundred rupees
2. Statement tinder section 60 ... Fifty rupees.
3. Intimation tinder section 61 ... Fifty rupees.
4. Intimation under section 62 ... Fifty rupees.
5. Notice under section 63 ... Fifty rupees.
6. Application under section 64 ... Fifty rupees.
7. Inspection of the Register of For inspection of the entry of Twenty five rupees
Firms under sub-section (1) each firm in the Register
of section 66
8. Inspection of documents For each inspection of all Fifty rupees

relating to a firm under documents relating to one
subsection (2) of section 66 firm
9. Copies from the Register of For each hundred words or Ten rupees
Firms part thereof.”
SCHEDULE I
[Vide Tamil Nadu Act 17 of2013, Section 2 (w.e.f”. 31-8-2013).]
[Uttar Pradesh]
In its application to the State of Uttar Pradesh, for Schedule I, the following Schedule shall be substituted, namely:-
“SCHEDULE I
MAXIMUM FEES

1. Statement under section 58 ... Five thousand rupees
2. Statement under section 60 ... Five hundred rupees
3. Intimation under section 61 ... Five hundred rupees
4. Intimation under section 62 ... Five hundred rupees
5. Notice under section 63 ... Five hundred rupees
6. Application under section 64 ... Five hundred rupees
7. Inspection of the Register of ... One hundred rupees

Firms under sub-section (1)
of section 66
8. Inspection of documents ... One hundred rupees

relating to a firm under sub-
section (2) of section 66
9. Copies from the Register of ... Fifty rupees for each hundred
Firms words or part thereof.”
[Vide Indian Partnership (U.P. Amendment) Act, 2011.]
[West Bengal]
In its application to the State of West Bengal, for Schedule I, the following Schedule shall be substituted, namely:-
“SCHEDULE I
MAXIMUM FEES

1. Statement under section 58 ... Three thousand rupees
2. Statement under section 60 ... One thousand rupees

SCHEDULE I
3. Intimation under section 61 ... One thousand rupees
4. Intimation under section 62 ... One thousand rupees
5. Notice or recording of ... One thousand rupees

changes in a firm under sub-
6. Notice for recording of ... One thousand rupees

dissolution of a firm under
sub-section (1) of section 63
7. Notice for recording of a ... One thousand rupees

minor becoming or not
becoming, on attaining
majority, a partner under sub-
8. Application under section 64 ... One thousand rupees
9. Inspection of the Register of ... Fifty rupees

Firms under sub-section (1)
of section 66
10. Inspection of documents ... Fifty rupees

relating to a firm under sub-
9. Copies from the Register of ... Fifty rupees.”

Firms
[Vide Indian Partnership (West Bengal. Amendment) Act, 1993 (23 of1993), section 3.]
End of Document
SCHEDULE II
SCHEDULE II
ENACTMENTS REPEALED
[Repealed by the Repealing Act, 1938 (1 of1938), section 2 and Schedule.]
SCHEDULE II
Enactment Repealed.—[Rep. by Repealing Act, 1938 (1 of1938), sec. 2 and Sch.] Uttar Pradesh. — For
Schedule I, substitute the following Schedule, namely:-
“SCHEDULE I
MAXIMUM FEES
[See sub-section (1) of Section 71]
Document or act in respect of which Maximum Fee

the fee is payable
1. Statement under section 58 Five thousand rupees
2. Statement under section 60 Five thousand rupees
3. Intimation under section 61 Five thousand rupees
4. Intimation under section 62 Five thousand rupees
5. Notice under section 63 Five thousand rupees
6. Application under section 64 Five thousand rupees
7. Inspection of the Register of Firms under One hundred rupees

subsection (1) of section 66
8. Inspection of documents relating to firm One hundred rupees

under sub-section (2) of section 66
9. Copies from the Register of Firms Fifty rupees for each hundred words or
part thereof
[Vide Indian Partnership (U.P. Amendment) Act, 2011 (U.P. Act No.2 of 2013), sec. 2].
SCHEDULE II
End of Document
APPENDIX I
APPENDIX I
(The UK) Partnership Act 1890
[53 & 54 Vict. Ch. 39]
An Act to declare and amend the Law of Partnership
[14th August 1890]
BE it enacted by the Queen’s most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and
Temporal, and Commons, in this present Parliament assembled, and by the authority of the same, as follows:—
NATURE OF PARTNERSHIP
1. Definition of partnership.—(1) Partnership is the relation which subsists between persons carrying on a
business in common with a view of profit.
(2) But the relation between members of any company or association which is—
(a) Registered as a company under the Companies Act 1862, or any other Act of Parliament for the time being
in force and relating to the registration of joint stock companies; or
(b) Formed or incorporated by or in pursuance of any other Act of Parliament or letters patent, or Royal
Charter; or
(c) A company engaged in working mines within and subject to the jurisdiction of the Stannaries:
is not a partnership within the meaning of this Act.
2. Rules for determining existence of partnership.—In determining whether a partnership does or does not exist
regard shall be had to the following rules:
(1) Joint tenancy, tenancy in common, joint property, common property, or part ownership does not of itself
create a partnership as to anything so held or owned, whether the tenants or owners do or do not share
any profits made by the use thereof.
(2) The sharing of gross returns does not of itself create a partnership, whether the persons sharing such
returns have or have not a joint or common right or interest in any property from which or from the use of
which the returns are derived.
(3) The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in
the business, but the receipt of such a share, or of a payment contingent on or varying with the profits of a
business, does not of itself make him a partner in the business; and in particular—
(a) The receipt by a person of a debt or other liquidated amount by instalments, or otherwise out of the
accruing profits of a business does not of itself make him a partner in the business or liable as such:
APPENDIX I
(b) A contract for the remuneration of a servant or agent of a person engaged in a business by a share of
the profits of the business does not of itself make the servant or agent a partner in the business or
liable as such:
(c) A person being the widow or child of a deceased partner, and receiving by way of annuity a portion of
the profits made in the business in which the deceased person was a partner, is not by reason only of
such receipt a partner in the business or liable as such:
(d) The advance of money by way of loan to a person engaged or about to engage in any business on a
contract with that person that the lender shall receive a rate of interest varying with the profits, or shall
receive a share of the profits arising from carrying on the business, does not of itself make the lender a
partner with the person or persons carrying on the business or liable as such. Provided that the
contract is in writing, and signed by or on behalf of all the parties thereto:
(e) A person receiving by way of annuity or otherwise a portion of the profits of a business in consideration
of the sale by him of the goodwill of the business is not by reason only of such receipt a partner in the
business or liable as such.
3. Postponement of rights of person lending or selling in consideration of share of profits in case of

insolvency.—In the event of any person to whom money has been advanced by way of loan upon such a contract
as is mentioned in the last foregoing section, or of any buyer of a goodwill in consideration of a share of the profits
of the business, being adjudged a bankrupt, entering into an arrangement to pay his creditors less than twenty
shillings in the pound, or dying in insolvent circumstances, the lender of the loan shall not be entitled to recover
anything in respect of his loan, and the seller of the goodwill shall not be entitled to recover anything in respect of
the share of profits contracted for, until the claims of the other creditors of the borrower or buyer for valuable
consideration in money or money’s worth have been satisfied.
4. Meaning of firm.—(1) Persons who have entered into partnership with one another are for the purposes of this
Act called collectively a firm, and the name under which their business is carried on is called the firm-name.
(2) In Scotland a firm is a legal person distinct from the partners of whom it is composed, but an individual partner
may be charged on a decree or diligence directed against the firm, and on payment of the debts is entitled to relief
pro rata from the firm and its other members.
RELATIONS OF PARTNERS TO PERSONS DEALING WITH THEM
5. Power of partner to bind the firm.—Every partner is an agent of the firm and his other partners for the purpose
of the business of the partnership; and the acts of every partner who does any act for carrying on in the usual way
business of the kind carried on by the firm of which he is a member bind the firm and his partners, unless the
partner so acting has in fact no authority to act for the firm in the particular matter, and the person with whom he is
dealing either knows that he has no authority, or does not know or believe him to be a partner.
6. Partners bound by acts on behalf of firm.—An act or instrument relating to the business of the firm and done
or executed in the firm-name, or in any other manner showing an intention to bind the firm, by any person thereto
authorised, whether a partner or not, is binding on the firm and all the partners.
Provided that this section shall not affect any general rule of law relating to the execution of deeds or negotiable
instruments.
7. Partner using credit of firm for private purposes.—Where one partner pledges the credit of the firm for a
purpose apparently not connected with the firm’s ordinary course of business, the firm is not bound, unless he is in
fact specially authorised by the other partners; but this section does not affect any personal liability incurred by an
individual partner.
8. Effect of notice that firm will not be bound by acts of partner.—If it has been agreed between the partners
that any restriction shall be placed on the power of any one or more of them to bind the firm, no act done in
contravention of the agreement is binding on the firm with respect to persons having notice of the agreement.
9. Liability of partners.—Every partner in a firm is liable jointly with the other partners, and in Scotland severally
also, for all debts and obligations of the firm incurred while he is a partner; and after his death his estate is also
APPENDIX I
severally liable in a due course of administration for such debts and obligations so far as they remain unsatisfied,
but subject in England or Ireland to the prior payment of his separate debts.
10. Liability of the firm for wrongs.—Where, by any wrongful act or omission of any partner acting in the ordinary
course of the business of the firm, or with the authority of his co-partners, loss or injury is caused to any person not
being a partner in the firm, or any penalty is incurred, the firm is liable therefor to the same extent as the partner so
acting or omitting to act.
11. Misapplication of money or property received for or in custody of the firm.—In the following cases,
namely—
(a) Where one partner acting within the scope of his apparent authority receives the money or property of a
third person and misapplies it; and
(b) Where a firm in course of its business receives money or property of a third person, and the money or
property so received is misapplied by one or more of the partners while it is in the custody of the firm; the
firm is liable to make good the loss.
12. Liability for wrongs joint and several.—Every partner is liable jointly with his copartners and also severally for
everything for which the firm while he is a partner therein becomes liable under either of the last two preceding
sections.
13. Improper employment of trust property for partnership purposes.—If a partner, being a trustee, improperly
employs trust-property in the business or on the account of the partnership no other partner is liable for the trust-
property to the persons beneficially interested therein.
Provided as follows:—
(1) This section shall not affect any liability incurred by any partner by reason of his having notice of a breach
of trust; and
(2) Nothing in this section shall prevent trust money from being followed and recovered from the firm if still in
its possession or under its control.
14. Persons liable by ‘holding out’.—(1) Everyone who by words spoken or written or by conduct represents
himself, or who knowingly suffers himself to be represented, as a partner in a particular firm is liable as a partner to
anyone who has on the faith of any such representation given credit to the firm, whether the representation has or
has not been made or communicated to the person so giving credit by or with the knowledge of the apparent
partner making the representation or suffering it to be made.
(2) Provided that where after a partner’s death the partnership business is continued in the old firm-name, the
continued use of that name or of the deceased partner’s name as part thereof shall not of itself make his executors
or administrators estate or effects liable for any partnership debts contracted after his death.
15. Admissions and representations of partners.—An admission or representation made by any partner
concerning the partnership affairs, and in the ordinary course of its business, is evidence against the firm.
16. Notice to acting partner to be notice to the firm.—Notice to any partner who habitually acts in the
partnership business of any matter relating to partnership affairs 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.
17. Liabilities of incoming and outgoing partners.—(1) A person who is admitted as a partner into an existing
firm does not thereby become liable to the creditors of the firm for anything done before he became a partner.
(2) A partner who retires from a firm does not thereby cease to be liable for partnership debts or obligations incurred
before his retirement.
(3) A retiring partner may be discharged from any existing liabilities, by an agreement to that effect between himself
and the members of the firm as newly constituted and the creditors, and this agreement may be either express or
inferred as a fact from the course of dealing between the creditors and the firm as newly constituted.
APPENDIX I
18. Revocation continuing guarantee by change in firm. —A continuing guarantee or cautionary obligation given
either to a firm or to a third person in respect of the transactions of a firm is, in the absence of agreement to the
contrary, revoked as to future transactions by any change in the constitution of the firm to which, or the firm in
respect of the transactions of which, the guarantee or obligation was given.
RELATIONS OF PARTNERS TO ONE ANOTHER
19. Variation consent of terms of partnership.—The mutual rights and duties of partners, whether ascertained by
agreement or defined by this Act, may be varied by the consent of all the partners, and such consent may be either
express or inferred from a course of dealing.
20. Partnership property.—(1) All property and rights and interests in property originally brought into the
partnership stock or acquired, whether by purchase or otherwise, on account of the firm or for the purposes and in
the course of the partnership business are called in this Act partnership property, and must be held and applied by
the partners exclusively for the purposes of the partnership and in accordance with the partnership agreement.
(2) Provided that the legal estate or interest in any land, or in Scotland the title to and interest in any heritable
estate, which belongs to the partnership shall devolve according to the nature and tenure thereof, and the general
rules of law thereto applicable, but in trust, so far as necessary, for the persons beneficially interested in the land
under this section.
(3) Where co-owners of an estate or interest in any land, or in Scotland of any heritable estate, not being itself
partnership property are partners as to profits made by the use of that land or estate, and purchase other land or
estate out of the profits to be used in like manner, the land or estate so purchased belongs to them, in the absence
of an agreement to the contrary, not as partners but as co-owners for the same respective estates and interests as
are held by them in the land or estate first mentioned at the date of the purchase.
21. Property bought with partnership money.—Unless the contrary intention appears, property bought with
money belonging to the firm is deemed to have been bought on account of the firm.
22. Conversion into personal estate of land held as partnership property.—Where land or any heritable
interest therein has become partnership property, it shall, unless the contrary intention appears, be treated as
between the partners (including the representatives of a deceased partner), and also as between the heirs of a
deceased partner and his executors or administrators, as personal or moveable and not real or heritable estate.
23. Procedure against partnership property for a partner’s separate judgement debt.—(1) After the
commencement of this Act a writ of execution shall not issue against any partnership property except on a
judgement against the firm.
(2) The High Court, or a judge thereof, or the Chancery Court of the county palatine of Lancaster, or a county court,
may, on the application by summons of any judgment creditor of a partner, make an order charging that partner’s
interest in the partnership property and profits with payment of the amount of the judgement debt and interest
thereon, and may by the same or a subsequent order appoint a receiver of that partner’s share of profits (whether
already declared or accruing), and of any other money which may be coming to him in respect of the partnership,
and direct all accounts and inquiries, and give all other orders and directions which might have been directed or
given if the charge had been made in favour of the judgement creditor by the partner, or which the circumstances of
the case may require.
(3) The other partner or partners shall be at liberty at any time to redeem the interest charged, or in case of a sale
being directed, to purchase the same.
(4) This section shall apply in the case of a cost-book company as if the company were a partnership within the
meaning of this Act.
(5) This section shall not apply to Scotland.
24. Rules as to interests and duties of partners subject to special agreement.—The interests of partners in the
partnership property and their rights and duties in relation to the partnership shall be determined, subject to any
agreement express or implied between the partners, by the following rules:
APPENDIX I
(1) All the partners are entitled to share equally in the capital and profits of the business, and must contribute
equally towards the losses whether of capital or otherwise sustained by the firm.
(2) The firm must indemnify every partner in respect of payments made and personal liabilities incurred by
him—
(a) In the ordinary and proper conduct of the business of the firm; or
(b) In or about anything necessarily done for the preservation of the business or property of the firm.
(3) A partner making, for the purpose of the partnership, any actual payment or advance beyond the amount of
capital which he has agreed to subscribe, is entitled to interest at the rate of five per cent per annum from
the date of the payment or advance.
(4) A partner is not entitled, before the ascertainment of profits, to interest on the capital subscribed by him.
(5) Every partner may take part in the management of the partnership business.
(6) No partner shall be entitled to remuneration for acting in the partnership business.
(7) No person may be introduced as a partner without the consent of all existing partners.
(8) Any difference arising as to ordinary matters connected with the partnership business may be decided by a
majority of the partners, but no change may be made in the nature of the partnership business without the
consent of all existing partners.
(9) The partnership books are to be kept at the place of business of the partnership (or the principal place, if
there is more than one), and every partner may, when he thinks fit, have access to and inspect and copy
any of them.
25. Expulsion of partner.—No majority of the partners can expel any partner unless a power to do so has been
conferred by express agreement between the partners.
26. Retirement from partnership at will.—(1) Where no fixed term has been agreed upon for the duration of the
partnership, any partner may determine the partnership at any time on giving notice of his intention so to do to all
the other partners.
(2) Where the partnership has originally been constituted by deed, a notice in writing, signed by the partner giving it,
shall be sufficient for this purpose.
27. Where partnership for term is continued over, continuance on old terms presumed.—(1) Where a
partnership entered into for a fixed term is continued after the term has expired, and without any express new
agreement, the rights and duties of the partners remain the same as they were at the expiration of the term, so far
as is consistent with the incidents of a partnership at will.
(2) A continuance of the business by the partners or such of them as habitually acted therein during the term,
without any settlement or liquidation of the partnership affairs, is presumed to be a continuance of the partnership.
28. Duty of partners to render accounts, etc.—Partners are bound to render true accounts and full information of
all things affecting the partnership to any partner or his legal representatives.
29. Accountability of partners for private profits.—(1) Every partner must account to the firm for any benefit
derived by him without the consent of the other partners from any transaction concerning the partnership, or from
any use by him of the partnership property name or business connection.
(2) This section applies also to transactions undertaken after a partnership has been dissolved by the death of a
partner, and before the affairs thereof have been completely wound up, either by any surviving partner or by the
representatives of the deceased partner.
30. Duty of partner not to compete with firm.—If a partner, without the consent of the other partners, carries on
any business of the same nature as and competing with that of the firm, he must account for and pay over to the
firm all profits made by him in that business.
31. Rights of assignee of share in partnership.—(1) An assignment by any partner of his share in the
APPENDIX I
partnership, either absolute or by way of mortgage or redeemable charge, does not, as against the other partners,
entitle the assignee, during the continuance of the partnership, to interfere in the management or administration of
the partnership business or affairs, or to require any accounts of the partnership transactions, or to inspect the
partnership books, but entitles the assignee only to receive the share of profits to which the assigning partner would
otherwise be entitled, and the assignee must accept the account of profits agreed to by the partners.
(2) In case of a dissolution of the partnership, whether as respects all the partners or as respects the assigning
partner, the assignee is entitled to receive the share of the partnership assets to which the assigning partner is
entitled as between himself and the other partners, and, for the purpose of ascertaining that share, to an account as
from the date of the dissolution.
DISSOLUTION OF PARTNERSHIP, AND ITS CONSEQUENCES
32. Dissolution by expiration or notice.—Subject to any agreement between the partners a partnership is
dissolved—
(a) If entered into for a fixed term, by the expiration of that term:
(b) If entered into for a single adventure or undertaking, by the termination of that adventure or undertaking:
(c) If entered into for an undefined time, by any partner giving notice to the other or others of his intention to
dissolve the partnership.
In the last-mentioned case the partnership is dissolved as from the date mentioned in the notice as the date of
dissolution, or, if no date is so mentioned, as from the date of the communication of the notice.
33. Dissolution by bankruptcy, death, or charge.—(1) Subject to any agreement between the partners, every
partnership is dissolved as regards all the partners by the death or bankruptcy of any partner.
(2) A partnership may, at the option of the other partners, be dissolved if any partner suffers his share of the
partnership property to be charged under this Act for his separate debt.
34. Dissolution by illegality of partnership.—A partnership is in every case dissolved by the happening of any
event which makes it unlawful for the business of the firm to be carried on or for the members of the firm to carry it
on in partnership.
35. Dissolution by the court.—On application by a partner the Court may decree a dissolution of the partnership
in any of the following cases:
(a) When a partner is found lunatic by inquisition, or in Scotland by cognition, or is shown to the satisfaction of
the Court to be permanently of unsound mind, in either of which cases the application may be made as
well as on behalf of that partner by his committee or next friend or person having title to intervene as by
any other partner:
(b) When a partner, other than the partner suing, becomes in any other way permanently incapable of
performing his part of the partnership contract:
(c) When a partner, other than the partner suing, has been guilty of such conduct as, in the opinion of the
court, regard being had to the nature of the business, is calculated to prejudicially affect the carrying on of
the business:
(d) When a partner, other than the partner suing, wilfully, or persistently commits a breach of the partnership
agreement, or otherwise so conducts himself in matters relating to the partnership business that it is not
reasonably practicable for the other partner or partners to carry on the business in partnership with him:
(e) When the business of the partnership can only be carried on at a loss:
(f) Whenever in any case circumstances have arisen which, in the opinion of the court, render it just and
equitable that the partnership be dissolved.
36. Rights of persons dealing with firm against apparent members of firm.—(1) Where a person deals with a
firm after a change in its constitution he is entitled to treat all apparent members of the old firm as still being
members of the firm until he has notice of the change.
APPENDIX I
(2) An advertisement in the London Gazette as to a firm whose principal place of business is in England or Wales,
in the Edinburgh Gazette as to a firm whose principal place of business is in Scotland, and in the Dublin Gazette as
to a firm whose principal place of business is in Ireland, shall be notice as to persons who had no dealings with the
firm before the date of the dissolution or change so advertised.
(3) The estate of a partner who dies, or who becomes bankrupt, or of a partner who, not having been known to the
person dealing with the firm to be a partner, retires from the firm, is not liable for partnership debts contracted after
the date of the death, bankruptcy, or retirement respectively.
37. Right of partners to notify dissolution.—On the dissolution of a partnership or retirement of a partner any
partner may publicly notify the same, and may require the other partner or partners to concur for that purpose in all
necessary or proper acts, if any, which cannot be done without his or their concurrence.
38. Continuing authority of partners for purposes of winding up.—After the dissolution of a partnership the
authority of each partner to bind the firm, and the other rights, and obligations of the partners, continue
notwithstanding the dissolution so far as may be necessary to wind up the affairs of the partnership, and to
complete transactions begun but unfinished at the time of the dissolution, but not otherwise. Provided that the firm
is in no case bound by the acts of a partner who has become bankrupt; but this proviso does not affect the liability
of any person who has after the bankruptcy represented himself or knowingly suffered himself to be represented as
a partner of the bankrupt.
39. Rights of partners as to application of partnership property.—On the dissolution of a partnership every
partner is entitled, as against the other partners in the firm, and all persons claiming through them in respect of their
interest as partners, to have the property of the partnership applied in payment of the debts and liabilities of the
firm, and to have the surplus assets after such payment applied in payment of what may be due to the partners
respectively after deducting what may be due from them as partners to the firm; and for that purpose any partner or
his representatives may on the termination of the partnership apply to the court to wind up the business and affairs
of the firm.
40. Apportionment of premium where partnership prematurely dissolved.—Where one partner has paid a
premium to another on entering into a partnership for a fixed term, and the partnership is dissolved before the
expiration of that term otherwise than by the death of a partner, the court may order the repayment of the premium,
or of such part thereof as it thinks just, having regard to the terms of the partnership contract and to the length of
time during which the partnership has continued; unless
(a) the dissolution is, in the judgement of the court, wholly or chiefly due to the misconduct of the partner who
paid the premium, or
(b) the partnership has been dissolved by an agreement containing no provision for a return of any part of the
premium.
41. Rights where partnership dissolved for fraud or misrepresentation.—Where a partnership contract is
rescinded on the ground of the fraud or misrepresentation of one of the parties thereto, the party entitled to rescind
is, without prejudice to any other right, entitled—
(a) to a lien on, or right of retention of, the surplus of the partnership assets, after satisfying the partnership
liabilities, for any sum of money paid by him for the purchase of a share in the partnership and for any
capital contributed by him, and is
(b) to stand in the place of the creditors of the firm for any payments made by him in respect of the partnership
liabilities, and
(c) to be indemnified by the person guilty of the fraud or making the representation against all the debts and
liabilities of the firm.
(1) Right of outgoing partner in certain cases to share profits made after dissolution.—Where any member of
a firm has died or otherwise ceased to be a partner, and the surviving or continuing partners carry on the business
of the firm with its capital or assets without any final settlement of accounts as between the firm and the outgoing
partner or his estate, then, in the absence of any agreement to the contrary, the outgoing partner or his estate is
entitled at the option of himself or his representatives to such share of the profits made since the dissolution as the
APPENDIX I
court may find to be attributable to the use of his share of the partnership assets, or to interest at the rate of five per
cent per annum on the amount of his share of the partnership assets.
(2) Provided that where by the partnership contract an option is given to surviving or continuing partners to
purchase the interest of a deceased or outgoing partner, and that option is duly exercised, the estate of the
deceased partner, or the outgoing partner or his estate, as the case may be, is not entitled to any further or other
share of profits; but if any partner assuming to act in exercise of the option does not in all material respects comply
with the terms thereof, he is liable to account under the foregoing provisions of this section.
42. Retiring or deceased partner’s share to be a debt.—Subject to any agreement between the partners, the
amount due from surviving or continuing partners to an outgoing partner or the representatives of a deceased
partner in respect of the outgoing or deceased partner’s share is a debt accruing at the date of the dissolution or
death.
43. Rule for distribution of assets on final settlement of accounts.—In settling accounts between the partners
after a dissolution of partnership, the following rules shall, subject to any agreement, be observed:
(a) Losses, including losses and deficiencies of capital, shall be paid first out of profits next out of capital, and
lastly, if necessary by the partners individually in the proportion in which they were entitled to share profits;
(b) The assets of the firm including the sums, if any, contributed by the partners to make up losses or
deficiencies of capital, shall be applied in the following manner and order:
1. In paying the debts and liabilities of the firm to persons who are not partners therein;
2. In paying to each partner rateably what is due from the firm to him for advances as distinguished from
capital;
3. In paying to each partner rateably what is due from the firm to him in respect of capital;
4. The ultimate residue, if any, shall be divided among the partners in the proportion in which the profits
are divisible.
SUPPLEMENTAL
44. Definitions of ‘court’ and ‘business’.—In this Act, unless the contrary intention appears—
The expression ‘Court’ includes every Court and judge having jurisdiction in the case; The expression ‘business’
includes every trade, occupation, or profession.
45. Saving for rules of equity and common law.—The rules of equity and of common law applicable to
partnership shall continue in force except so far as they are inconsistent with the express provisions of this Act.
46. Provision as to bankruptcy in Scotland.—(1) In the application of this Act to Scotland the bankruptcy of a firm
or of an individual shall mean sequestration under the Bankruptcy (Scotland) Acts, and also in the case of an
individual the issue against him of a decree of cessio bonorum.
(2) Nothing in this Act shall alter the rules of the law of Scotland relating to the bankruptcy of a firm or of the
individual partners thereof.
47. Repeal.—The Acts mentioned in the schedule to this Act are hereby repealed to the extent mentioned in the
third column of that schedule.
48. Commencement of Act.—This Act shall come into operation on the first day of January one thousand eight
hundred and ninety-one.
49. Short title.—This Act may be cited as the Partnership Act 1890.
SCHEDULE
Enactments Repealed
APPENDIX I
Session and Chapter Title or Short Title Extent of Repeal
19 & 20 Vict. c 60. The Mercantile Law Amendment Section seven.

(Scotland) Act, 1856.
19 & 20 Vict. c 97. The Mercantile Law Amendment Act, Section four.
1856.
28 & 29 Vict. c. 86. An Act to amend the law of partnership
End of Document
APPENDIX II Report of the Select Committee


The following report of the Select Committee on the Bill to define and amend the law relating to partnership was
presented to the Legislative Assembly on the 26th January, 1932:
We, the undersigned Members of the Select Committee to which the Bill to define and amend the law relating to
partnership was referred, have considered the Bill and the papers noted in the margin and have now the honour to
submit this our Report with the Bill as amended by us annexed thereto;
Clause 1 (Section I).—We propose that the Act, generally should come into force on 1st October, 1932, and Section
68 (present Section 69) a year later. This arrangement should provide ample opportunity to the public to become
acquainted with the new law specially with the Chapter on Registration and to Government to make arrangement,
for giving effect to that Chapter.
Clauses 5 to 8 (Clause 5 is Section 6, 6 is Section 5, 7 is Section 6, Expl. 1, 8 is Section 6, Expl. 2).—We have
transposed clause 6 as to make it clause 5; and we have transformed clauses 7 and 8 into Explanations attached to
clause 6 (original clause 5). We consider that this re-arrangement will make it clear that the sharing of profits, gross
return, etc. is strong evidence of partnership though not in itself conclusive evidence. The clauses as originally
arranged might have had the effect of diminishing the value of these facts as evidence.
Towards the end of Explanation 2 (original clause 8 ) we have made a drafting amendment by substituting for the
category of “lender, servant, agent, etc.” the single work “receiver” covering it.
Clause 11-A (Section 10) is considered along with clause 14.
Clause 13 (Section 12).—The provision in sub-clause (d) providing that the books of the firm shall be kept at its
place of business, or, where there is more than one such places, at the principal place of business, seems to us to
give rise to difficulties. Firstly, where a firm has its headquarters in an Indian State, the provision will be of no value
as the Act will not be in force in an Indian State. Secondly, no definition is possible of “the principal place of
business” as this place must depend upon arrangement among the partners. We think, therefor, that it will be
preferable to confine this clause merely to declaring the right of each partner to have access to all the books of the
firm and we have amended the clause accordingly.
Clause 14 (Section 13).—As regards sub-clause (f) we consider that it will be improper to allow any partner to
contract himself out of liability for fraud and it is very doubtful if such a contract will be legal. As regard “wilful
neglect”, however, it should be open to a partner at least to limit his liability to indemnify his partners. We have
accordingly deleted the words “fraud or” from this sub-clause and have inserted after clause 11 a new clause 11-A
(Section 10) relating to indemnification for fraud only. This new clause makes the liability to indemnify for fraud
absolute and not subject to contract.
Clause 15 (Section 16).—In the second paragraph we have substituted the word “acquire” for the word “purchased”
in order to cover the acquisition of leases, mortgages, etc. We have also assimilated the wording in this paragraph
to that in the first.
Clause 18 (Section 17).—We propose for greater clearness to use for the phrase “change in a firm” the phrase
“change in the constitution of a firm” throughout the Bill and we have amended the clause accordingly.
After the word “partner” we have also inserted the words “in the reconstituted firm” in order to make it clear that the
clause, has no reference to former partners. We propose to use the phrase “reconstituted firm” for the phrase
“changed firm” throughout the Bill.
Clause 19 (Sections 18 and 19).—We have split sub-clause (1) into two separate provisions clause 19 (Section 18)
and sub-clause 19-A (1) [Section 19 (1)]. In clause 19 we have stated the general proposition that a partner is an
agent of the firm but have restricted this general proposition by prefacing the words “subject to the provisions of this
Act”. We have also altered the word “affairs” into “business”. The latter word is used in Section 5 of the English Act
and seems to be the more suitable term.
We have confined sub-clause 19-A (1) [Section 19 (1)] to the statement of a partner’s implied authority as agent of
the firm.
As regards sub-clause (2) of clause 19 (now sub-clause (2) of clause 19-A] [Section 19 (3)] it is clear from the
opinion received that in Calcutta particularly, it is a trade custom that partners make contracts of sale containing a
clause referring disputes to arbitration. This sub-clause as it stands will make this practice impossible in the
absence of a contract between the partners; and it may also perhaps lay open to challenge the arbitration clause in
my existing contracts. It seems desirable therefore, to relax the provision of this subclause to some extent and we
propose to modify them by inserting at the beginning the words “In the absence of any usage or custom of trade to
the contrary”. These words are taken from Section 1 of the Indian Contract Act. We also considered carefully the
suggestion that the whole of this sub-clause should be deleted but we are of opinion that in its modified form it will
be a useful guide to many courts.
We also consider that clause (f) should be widened so as to cover all acquisitions of immovable property.
Clause 22 (Section 22).—We have omitted the second paragraph as it contains no substance. Special laws relating
to the execution and registration of documents and to the drawing, accepting and endorsing of negotiable
instruments will apply in any case without this proviso.
Clause 30 (Section 30).—In sub-clause (2) we have made it explicit that a minor admitted to the benefits of
partnership may be entitled to such share of the profits as well as of the property as may be agreed upon. Also we
consider it dangerous to give the minor or any one acting for him access to all the books of the firm, some of the
books may contain secrets which should be restricted to the partners. We have, therefore, altered the word “books”
to “accounts”.
We have made quite clearly sub-clause (4) that the minor cannot sue for his share of the property or profits except
when he wishes to sever his connection with the firm.
We have deleted sub-clause (5) as we prefer to leave all arrangements relating to the minor’s share of the property
to be settled by agreement made when the minor is admitted to the benefits of partnership.
As regards the last sub-clause, there is a strong volume of opinion that the period within which the minor should
give notice of his intention to leave the firm should be a definite period. In reference to this opinion we propose that
the period should be fixed at six months. As this is a considerable stretch of time in which many things may happen,
we have deemed it expedient to work out in greater detail the rights and liabilities of the minor when he attains
majority. We propose that he should be required to give public notice whether he elects to become or not to
become a partner; and we have worked out the rights and liabilities on the general idea that this minority shall be
deemed to continue until he gives notice or until the expiry of the six months, as the case may be. We have done
this in clauses (6), (7) and (8) and have added sub-clause (9) to safeguard the interest of third-parties in case
where the minor after attaining majority in fact acts as a partner before giving public notice.
Clause 31 (Section 31).—In sub-clause (1) we have inserted a passage saving the provisions of clause 30.
We have amended sub-clause (3) to ensure that a new partner when entering a firm may voluntarily assume liability
for acts done before he became a partner.
Clause 32 (Section 32).—In sub-clause (2) we have added words explaining that the agreement can be implied only
by a course of dealing after the third-party had notice of the retirement.
Clause 36 (Section 36).—We have deleted the last nineteen words as the restriction they would place on the
agreement contemplated seems to us to be undesirable.
Clause 37 (Section 37).—We have deleted the reference to the court as unnecessary.
Clause 50 and 53 (Sections 50 and 53).—In both clauses we have inserted proviso which will protect the rights of a
partner who has the goodwill of the firm.
Clause 53-A (Section 54).—The clause reproduces the second Exception to section 27 of the Indian Contract Act
with amendments to assimilate it to clause 36 (2).
Clause 54 (Section 55).—In sub-clause (2), we have made a small drafting amendment. In sub-clause (2) we have
made the same amendment which we have made in clause 26 (2).
Clause 57 (Section 58).—Under the original draft of sub-clause (1) the validity of the registration of a firm could be
disputed on the ground that its principal place of business does not lie within the area in which it has been
registered. To avoid this we propose that registration may be effected in any area in which the firm carries on
business.
The small amendment in clause (e) will require partners to give their name in full.
At the end of sub-clause (1) we have inserted words which will allow partners residing at a distance to give special
authority to agents to sign on their behalf application for registration. This amendment covers the signing of
statements under clause 59 (Section 60).
Clauses 60 and 61 (Sections 61 and 62), are similarly amended but as regards these less important acts we have
not required special authorisation.
Clauses 62 (Section 63).—We have amended the clause in the same manner as clause 57 (Section 58); and we
have also made an amendment consequential on the amendments of clause 30.
Clause 67 (Section 68).—To amendments in this clause are consequential on amendment in clauses 57, 60, 61
and 62 (Sections 58, 61, 62 and 63).
Clause 68 (Section 69).—We have inserted the new sub-clause (4) to provide for the cases of firms whose places
of business are outside British India or in areas exempted from the operation of this Chapter. Such firms will be
allowed to institute a suit without being registered in any court in British India which otherwise has jurisdiction to try
the suit.
Clause 70 (Section 71).—As regards the fixing of fees payable to registering Officer, we consider it most desirable
that the fees should be uniform throughout India and that they should not be allowed to be developed into a source
of revenue disproportionate to the service rendered. We have, therefore, made a special sub-clause giving the
power to make rules to fix fees to the Governor-General-in-Council and we have framed a schedule setting out the
maximum rates which may be prescribed.
Clause 71 (Section 72).—The first amendment in clause (a) is consequential upon the amendments in clause 30.
We have made an important change in the clause by requiring that all public notices shall be published in the
Gazette and in a local vernacular newspaper. In addition, public notice relating to registered firms must also be
communicated to the Registrar of Firms. In view of the wide area in which many firms in India operate, it seems to
use being sufficient that notices relating to registered firms should be made merely by intimation to a Registrar of
Firms.
We think the Bill has not been so altered as to require republication and we recommend that it be passed as now
amended.
HAR BILAS SARDA
L. GRAHAM
L.V. HEATHCOTE
SATISH CH. SEN
S.C. MITRA
TRILOK NATH BHARGAVA
RAMESHWAR P. BAGLA
The 23rd January, 1932
New Delhi
NOTE OF DISSENT
1. While agreeing generally with the views set fourth in the Report of the Select Committees, I find there are a few
points on which I am unable to agree with the conclusion embodied in the Report.
2. The Indian Partnership Bill is based on the English Partnership Act of 1890 A. D. and, generally speaking, closely
follows the provisions of the later Act. As I am of opinion that trade and commerce in India have not always followed
the same line of development as trade in England has done and as conditions of life differ materially in certain
respects in the two countries. I think that the means employed in England to achieve an object are not always
suitable to be employed in India to achieve the same end. In view of this difference, I am apt to think that the
provisions contained in Chapter VII of the Bill should be very cautiously and very gradually applied to India. The
framers of the Bill in enacting sub-clause (3) of clause I have recognised the difference between the business
conditions in India and those in England by providing that clause 68 (Section 69) of the Bill shall come into
operation 12 months after the rest of the Bill comes into operation: in other words, after people in India have to
some extent become familiar with the principles underlying the Bill.
3. Clause 68 (Section 69) is not only the most vital clause in Chapter VII—the most important Chapter in the Bill—
but it introduces a provision on which serious difference of opinion exists.
4. 1 have no doubt whatever that from the point of view of courts administering the law and of the legal
practitioners, enactment of clause 68 would be most useful inasmuch as some of the difficulties sometimes now
experienced in order to prove the constitution of a particular firm would be removed. But the matter has to be looked
at also from the point of view of traders and businessmen. And looking at the matter from the point of view of men
engaged in business on small scale the provisions of clause 68 (Section 69) will prove a serious clog on business in
small town and villages. I am, therefore, of opinion that the clause should not apply to partnership firms doing
business on a very restricted or small scale. While admitting that limitation of the application of clause 68 (section
69) in geographical terms may be invidious and a definition of small business in terms of capital employed in the
business not easy. I still think that the resources of language are not so inadequate as to fail to define with a certain
degree of accuracy any exactness the limitation which we would place on the application of this clause. I would, for
instance, provide that this shall not apply to firms which can disclose the capital of the firm and the capital is below
Rs. 1,000 or more. A provision like this will not only fully serve the purpose for which clause 68 is sought to be
enacted but will afford relief from the clogging operation of this clause to small firms doing business in villages and
smaller towns and whose operations do not admit of those firms being placed on the same place of action as the
big partnership firms operating in big cities on a large scale.
5. Another point on which I have to make an observation is with regard to the penalties provided in clause 69
(Section 70). This clause places on the same footing “a false statement” and “an incomplete statement” and
provides the same punishment for both. I am of opinion that if it be at all deemed necessary to provide in this Act a
penalty for filing false statement I should have no objection, But I think that the penalty for filing an incomplete
statement, should not be more than a nominal fine say, Rs.50 or more particularly in view of the fact that clause 58
(Section 59) provides that the Registrar will record the particulars supplied, only when he is satisfied that they fulfil
the provisions of clause 57 (Section 58) which enumerates the particulars required by law to be filed.
6. Another point which I wish to emphasise is that the Partnership Act is not a revenue measure and must not be so
worked as to be made a source of revenue. Some expenses will have to be incurred to keep a staff to do that work
of registration as provided in Chapter VII. Sufficient registration fees should, therefore, be levied to cover this extra
expenditure. I, therefore, think that the schedule of fees (Schedule I) proposed to be levied under clause 70
(Section 71) is rather high. I would alter Schedule I, so as to substitute Re. 1 for 3-0-0 and 0-8-0 for one rupee,
wherever mentioned. The copying fee should be four annas for every page of the copy in place of four annas for
every 100 words.
HAR BILAS SARDA
End of Document
APPENDIX III Statement of Objects and Reasons


The Report of the Special Committee given hereunder explains the Bill. The constitution of the Committee was as
follows:—
Chairman.— The Honourable Sir Brojendra Lal Mitter, Kt., Bar-at-Law, Law Member of the Council of the Governor-
General.
Members
(1) Sir Dinshah Fardunji Mullah, Kt., C.I.E., M.A., LL.B., Advocate, Bombay.
(2) Mr. Alladi Krishnaswami Ayyar, Advocate-General, Madras.
(3) Mr. Arthur Eggar, MA., Bar-at-Law Government Advocate, Rangoon.
(4) Mr. D.G. Mitchell, C.I.E., I.C.S., Officiating Secretary to the Government of India, Legislative Department,
attended the meetings of the Committee, and
(5) Mr. A. De C. Williams, I.C.S., Deputy Secretary in the Law Department, acted as Secretary to the
Committee.
The engagements of some of its members prevented the Committee from meeting for some time, but it assembled
at New Delhi on the 3rd of November, 1930 where its first meeting was held and it continued its deliberations daily
until Monday, the 17th. A Bill to define and amend the law relating to partnership, with notes setting forth the
reasons for its various provisions which had already been prepared in the Legislative Department, was placed
before us and formed the basis of our discussions.
The Present Bill is the second of the series foreshadowed by the Special Committee and like its predecessor it is
based on the corresponding English Act [In this case, the Partnership Act, 1890 (53 and 54 Vict., c 39)]. The law
relating to partnership is at present contained in Chapter XI of the Indian Contract Act, 1872, which was based on
the rules included in the Report of the Indian Law Commission presided over by Lord Romilly in 1866. These rules
were based on English precedents. The main object, then, in view was in the words of Sir James Stephen who
piloted the Indian Contract Bill through the council, “that of providing a body of law to the Government of the country
so expressed that it might be readily understood both by English and Indian. Government servants without extrinsic
help from the English law libraries”. With that object in view the Select Committee on the Indian Contract Bill, in its
Report dated 22nd February, 1870, said that many important matters relating to the partnership were left unnoticed
in Chapter XI. In addition to these omissions, the development of trade in India has shown further matters on which
legislation is now required. In the absence of clear and definite rules on these points, Indian Courts have held that
Chapter XI of the Indian Contract Act is not exhaustive and have relied on analogies drawn from the English Law. In
regard to partnership, the position is much the same as that in regard to the sale of goods, and the remarks of the
Special Committee on the Sale of Goods Bill in paragraph 6 of their Report may be repeated with cogency:
“Whatever merit the simple and elementary rules embodied in the Indian Contract Act may have had, however,
sufficient and suitable they may have been for the needs which they were intended to meet in 1872, the passage of
time has revealed defects on the removal of which has become necessary in order to keep the law abreast of the
developments of modern business relations.”
The Partnership Act, 1890, however, has not been such a successful piece of codification as the English Sale of
Goods Act, 1893 and herein lies the contrast. The full context of the quotation from Lindley given above runs as
follows:-
“Opinions will naturally differ as to the utility of statutes which deal with important branches of law, but which do not
profess to deal with them exhaustively. No doubt an incomplete piece of work is unsatisfactory; but it does not
follow that such a work is not worth executing; if it is well done as far as it goes it may be a great boon; and the
Partnership Act, 1890, although imperfect, has the merit of reducing a mass of law previously undigested except by
private authors into series of propositions authoritatively expressed and as carefully considered as any Act of
Parliament is likely to be”.
The learned author of the treatise proceeds to discuss the difficulty of passing a considered code of law on a
technical subject through a democratic Legislature like Parliament and he concludes: “Taken as a whole the law of
England both civil and criminal, is well adapted to the requirements of the English people but it sadly wants
methodising and authoritative revisions; and any such revision of any branch of it is a distinct gain. From this point
of view the Act in question (i.e., the Partnership Act, 1890) is decidedly useful, although it is by no means a perfect
measure nor even as good as Parliament might have made it”.
These remarks have encouraged us to depart from the precedent of Sale of Goods Bill where the English Act was
modified in a few particulars only, and to use the Partnership Act, 1890, with some degree of freedom.
Nevertheless, the Bill does not alter in any substantial way the English Law of partnership or the Indian Law of
Partnership, which is based thereon. The main principles are the same, and likewise all important details. The
deviations in principle, it does show, are on minor points, and have been introduced in order to adapt the law to
Indian conditions or to supplement it in places where it is complete, or are supported by the views of authoritative
commentators. Further, the wording of clearly defined principles in the Partnership Act, 1890 has been freely
adopted. Admittedly, any change in the wording of the English Act may have the disadvantage of making useful
English decisions to apply to Indian cases, but it is anticipated that the practical identity in substance of the two
Acts, and the similarity in wording of important provisions will avoid this undesirable result and will attract to difficult
cases in India the benefits of English judicial experience.
.....apart from the preliminary Chapter and the Chapter on “The Nature of Partnership”,
the Bill has three Chapters which deal with the wording “firm”, namely:-
Chapter III—Relations of partners to one another,
Chapter IV—Relations of partners of third parties,
Chapter V—Incoming and outgoing partners,
and one Chapter relating to the extinction of a firm, namely:-
Chapter VI—Dissolution of a firm.
All the proposals made at various times were considered by the Government of India, but owing either to lack of
inability among the proposers or the difficulties in the proposals themselves, no conclusions were derived which
could form the basis of a Bill, and which could hold some promises to a successful passage through the Indian
Legislature. The difficulties related to-
(1) Hindu undivided families;

(2) Short-lived partnerships; and
(3) Firm in a small way of business,
and a short discussion of these will disclose the reasons why nothing to far has been done, and will help to explain
the present proposals.
17. The outlines of the scheme briefly as follows and are: The English precedent in so far as it makes registration
compulsory and imposes a penalty for non-registration has not been followed, as it is considered that this step
would be too drastic for a beginning in India and would introduce all the difficulties connected with small and
ephemeral undertakings. Instead, it is proposed that registration should lie entirely within the discretion of the firm or
partner concerned; but following the English precedent, any firm which is not registered will be unable to enforce its
claims against third parties in the civil Courts; and any partner who is not registered will be unable to enforce his
claims either against third parties or against his fellow partners. One exception to this disability is made—An
unregistered partner in any firm, registered or unregistered, may sue for dissolution of the firm. This exception is
made on the principle that registration is designed primarily to protect third parties, and the absence of registration
need not prevent the disappearance of an unregistered or imperfectly registered firm. Under this scheme a small
firm or a firm created for a single venture not meeting with difficulty in getting payment, need never register; and
even a firm with a large business need not register until it is faced with litigation. Registration may then be effected
at any time before the suit is instituted. The rights of third parties to sue the firm or any partner are left intact.
18. Once registration has been effected, the statements recorded in the register regarding the constitution of the
firm will be conclusive proof of the facts therein contained against the partners making them, and no partner whose
name is on the register will be permitted to deny that he is a partner with certain natural and proper exceptions
which will be indicated later. This should afford a strong protection to persons dealing with firms against false
denials of partnership and the evasion of liability by the substantial members of a firm.
19. The framing of inducements to register changes in a firm has been difficult, but the devices proposed in the Bill
are put forward as being as strong as may be created, in the absence of penal sanction and without altering any of
the established principles of partnership law. As regards a partner newly introduced into the firm, if he fails to
register he will incur a grave risk of being unable to claim his dues from his partners, and will have to rely solely on
their good faith or sue for dissolution. On the other hand, the third party who deals with a firm and knows that a new
partner has been introduced can either make registration of the new partner a condition for further dealings, or
content himselfwith the certain security ofthe other partners and the chance ofproving by other evidence the
partnership of the new but unregistered partner. A third party who deals with a firm without knowing of the addition
of a new partner counts on the credit of the old partners only, and will not be prejudiced by the failure of the new
partner to register.
20. As regards outgoing partners the Bill provides that the estate of a deceased partner or of an insolvent partner is
in no case liable for the acts of the firm after his death or insolvency. This rule is well established and is hard and
fast. Nothing in the way of registration of the death or insolvency of a partner, therefore, can improve the position of
third parties, and no inducement need be offered, beyond the desire which will actuate most firms to keep their
entry in the register up to date for the information and benefit of intending customers. These are the exceptions
mentioned above, where the existence of a name on the register may not establish the partnership of the person
named.
21. As regards retired or expelled partners, who are legally on the same footing, there will be strong inducement to
have the changes noted in the register. The law provides that a retired or an expelled partner continues to be liable
for the acts of the firm, and the firm continues to be liable for any act of theirs purporting to be done on behalf of the
firm, until public notice is given of the retirement or expulsion. Clause 71 (new section 72) of the Bill provides that
this public notice can be given as regards retirement and expulsion only by notice to the Registrar, which will be
recorded in the register. Hence, when a partner retires or is expelled, it will be in his own interest and also in the
interest of the remaining partners to give immediate notice of the change to the Registrar.
22. Similar considerations apply when a firm is dissolved. All the partners will still be liable for the acts of any of
them which would have bound the firm if done before its dissolution until public notice is given. Here again it will be
in the interest of all the partners that early notice should be given, and this can only be done by notice to the
Registrar.
23. To sum up, it is anticipated that once a firm has been registered, the register of firms will continue to contain a
complete and up-to-date list of all partners who will be liable for the debts of the firm to persons who propose to
deal with the firm.
24. One more point regarding the registration of firms calls for mention. It is proposed that the chapter, in so far as
provides machinery for registration, amendment of the register, grant of copies and so forth, should come into force
along with the rest of the Bill, so that firms may apply for registration at once. The clause regarding the conclusive
nature of the statements recorded in the register will come into force at the same time. However, it would obviously
be unjust to make all unregistered firms and partners incapable of suing until they have had a reasonable
opportunity to register; and it is proposed that they should be allowed one year, by enacting that the clause
rendering them incapable of suing shall not come into force until one year after the commencement of the rest of
the Act [see sub-section (3) of section 1].
25. It has already been indicated that the Bill contains other provisions which are not contained in the Partnership
Act, 1890. These are considered in detail in the Notes on Clauses, but one set of provisions is important enough to
justify its mention in this Report. In the introduction to Lindley page 8, it is said under the marginal head “Goodwill”,
“one matter of great practical importance and of some difficulty is unfortunately not dealt with i.e., the goodwill of
dissolved firm and the extent to which, and the persons by whom, the use of its name may be continued. Sir
Frederick Pollock’s Bill dealt with these points; as did also the Bill which passed the House of Commons in 1889
and the Bill which was brought into the House of Lords in 1890. But owing, it is believed, to differences of opinion,
and to the difficulty of arriving at a conclusion which would be acceptable to both Houses of Parliament, the clauses
relating to these subjects were struck out. The law upon them must, therefore, be extracted from judicial decisions
and the doubts and difficulties which beset questions arising on these subjects must remain for future judicial or
legislative solution”.
Perhaps a reason for the differences of opinion on the clauses relating to goodwill was that they were framed
generally, and not with application to the goodwill of firms only. Sir Frederick Pollock himself says in his Digest of
the Law of Partnership (12th Edn., pp. 121122): “The Act does not make any express provisions of disposing of the
goodwill on the dissolution of a firm. Probably this is due to the consideration that the rules of law relating to
goodwill are not confined to cases where a business has been carried on in partnership and, therefore, do not
belong to the law of partnership in any exact sense. Nevertheless the rules have been settled chiefly by decisions in
partnership cases, and the question of goodwill is one of those which ought always to be considered and provided
for in the formation of a partnership and constantly has to be considered on its dissolution, whether provided for or
not”.
It is considered that the views of these two eminent writers should be followed; and accordingly provision is made in
the Bill for the disposal of the goodwill of a firm [see section 55] “Provisions governing the sale of goodwill generally
would be out of place, but they are of sufficient importance in their bearing on firms, to justify their inclusion in a
restricted form. There is perhaps no statute on the Indian Statute Book where general provisions could find a logical
place, but it is hoped that the provisions now proposed for the goodwill of firms will be found to contain principle
which may be used as a general guide.”
ACT 9 OF 1932
The Indian Partnership Bill having been passed by the Legislature received its assent on 8th April, 1932. It came on
the Statute Book as THE INDIAN PARTNERSHIP ACT, 1932 (9 of 1932) (Came into force on 1-10-1932, except
section 69. Section 69 came into force on 1-10-1933).
End of Document
APPENDIX IV Repealed Provisions of Indian Contract Act, 1872


(Act IX of 1872)
Chapter XI (Sections 239-266)
[Rep. by the Indian Partnership Act, 1932 (9 of 1932)]
OF PARTNERSHIP
239. “Partnership” Defined.—”Partnership” is the relation which subsists between persons who have agreed to
combine their property, labour or skill in some business, and to share the profits thereof between them.
“Firm” Defined.—Persons who have entered into partnership with one another are called collectively a “firm”.
Illustrations
(a) A and B buy 100 bales of cotton, which they agree to sell for their joint account; A and B are partners in
respect of such cotton.
(b) A and B buy 100 bales of cotton, agreeing to share it between them. A and
(c) B are not partners.
(d) A agrees with B, a goldsmith, to buy and furnish gold to B, to be worked up by him and sold, and that they
shall share in the resulting profit or loss. A and B are partners.
(e) A and B agree to work together as carpenters, but that A shall receive all profits and shall pay wages to B.
A and B are not partners.
(f) A and B are joint owners of a ship. This circumstance does not make them partners.
240. Lender not a partner by advancing money for share of profits.—A loan to a person engaged or about to
engage in any trade or undertaking upon a contract with such person that the lender shall receive interest at a rate
varying with the profits or that he shall receive a share of the profits, does not, of itself, constitute the lender a
partner, or render him responsible as such.
241. Property left in business by retiring partner, or deceased partner’s representative.—In the absence of
any contract to the contrary, property left by a retiring partner, or the representative of a deceased partner, to be
used in the business is to be considered a loan within the meaning of the last preceding section.
242. Servant or agent remunerated by share of profits, not a partner.—No contract for the remuneration of a
servant or agent of any person, engaged in any trade or undertaking, by a share of the profits of such trade or
undertaking shall, of itself, render such servant or agent responsible as a partner therein, nor give him the rights of
a partner.
243. Widow or child of deceased partner receiving annuity out of profits, not a partner.—No person, being a
widow or child of a deceased partner of a trader and receiving, by way of annuity, a proportion of the profits made
by such trader in his business, shall, by reason only of such receipt, be deemed to be a partner of such trader, or be
subject to any liabilities incurred by him.
244. Person receiving portion of profits for sale of goodwill, not a partner.—No person receiving, by way of
annuity or otherwise, a portion of the profits of any business, in consideration of the sale by him of the goodwill of
such business, shall, by reason only of such receipt, be deemed to be a partner of the person carrying on such
business, or be subject to his liabilities.
245. Responsibility of person leading another to believe him a partner.—A person who has, by words spoken
or written or by his conduct, led another to believe that he is a partner in a particular firm is responsible to him as
partner in such firm.
246. Liability of person permitting himself to be represented as a partner.—Any one consenting to allow
himself to be represented as a partner is liable, as such, to third persons who, on the faith thereof, give credit to the
partnership.1
247. Minor partner not personally liable but his share is.—A person who is under the age of majority according
to the law to which he is subject2 may be admitted to the benefits of partnership, but cannot be made personally
liable for any obligation of the firm; but the share of such minor in the property of the firm is liable for the obligations
of the firm.
248. Liability of minor partner on attaining majority.—A person who has been admitted to the benefits of
partnership under the age of majority3 becomes, on attaining that age, liable for all obligations incurred by the
partnership since he was so admitted, unless he gives public notice within a reasonable time, of his repudiation of
the partnership.
249. Partner’s liability for debts of partnership.—Every partner is liable for all debts and obligations incurred
while he is a partner in the usual course of business by or on behalf of the partnership; but a person who is
admitted as a partner into an existing firm does not thereby become liable to the creditors of such firm for anything
done before he became a partner.
250. Partner’s liability to third person for neglect or fraud of co-partner.—Every partner is liable to make
compensation to third persons in respect of loss or damage arising from the neglect or fraud of any partner in the
management of the business of the firm.
251. Partner’s power to bind co-partners.—Each partner who does any act necessary for, or usually done in
carrying on the business of such a partnership as that of which he is a member binds his co-partners to the same
extent as if he were their agent duly appointed for that purpose.
Exception.—If it has been agreed between the partners that any restriction shall be placed upon the power of any
one of them, no act done in contravention of such agreement shall bind the firm with respect to persons having
notice of such agreement.
Illustrations
(a) A and B trade in partnership, A residing in England, and B in India. A draws a bill of exchange in the name
of the firm. B has no notice of the bill, nor is he at all interested in the transaction. The firm is liable on the
bill, provided the holder did not know of the circumstances under which the bill was drawn.
(b) A, being one of a firm of solicitors and attorneys, draws a bill of exchange in the name of the firm without
authority. The other partners are not liable on the bill.
(c) A and B carry on business in partnership as bankers. A sum of money is received by A on behalf of the
firm. A does not inform B of such receipt, and afterwards A appropriates the money to his own use. The
partnership is liable to make good the money.
(d) A and B are partners. A, with the intention of cheating B, goes to a shop and purchases articles on behalf
of the firm, such as might be used in the ordinary course of the partnership business, and converts them to
his own separate use, there being no collusion between him and the seller. The firm is liable for the price of
the goods.
252. Annulment of contract defining partners’ rights and obligations.—Where partners have by contract
regulated and defined, as between themselves, their rights and obligations, such contract can be annulled or
altered only by consent of all4 of them, which consent must either be expressed, or be implied from a uniform
course of dealing.
Illustration
A, B and C, intending to enter into partnership, execute written articles of agreement, by which it is stipulated that
the net profits arising from the partnership business shall be equally divided between them. Afterwards they carry
on the partnership business for many years, A receiving one-half of the net profits and the other half being divided
equally between B and C. All parties know of and acquiesce in this arrangement. This course of dealing supersedes
the provision in the articles as to the division of profits.
253. Rules determining partners’ mutual relations, where no contract to contrary.—In the absence of any
contract to the contrary the relations of partners to each other are determined by the following rules:—
(1) all partners are joint owners of all property originally brought into the partnership stock, or bought with
money belonging to the partnership, or acquired for purposes of the partnership business. All such property
is called partnership property. The share of each partner in the partnership property is the value of his
original contribution, increased or diminished by his share of profits or loss.
(2) all partners are entitled to share equally in the profits of the partnership business, and must contribute
equally towards the losses sustained by the partnership.
(3) each partner has a right to take part in the management of the partnership business.
(4) each partner is bound to attend diligently to the business of the partnership, and is not entitled to any
remuneration for acting in such business.
(5) when differences arise as to ordinary matters connected with the partnership business, the decision shall
be according to the opinion of the majority of the partners; but no change in the nature of the business of
the partnership can be made, except with the consent of all the partners.5
(6) no person can introduce a new partner into a firm without the consent of all the partners.
(7) if from any cause whatsoever any member of a partnership ceases to be so, the partnership is dissolved as
between all the other members.
(8) unless the partnership has been entered into for a fixed term, any partner may retire from it at any time.
(9) where a partnership has been entered into for a fixed term, no partner can during such term, retire except
with the consent of all the partners, nor can he be expelled by his partners for any cause whatever, except
by order of court. (10) partnerships, whether entered into for a fixed term or not, are dissolved by the death
of any partner.
254. When court may dissolve partnership.—At the suit of a partner the court may dissolve the partnership in the
following cases:—
(1) when a partner becomes of unsound mind;

(2) when a partner, other than the partner suing, has been adjudicated an insolvent under any law relating to
insolvent debtors;
(3) when a partner, other than the partner suing, has done any act by which the whole interest of such partner
is legally transferred to a third person;
(4) when any partner becomes incapable of performing his part of the partnership contract;
(5) when a partner, other than the partner suing, is guilty of gross misconduct in the affairs of the partnership
or towards his partners;
(6) when the business of the partnership can only be carried on at a loss.
255. Dissolution of partnership by prohibition of business.—A partnership is in all cases dissolved by its
business being prohibited by law.
256. Rights and obligations of partners in partnership continued after expiry of term for which it was
entered into.—If a partnership entered into for a fixed term be continued after such term has expired, the rights and
obligations of the partners will, in the absence of any agreement to the contrary, remain the same as they were at
the expiration of the term, so far as such rights and obligations can be applied to a partnership dissolvable at the
will of any partner.
257. General duties of partners.—Partners are bound to carry on the business of the partnership for 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 partnership to any partner or his legal representatives.
258. Account to firm, of benefit derived from transaction affecting partnership.—A partner must account to
the firm for any benefit derived from a transaction affecting the partnership.
Illustrations
(a) A, B and C are partners in trade. C, without the knowledge of A and B, obtains for his own sole benefit a
lease of the house in which the partnership business is carried on. A and B are entitled to participate if they
please, in the benefit of the lease.
(b) A, B and C carrying on business together in partnership as merchants trading between Bombay and
London. D, a merchant in London, to whom they make their consignments, secretly allows C a share of the
commission which he receives upon such consignments, in consideration of C*s using his influence to
obtain the consignments for him. C is liable to account to the firm for the money so received by him.
259. Obligations, to firm, of partner carrying on competing business.—If a partner, without the knowledge and
consent of the other partners, carries on any business competing or interfering with that of the firm, he must
account to the firm for all profits made in such business, and must make compensation to the firm for any loss
occasioned thereby.
260. Revocation of continuing guarantee by change in firm.—A continuing guarantee, given either to a firm or
to a third person, in respect of the transactions of a firm, is in the absence of agreement to the contrary, revoked as
to future transactions by any change in the constitution of the firm to which, or in respect of the transactions of
which, such guarantee was given.
261. Non-liability of deceased partner’s estate for subsequent obligations.—The estate of a partner who has
died is not, in the absence of an express agreement, liable in respect of any obligation incurred by the firm after his
death.
262. Payment of partnership debts, and of separate debts.—Where there are joint debts due from the
partnership, and also separate debts due from any partner, the partnership property must be applied in the first
instance in payment of the debts of the firm, and, if there is any surplus, then the share of each partner must be
applied in payment of his separate debts or paid to him. The separate property of any partner must be applied first
in the payment of his separate debts, and the surplus (if any) in the payment of the debts of the firm.
263. Continuance of partner’s rights and obligations after dissolution.—After a dissolution of partnership, the
rights and obligations of the partners continue in all things necessary for winding-up the business of the partnership.
264. Notice of dissolution.—Persons dealing with a firm will not be affected by a dissolution of which no public
notice has been given, unless they themselves had notice of such dissolution.
6265. Winding-up by court on dissolution or after termination.—Where a partner is entitled to claim a
dissolution of partnership, or where a partnership has terminated, the court may, in the absence of any contract to
the contrary, wind up the business of the partnership, provide for the payment of its debts and distribute the surplus
according to the shares of the partners respectively.
266. Limited liability partnerships, incorporated partnerships and joint-stock companies.—Extraordinary

partnerships, such as partnerships with limited liability, incorporated partnership and joint-stock companies, shall be
regulated by the law for the time being in force relating thereto.7
1 Section 109 of the Indian Evidence Act 1872 (1 of 1872).

2 The Indian Majority Act 1875 (IX of 1875).
3 The Indian Majority Act 1875 (IX of 1875).
4 Section 253, cl (5), infra.
5 Section 252, supra.
6 This section was substituted for the original s 265 by the Indian Contract Act (1872), Amendment Act 1886 (IV of 1886),
section 1.
7 The Companies Act 1956 (I of 1956) and the following special Acts: V of 1838 (Bengal Bonded Warehouses), as
amended by V of 1854, V of 1857 (Oriental Gas Company), as amended by XI of 1867; Madras Act VI of 1869
(Equitable Assurance Society); the other special Acts, as being such Acts, have not been republished in any Code.
End of Document
APPENDIX VI REPORT OF THE LAW COMMISSION ON THE PARTNERSHIP

ACT
APPENDIX VI REPORT OF THE LAW COMMISSION ON THE

PARTNERSHIP ACT
PART I—GENERAL
History of the Legislation
Prior to 1932, Chapter XI (Sections 239 to 266) of the Indian Contract Act, 1872 (Act IX of 1872) contained the law
relating to partnership in India. As these provisions were not exhaustive, it was considered expedient and
necessary to separate the law relating to partnership and to embody it in a separate enactment; hence, the Indian
Partnership Act, 1932 (Act IX of 1932). This Act is based mainly on the English Partnership Act, 1890 (53 and 54
Viet., c. 39) which codified the common law relating to partnership. The English Partnership Act, 1890 has been the
basis of the law of partnership in all countries which have adopted the English common law as the basis of their
law, for example, some of the countries constituting the Commonwealth and the United States of America.
2. Before the enactment of the Indian Partnership Act, 1932, the whole subject was carefully examined by a Special
Committee1 which scrutinised the English Partnership Act and the judicial decisions in England and in India with a
view to adapting the English provisions to the needs and conditions of India. Apart from minor differences
necessitated by the peculiar conditions of India, the basic principles embodied in the Indian Partnership Act, 1932
are the same as those contained in the English Partnership Act, 1890 and in the Uniform Partnership Act prepared
in the United States of America.2 The difficulties felt and the defect, disclosed in the working of the English
Partnership Act from 1890 to 1931 were considered by the Special Committee1 which drafted the Indian Partnership
Bill and provisions were made in the Act so as to avoid these difficulties and defects.
Scope of the revision proposed
3. We have examined the provisions of the Indian Partnership Act, 1932, in the light of the judicial decisions in India
and in England and we find that, apart from the alterations which are set out hereinafter, it is not necessary to make
any other radical changes. In our opinion, on the whole, the Act is comprehensive and adequate enough to meet
the growing needs and requirements of Indian trade, commerce and industry and facilitates varied relationships
between individuals who intend to associate themselves for the purpose of carrying on trade and commerce.
Suggestion that a firm should be recognised as a legal entity, not accepted
4. It has been suggested to us that the fundamental principle on which the Indian Partnership Act is based, viz., that
a “firm” is not a legal person or a legal entity, should be replaced by the contrary principle which recognises a firm
as a legal person or a legal entity, on the ground that such a change would be useful to the business and
commercial community as well as to those who deal with a firm and that it would also simplify proceedings by and
against a firm. This question has for a long time engaged the attention of jurists, lawyers and text-book writers in
India, England and the United States of America. In England, it has been suggested that the English law of
Partnership should in this respect be assimilated to that of Scotland which recognises a firm as a legal or juristic
person. Lindley, in the Introduction to his book on “Partnership”, regretted that a firm was not recognised as a
juristic person and stated3—
APPENDIX VI REPORT OF THE LAW COMMISSION ON THE PARTNERSHIP ACT
This non-recognition of the firm was a defect in the law of Partnership; and it is to be regretted that the Partnership
Act did not go further than it did in the direction of assimilating English Law to the Scotch.
However, notwithstanding a considerable body of opinion in England being in favour or the recognition of a firm as a
legal person, the British Parliament has not so far accepted that principle.
5. In the United States of America, before the Uniform Partnership Act was drawn up, it was vehemently advocated
that the principle recognising a firm as a legal person should be adopted as the basis of the law of partnership and
at one stage the general opinion was in favour of the adoption of this principle. But ultimately, “The Theory was not
accepted, as it was felt that it was in the last analysis based on an assumption which did not accord with business
practice.”4
6. The difficulties which result from the non-recognition of a firm as a legal person, were carefully examined by the
Special Committee5 which drafted the Indian Partnership Bill and the Committee tried to meet these difficulties by
appropriate modifications of some of its provisions, without altering the basic conception that a firm is not a legal
entity.
7. The non-recognition of a firm as a legal person renders possible elasticity of relationship between the persons
who enter into a partnership. This is a great advantage to the business community, as it facilitates the association of
persons with varying; means and diverse abilities to carry on business on the collective credit of all the partners.
The common law theory of partnership (known in the United States of America as the “aggregate” theory), as has
been worked out in the Indian Partnership Act meets the requirements and needs of the business community.
Under this theory, the partners own in common the partnership property and they are joint principals in partnership
transactions. The activities carried on by the partners are not regarded as being carried on by a legal personality
distinct from their individual personalities. The practical difficulties which have been experienced in the
administration of the law of partnership have been to a large extent overcome by the modification of the procedure
applicable to a firm.
8. It is true that merchants and lawyers have different notions respecting the nature of a firm. Commercial men and
accountants are apt to look upon a firm in the light in which the lawyers took upon a corporation. i.e. as a body
distinct from the members composing it. Thus, in keeping accounts “merchants” habitually show a firm as a debtor
to each partner for what he brings into the common stock and each partner is shown as a debtor to the firm for all
that he takes out of this stock. But this is a business point of view and not a legal conception. Mercantile usage
relating to a firm has, however, been adopted in the law of partnership, to a certain extent. Thus, a firm, not, being a
legal entity, could not, either in England or in India, sue or be sued in the firm name or sue or be sued by its own
partners, for one cannot sue oneself. This difficulty with regard to the law of procedure has, however, been removed
both in England and in India under the pressure of considerations of commercial convenience and a firm is now
allowed to sue or be sued in the firm name as if it were a corporate body. [See Rules of the English Supreme Court,
Order XLVIII-A and Order XXX of our Code of Civil Procedure, 1908 (Act V of 1908)]. The law of procedure has
gone to the length of allowing a firm to sue and be sued by another firm having some common partner or even to
sue or be sued by any one or more of its own partners (see Order XXX, rule 9 of the Code of Civil Procedure), as if
a firm were an entity distinct from its partners. Again, in taking partnership accounts and administering partnership
assets the law has, to some extent, adopted the mercantile view inasmuch as the liabilities of a firm are regarded as
the liabilities of the partners only in case they cannot be met and discharged by the firm out of its own assets.
Further, when there are joint debts due from any firm as well as separate debts due from any partner, the creditors
of the firm are in the first place to satisfy their claims out of the partnership assets and if there is any surplus, then
the share of each partner in such surplus is applied in payment of his separate debts, if any, or paid to him.
Conversely, the separate property of a partner is applied first in payment of his separate debts and the surplus, if
any, is utilised in meeting the debts of the firm (see section 49 of the Indian Partnership Act). Thus it is clear that the
law, English as well as Indian, has for some specific purposes, relaxed its rigid application of the aggregate theory
and given, to a limited extent, a legal personality to a firm. Nonetheless, the general concept of partnership is that a
firm is not an entity or a person in law but is merely an association of persons and the firm name is only a collective
name for individuals who constitute the firm or only a compendious mode of describing the persons who have
agreed to carry on business in partnership. It is in this view of the matter that a firm is not entitled as such to enter
into partnership with another firm or individual and the firm is not a person in the strict sense of the term. This legal
position of a partnership is succinctly stated by Das C.J. in a recent decision of the Supreme Court; Dulichand
Laxminarayan rom. Commissioner of Income-tax, Nagpur6 and we do not consider it necessary to alter it.
9. Upon a consideration of the judicial decisions and of the defects disclosed in the administration of the existing
law relating to partnership in India, we have reached the conclusion that there are no cogent and compelling
reasons to justify the alteration of the basic principle of our law of partnership and to disturb long-settled notions as
regards the true nature and character of a partnership and the relations of the partners inter se and with the outside
world. No serious inconvenience or embarrassment has been experienced by the business community by the non-
recognition of a firm as a legal person, and the practical difficulties experienced in the administration of the law
have, to a large extent, been eliminated.
Suggestion for requiring partnership agreements to be in writing—partially accepted.
10. It has been suggested that a provision should be made in the Act requiring a partnership agreement to be in
writing, as it would have the obvious advantage of enabling the Courts to ascertain the terms of the agreement and
the rights of the partners with greater certainty than at present. Since there are a large variety of partnerships in
India, many of which are of a very short duration or relate to a single venture or involve only a small capital, and the
existing law allows the terms of a partnership to be proved by oral evidence or even by conduct of parties, we
cannot introduce a comprehensive provision requiring all partnerships to be in writing, without causing hardships to
the trading community as well as serious administrative difficulties. But as the suggestion has come from a
substantial section of the business community itself and as, in practice, partnership agreements are reduced to
writing whenever the partnerships are substantial, we consider that the suggestion should be accepted partially.
11. We are of the opinion that partnerships in particular adventures or undertakings which are completed within a
period of six months from their commencement should not be required to be in writing. We recommend that a
contract determining the rights and duties of partners should be in writing in the case of every partnership at will and
every partnership whose duration is to be for six months or more, except in cases where the capital of the
partnership is less than rupees five hundred. We further recommend that in cases where the contract of partnership
is required to be in writing, the partnership shall not be recognised for the enforcement of rights and obligations of
the firm and its partners unless the requirement of a contract in writing is fulfilled.
Suggestion as to compulsory registration of firms—partially accepted
12. It has been suggested that a provision should be made in the Partnership Act for the compulsory registration of
every firm. The question of compulsory registration of a firm has engaged the attention of the Government and the
Legislature for a long time as, on account of want of registration, difficulties have been experienced in the decision
of questions relating to the existence, and terms of partnerships and cognate matters. The question was carefully
considered by the Special Committee7 which drafted the Indian Partnership Act, but the Committee did not
recommend compulsory registration, for the following reasons—
“It has been pointed out repeatedly with much force that to require small or ephemeral joint ventures to be
registered would produce little public benefit and would act as a clog to petty enterprise; and such ventures are so
numerous that any small benefit to be derived from registration would be counter-balanced by the clerical labour
involved.............. The English precedent in so far as it makes registration compulsory and imposes a penalty for
non-registration has not been followed, as it is considered that this step would be too drastic for a beginning in
India, and would introduce all the difficulties connected with small and ephemeral undertakings.”
Hence, the Indian Act made registration optional but provided inducement to register. The provisions contained in
the Act as regards registration and the consequences of nonregistration have been commented upon unfavourably.
It has been urged that it would be more satisfactory to make registration of all partnerships compulsory and that if
this is done, separate registration of firms under the Income-tax Act may be dispensed with.
13. Having regard to the advantages which would generally follow from the registration of firms and to the fact that
the business community has already become familiar with registration, under the existing Act, we have come to the
conclusion that it is time that a bold step is taken and compulsory registration of firms is introduced. At the same
time we cannot overlook the hardships and the administrative difficulties which are likely to arise if the provision for
compulsory registration is extended to small and ephemeral undertakings, a large number of which take place in
villages and small towns. Having weighed these considerations we have reached the conclusion that the proposed
provision for compulsory registration should be confined to those classes of partnerships which, we have already
recommended, may be created only by agreements in writing.
14. It has been brought to our notice that under the existing law, after the firms are registered, the Registrar of
Firms is not kept informed whether the registered firms continue to exist or are dissolved or have become defunct.
Generally speaking, parties do not send to the Registrar the information referred to in sections 60(1), 61, 62, 63(1)
and (2) of the Partnership Act unless they are compelled by litigation or other urgent necessity to do so, as the
furnishing of such information is optional. In order to enable the Registrar to keep his register up-to-date as far as
possible we recommend that a new provision be inserted making it obligatory on the part of every registered firm
whose duration is more than three years to send to the Registrar within six months after the expiry of every three
years from the date or its registration an intimation that it is functioning and has not become defunct or dissolved
and providing, further, that if no intimation is received by the Registrar within the prescribed time he may, after
issuing a notice, make a note in the register that the firm has ceased to exist.
15. It has further been suggested that legislation on the lines of the Registration of Business Names Act, 1916 in
England should be enacted in India, either separately or as a part of the Partnership Act. We are not inclined to
accept this suggestion for the same reasons which moved the Civil Justice Committee to reject it in their Report.
The Committee said:
“We consider that it would be impracticable in India to insist upon the registration of business names on the analogy
of the English Act of 1916. In India the names of firms are very frequently changed. No reasonable person puts
much faith in the assumption that names appearing in the styles of a firm are the names of the individual partners.
The names of relatives, sometimes relatives long deceased, sometimes minors, are used because they are thought
to be auspicious. There are other obvious difficulties connected with Indian names.8
Suggestion for introducing limited partnership—Not accepted
16. It has been suggested that partnerships with limited liability should be recognised in India either by a special
enactment or as a part of the Partnership Act. A concrete suggestion made by the Iron, Steel and Hardware
Merchants’ Chamber of India in this respect may be noted:
“Considering the recent amendment in the Indian Companies Act, we feel that a provision should be made in the
Indian Partnership Act, 1932 by which limited liability partnerships can be entered into on the lines of the Limited
Partnership Act.9 The Indian Companies Act has become so cumbersome that for a small business it is impossible
to comply with all the provisions unless a full-time Secretary is engaged. Before the amendment was introduced in
the Indian Companies Act, two or three partners used to find it convenient to register a Private Limited Company
and carry on the work. Now there are so many restrictions on taking loans by the directors or shareholders even in
private limited companies, that people will prefer to enter into a partnership instead of forming a limited liability
company. That risk can only be minimised by introducing limited liability partnership.”
We have carefully considered this suggestion and have come to the conclusion that having regard to the conditions
prevailing in India, the inherent shortcomings of limited liability partnerships, and the fact that even in England,
notwithstanding legislation permitting such partnerships, not many such partnerships have been actually formed, it
is neither necessary nor expedient to make provision for limited liability partnerships in India. The suggestion, if
accepted, is also likely to result in rendering ineffective the provisions of the Indian Companies Act which have been
recently made stricter.
Examination of the provisions of the Act, indicating the changes proposed
17. We have so far dealt with questions relating to the alteration of the basic principles embodied in the Indian
Partnership Act, in the light of the suggestions received from individuals and commercial bodies. We now proceed
to an examination of the sections of the Act seriatim in order to indicate the changes which will become necessary
in the light of our foregoing conclusions. We shall also indicate other changes which in our opinion, are needed by
reason of judicial decisions and otherwise. These changes are embodied in the draft sections shown in the
Appendix.
Section 1
18. In conformity with our recommendation regarding other Acts, the word ‘Indian’ should be deleted from the title of
the Act [sub-section (1) of section 1].
Section 2-3
19. No alteration is needed in sections 2 and 3.
Section 4
20. It has been suggested that the words ‘in writing’ should be inserted after the word “agreed” in section 4, in order
to provide that a partnership agreement must be in writing. We have already examined this suggestion in Part I and
we think that our recommendations made in paragraphs 10 and 11 can be more appropriately carried out by
enacting a new section instead of amending section 4.
Section 5
21. In section 5, the words “or a Burmese Budhist husband and wife carrying on business as such” should be
deleted, as Burma has ceased to be a part of India.
22. It has been suggested by the Bombay State Bar Association that the Act should be altered so as to make it
applicable to a joint Hindu family business. This question was considered by the Special Committee10 which drafted
the Indian Partnership Bill and the Committee rejected the suggestion on the ground that the question related to a
purely domestic matter of Hindu Law and that it was unwise to complicate the provisions of the Partnership Act by
introducing therein rules of law which appropriately constituted a branch of the personal law of the Hindus only. We
entirely agree with the conclusion reached by the Committee and the reasons given by it. The capacity of a Karta of
a joint Hindu family to enter into a partnership with an individual or with the Karta of another joint Hindu family has
been settled by judicial decisions and does not require any special provisions.
Section 6
23. In view of our recommendation that certain kinds of partnerships can be created only by an agreement in writing
it is necessary to exclude the application of section 6 in those cases and the section will have to be amended
accordingly.
Section 7-8
24. No alteration is required in sections 7 and 8.
25. We have added a new section 8A to give effect to our recommendation in paragraph 11.
Section 9-11
26. No alteration is necessary in sections 9 to 11.
Section 12
27. The existing Act says nothing about the custody of the books of the firm. The Indian Partnership Bill, as drafted
by the Special Committee,11 followed the English Act in providing that the books of a firm shall be kept at its place of
business or the principal place of business, if there are more than one. But the Select Committee12 rejected the
clause relating to the custody of books and inserted clause (d) as it now stands, on the ground that the principal
place of business might well be in an Indian State where the Act could not be directly enforced and that the principal
place of business could be defined only by the partners themselves. Having regard to the fact that the Indian States
have become a part of India and the fact that the Act applies to the whole of India, the first ground relied upon by
the Select Committee no longer holds good. The second ground given by the Committee does not appear to be
convincing. We therefore consider it desirable to redraft clause (d), incorporating the provision relating to the
custody of books as suggested by the Special Committee.
Section 13
28. The official rate which is now allowed by the Courts is 4 per cent. We think, therefore, that the rate of interest in
clause (d) of section 13 should also be fixed at 4 per cent per annum and the clause be amended accordingly.
Sections 14-17
29. No alteration is considered necessary in sections 14 to 17.
Section 18
30. No alteration is necessary in section 18.
Section 19
31. The Bombay State Bar Association has suggested that “subject to section 22, a partner should have implied
authority as regards items (a), (c), (d) and (e) in sub-section (2) of section 19.” In other words, the scope of the
implied authority of a partner on behalf of the firm should, subject to section 22, be enlarged by including therein
authority to—
1. Refer disputes to arbitration;

2. Compromise or relinquish any claim of the firm;
3. Withdraw a suit or proceeding filed on behalf of the firm;
4. Admit any liability in a suit or proceeding against the firm.
We are unable to accept this suggestion as the clauses limiting the implied authority of a partner in section 19(2)
are based upon long experience and have given rise to no difficulties. It is not necessary to enlarge the scope of the
implied authority of a partner beyond what is stated in the section, as it is open to the partners by an agreement
either to enlarge or to restrict the implied authority under section 20 of the Act.
Section 20-29
Section 30
33. There has been some controversy as to the construction of an instrument which purports to admit a minor to a
partnership without making it clear that he is admitted only to the benefits of the partnership. We think that when the
major partners seek to admit into the partnership a person known to them to be a minor, it may be assumed that
they intended to admit the minor only to the benefits of the partnership and that had they known the law, they would
have made that clear in the instrument of partnership. In order to remove doubts, this rule of construction, may be
introduced into sub-section (1) of section 30.
Section 31-32
34. No alteration is necessary in section 31 and 32.
Section 33
35. Expulsion being penal in its nature, it should not be allowed to be imposed in violation of the principles of natural
justice. We recommend that at the end of sub-section (1) of section 33, appropriate words should be added
providing for an opportunity to be given to the partner to give an explanation.
Section 34-36
36. No change is necessary in sections 34 to 36.
Section 37
37. In section 37, the rate of interest should be reduced from six to four per cent per annum, in conformity with our
recommendation in paragraph 28.
Section 38
38. No change is required in section 38.
Section 39-43
Section 44
40. There is a difference of opinion between the Allahabad13 and Madras14 High Courts as to whether the right of
dissolution given by section 44 could be curtailed by agreement between the partners. The Allahabad1 High Court is of
the opinion that the provision in section 44 is subject to the overall provision in section 11(I) to the effect that the
mutual rights and duties of the partners may be determined by contract between them. But the Madras2 High Court
has pointed out that the provision in section 11(1) is itself “subject to the provisions of this Act”. We are of the
opinion that the Madras view is to be preferred. The opening words “subject to the provisions of this Act” in section
11(1) mean not only that a contract, in order to be binding between the partners, must not be in contravention of
any of the provisions of the Act but also that if there is any provision in the Act relating to a particular matter, such a
provision will override any agreement between the partners relating to the same matter. This view, as has been
pointed out in the Madras decision, is supported by various provisions of the Act itself which expressly use the
words “subject to contract between the partners”, wherever the Legislature intended the statutory provision to be
controlled by the agreement of the parties. Sections 12 to 17 and section 42 are instances of this character. A
comparison of the provisions of sections 42 and 44, prima facie demonstrates that the omission of the words
“subject to contract between the partners”, in section 44 was deliberate and the reason is not far to seek. While
under section 42, the dissolution takes place by operation of law unless there is a contract to the contrary, section
44 entitles a partner to invoke the discretionary jurisdiction of the court which, as explained by the Judicial
Committee in Rehmatunnissa v. Price,15 is in the nature of an equitable protection from which “no man can exclude
himself”. In our opinion, the discretionary jurisdiction of the court under section 44 is not, and should not, be liable to
be fettered by any agreement between the partners and this should be made clear by inserting the following words
at the beginning of section 44—
“Notwithstanding any contract to the contrary”.
Sections 45-55
41. No alteration is considered necessary in sections 45 to 55.
Section 56
42. We are of the opinion that this section should be deleted. While section 1(2) of the Act provides that the Act
extends to the whole of India except the State of Jammu and Kashmir, section 56 empowers a State Government to
direct by notification that the provisions of Chapter VII shall not apply to the State or to any part thereof. Action
under the Section by a State Government may result in the provisions regarding registration of firms in the Act not
applying to that State or a part thereof. All the Slates are under the recent amendment of the Constitution placed on
a footing of equality and it is desirable to have a uniform law as regards the registration of firms in all the States
which enjoy the same status. Whatever may have been the position in 1932, the conditions then existing are now
so changed as to justify a uniform provision for all the States as regards registration of firms.
Section 57
43. No alteration is considered necessary in section 57.
Section 57A
44. Our recommendations as to compulsory registration (in paragraph 13) should be embodied in a separate
section and a time-limit should also be prescribed for obtaining such registration as shown in section 57A in the
Appendix.
Section 58
45. As we have prescribed a definite time-limit for registration in section 57A, it is necessary to make a reference
thereto in sub-section (1) of section 58. We also recommend that it should be provided in sub-section (2), that
authorisation of an agent shall be by a special power of attorney.
In sub-section (3) of section 58, verbal alterations have to be made in view of the constitutional changes that have
taken place since the enactment of the Act.
Section 59
46. Considering that we have recommended compulsory registration of firms, it is necessary that those who
intended to deal with a firm should have knowledge whether the firm is registered under the Act. We, therefore,
recommend the insertion of a provision in section 59 to the effect that a firm which is registered under the Act shall
use the word “registered” after the name of the firm.
Section 59-A
We have added a new section 59A to make provision for penalties for failure to use or for the improper use of the
word “registered” after the name of a firm.
Sections 60-63
Section 63A
48. Our recommendations in paragraph 13 relating to intimation to the Registrar as regards the continuing existence
of a firm should be incorporated in a new section.
Section 64-68
Section 69
50. Commentators16 have referred to the conflict of decisions on the question whether registration of a partnership
is a condition precedent to the filing of a suit and whether in case an unregistered firm files a suit the defect could
be remedied by the registration of the firm after the institution of the suit. The earlier decisions which held that a suit
by an unregistered firm could be maintained if there was a subsequent registration after the filing of the suit but
before its disposal have been overruled by subsequent decisions.17 All the High Courts are now agreed that
registration of a firm under section 59 is a condition precedent to the maintainability of the suit and that registration
of a firm after the institution of the suit cannot cure the defect arising from want of registration. It has, however, been
suggested that provision should be made in the Act to the effect that if a suit is filed by a firm which is not registered
the suit should be treated as competent and maintainable, if the firm obtains registration before the decree is
passed. In our opinion, it is not necessary to make such a provision as it would defeat the very object which is
sought to be achieved by the provisions contained in sections 59 to 69 of the Act.
51. The existing Act is anomalous in that though it does not provide for compulsory registration of firms, it visits with
serious consequences firms which do not register themselves. This has been commented upon.18 As we have
provided for compulsory registration except in regard to firms of short duration or with a small capital it is
appropriate that the operation of section 69 should be restricted to partnerships which, according to our
recommendations, require to be compulsorily registered under the Act. It is accordingly recommended that the
words “In the case of firms required to be registered under this Act” be inserted at the commencement of section
69.
52. As section 69 is to be made applicable only to such partnerships as are required to be compulsorily registered,
there is no need for a provision like that contained in sub-section (3) (a) of Section 69. Having regard to our
recommendations in regard to the requirements of a writing and registration a firm which, though required to be
registered by the Act, is not registered will not be a “firm” in the eye of law and no question of its dissolution under
the Act could arise. We therefore recommend that clause (a) of sub-section (3) of section 69 be omitted.
53. In view of the proposed deletion of section 56, the second part of clause (a) of subsection (4) of section 69,
beginning with the words “or whose places.................... “ will have to be deleted.
54. We are of the opinion that as a partnership which has not complied with the requirement of registration shall not
be a partnership under the Act, it is necessary to ensure that persons who have induced third parties to deal with
them on the representation that they are partners should not be entitled to take advantage of their own default. It
should therefore be provided that such persons should be stopped as against such third persons from pleading that
there is no partnership at law, by reason of their non-compliance with the statute. A sub-section to this effect has
been added to section 69.
Section 70
55. No alteration is necessary in section 70.
Section 71
56. In sub-section (2)(b) of section 71, a reference to the new section 63A has been inserted. Some officials
concerned with the administration of the Act have suggested a modification of the Schedule referred to in this
section so as to increase the fees mentioned in it. We are not, however, satisfied that an increase is necessary.
Section 72-73
57. No change is suggested in sections 72 and 73.
Section 74
58. There is a conflict of decisions between the Calcutta, Lahore and Patna19 High Courts, on the one hand and the
Madras, Bombay, Nagpur and Allahabad High Courts,20 on the other on the Question whether section 69 bars suits
even in cases where tile cause of section arose before the commencement of the Act.21
One view2 is that section 69 does not prevail over section 74(b) and that a suit filed by a firm to enforce rights which
had accrued before the commencement of the Act would be maintained in spite of non-registration of the firm as the
rights had already accrued and they are not taken away expressly by the Act. The other view1 is that the provisions of
section 74 of the Act are intended to apply to substantive rights and not to matters of procedure, and that section 69
being a procedural provision must be considered as retrospective in its operation. Consequently the procedure laid
down in section 69 must be complied with in the case of every suit filed after the commencement of the Act,
whether it is based on a cause of action which arose before or after the commencement of the Act.
As a long time has elapsed since the Partnership Act 1932 came into force, this question would have had no
practical importance now, but for the fact that the Partnership Act, 1932, has been extended to what were Part B
States only in 1951, by the Part B States (Laws) Act, 1951 (111 of 1951). The question as to the retrospective
operation of section 69 is accordingly, bound to arise in these territories and some provision has to be made to
remove uncertainty in the law. In our opinion, the proper view is to give retrospective operation to section 69, and to
achieve that object we recommend the insertion of a new sub-section in section 74.
59. In order to give a concrete shape to our proposals, we have, in the Appendix, put them into the shape of draft
amendments to the relevant sections of the Act. The Appendix is not, however, to be treated as a draft Amendment
Bill.
M.C. SETALVAD (Chairman)
M.C. CHAGLA
K.N. WANCHOO
P. SATYANARAYANA RAO
N.C. SEN GUPTA*
V.K.T. CHARI
D. NARASA RAJU
S.M. SIKRI
G.S. PATHAK
G.N. JOSHI
N.A. PALKHIVALA (Members)
K. SRINIVASAN Joint Secretaries
DURGA DAS BASU
BOMBAY:
The 13th July, 1957
APPENDIX
Proposals shown in the form of draft amendments to the existing Act.
Changes made in the text of the existing sections have been shown in italics wherever possible.
Section 1
In sub-section (1) of section, the word “Indian” shall be omitted.
Section 5
In section 5, the words “or a Burmese Budhist husband and wife carrying on business as such” shall be omitted.
Section 6
In section 6, the words “Except in cases in which a contract of partnership is required to be in writing” shall be
added before the words “In determining whether a group of persons is or is not a firm ......... “
Section 8A
After section 8, the following section shall be inserted:
“CHAPTER II-A
FORMATION OF A PARTNERSHIP
Section 8A
(1) Every contract of partnership shall except in cases where the partnership is to be for a term of less than six
months be in writing:
Provided that nothing in the foregoing sub-section shall apply to the following cases, namely:—
(a) where, irrespective of the duration of the partnership, the capital of the partnership is less than five hundred
rupees;
(b) where, irrespective of the capital of the partnership, the partnership is in particular adventures or
undertakings which are completed within a period of six months from the commencement of the
partnership.
(2) When a contract of partnership is required to be in writing, any variation of such contract shall also be in writing.
Section 12
In section 12, for clause (d), the following clause shall be substituted, namely:—
“The books of the firm shall be kept at the place of business of the firm (or) the principal place of business (if there
is more than one such place) and every partner has a right to have access to and to inspect and copy any of the
books of the firms. “
Section 13
In clause (d) of section 13 for the words “six per cent per annum”, the words “four per cent per annum” shall be
substituted.
Section 30
In sub-section (1) of section 30, the following shall be inserted at the end, namely:—
“Explanation: When by the terms of an instrument of partnership a person is a partner in a firm and such person is
known to the other parties to the instrument to be a minor, such person shall be deemed to have only been
admitted to the benefits of the partnership.”
Section 33
In sub-section (1) of section 33, the following shall be inserted at the end, namely:—
“and after giving the partner a reasonable opportunity of showing cause why he should not be expelled”.
Section 37
In section 37, for the words “six per cent per annum,” the words “four per cent per annum” shall be substituted.
Section 44
In section 44, for the words “At the suit of a partner, the court may” the words “Notwithstanding any contract to the
contrary, the court may, at the suit of a partner” shall be substituted.
Section 56
Section 56 shall be omitted.
Section 57A (New)
After section 57, the following section shall be inserted, namely:—
“57A. Registration of firms.
(1) Every firm in respect of which the contract between the partners determining their mutual rights and duties
required by this Act to be in writing shall be registered in accordance with this Act.
(2) Except as otherwise provided by sub-section (3), every firm required to be registered under sub-section (1)
shall be registered within one year from the commencement of the partnership.
(3) Every firm required to be registered as aforesaid and carrying on business at the commencement of the
Indian Partnership (Amendment) Act, ......shall, if it has not been already registered, be registered within six
months from the commencement of the said Act.
(4) The Registrar may register a firm after the expiry of the period specified in sub-section (2) or sub-section
(3), as the case may be, if he is satisfied that there was sufficient cause for not presenting the application
for registration within that period. “
Section 58.
For section 58, the following section shall be substituted, namely:—
“58. Application for registration.
(1) The registration of a firm may subject to section 57A be effected at any time within the period prescribed by
sub-sections (2) and (3) of section 57A by sending by post or delivering to the Registrar of the area in
which any place of business of the firm is situated or proposed to be situated, a copy of the instrument of
partnership and a statement in the prescribed form and accompanied by the prescribed fee, stating—
(a) the firm’s name,
(b) the place or principal place of business of the firm,
(c) the names of any other places where the firm carries on the business,
(d) the date when each partner joined the firm,
(e) the names in full and permanent addresses of the partners,
(f) the duration of the firm.
(2) Each partner or his agent duly authorised by a special power of attorney in this behalf shall sign and verify
the statement in the manner prescribed.
(3) A firm’s name shall not contain any of the following words, namely:—
“Bharat”, “India”, “Indian Republic”, “President of India”, or words expressing or implying the sanction,
approval or patronage of Government, except when the Union Government or the State Government
signifies its consent to the use of such words as part of the firm’s name by order in writing.
Section 59.
Section 59 shall be renumbered as sub-section (1) thereof, and after sub-section (1) as so renumbered, the
following sub-section shall be inserted, namely:—
“(2) A firm which is registered under sub-section (1) shall use the word “registered” immediately after its name.”
Section 63A (New).
(3) If any firm fails to comply with the provisions of sub-section (2) every one of its partners shall be punishable with
a fine which may extend to rupees ten for every day of such non-compliance unless he proves that he had no
knowledge of such non-compliance or that he exercised due diligence to prevent such non-compliance.
(4) Every person who trades or carries on business under any name with the word
“Registered” or any abbreviation thereof added to it shall, unless the trade or business is that of a firm of that name
which has been registered under sub-section (1) be punishable with a fine which may extend to rupees fifty for
every day of such use.
After section 63, the following section shall be inserted, namely:—
“63A. Intimation to the Registrar of the continuing existence of the firm.
(1) Every registered firm which has been in existence for a period of three years shall send to the Registrar,
within six months from the expiry of every period of three years after the registration of the firm, an
intimation (in the prescribed form), stating that the firm is continuing and also containing, as on the date of
the intimation, the particulars referred to in clauses (a) to (f) of sub-section (1) of section 58.
(2) On receipt of such intimation the Registrar shall make a record of such intimation in the entry relating to the
firm in the Register of Firms and shall file the intimation along with the statement relating to the firm filed
under section 59.
(3) The Registrar may accept the intimation referred to in sub-section (1) after the expiry of the period
specified therein, if he is satisfied that there was sufficient cause for not sending the intimation within that
period.
(4) lf a registered firm makes default in sending intimation under sub-section (1), the Registrar shall send a
notice to the firm of his intention to treat the firm as defunct, and if no intimation in accordance with that
sub-section is received by the Registrar within a month after the notice is served on the firm, the firm shall
be treated as defunct and the Registrar may make a note in the Register of Firms that the firm has ceased
to exist.
(5) On the making of such a note the firm shall from the date thereof be deemed to be a firm not registered
under this Act.”
Section 69.
(a) At the beginning of section 69, the following words be inserted— “In the case of firms required to be
registered under this Act”;
(b) in sub-section (3), clause (a) shall be omitted;
(c) in clause (a) of sub-section (4), the words and figures “or whose place of business in the said territories are
situated in areas to which, by notification under section 56, this Chapter does not apply” shall be omitted,
(d) After sub-section (4), a new sub-section (5) shall be inserted as follows:—
“Nothing in section 11 or this section shall entitle persons who have induced third parties to have
dealings with them on the representation that they are partners, to plead as against such third parties
that there was no partnership in law between them. “
Section 71.
In clause (b) of sub-section (2) of section 71, for the word’ “62 and 63”, the words “62, 63 and section 63A” shall be
substituted.
Section 74.
Section 74 shall be renumbered as sub-section (l) thereof, and after sub-section (1) so renumbered, the following
sub-section shall be inserted, namely:—
“(2) Notwithstanding anything contained in sub-section (1)(d), the provisions of subsections (1) and (2) of section 69
shall apply to all suits instituted in the territories which immediately before the 1st day of November, 1956, formed
part of any Part B State (other than the State of Jammu and Kashmir), even if the cause of action with respect to
the said suits had arisen before the date on which this Act had been extended to Part B States by the Part B States
(Laws) Act, 1951 (Act III of 1951). “
NOTE BY DR. N.C. SEN GUPTA
I regret to have to disagree with the opinion of the majority on a few points.
The proposed Section 11 and Section 57-A are large innovations. I feel that the necessity, utility, and above all their
practicability have not been duly considered.
The majority report at page 4 recognises the hardship to the people as well as 1be serious administrative difficulties
involved in a written contract being compulsory for a partnership. What over-riding public advantage is to be derived
from it is not however so clear.
It cannot be denied that it would be advantageous to the partners themselves to have the terms reduced to writing
and it is true that it would give relief to Courts in determining the exact terms of the contract when the matter comes
to Court. But it must be remembered that unlike Memoranda and Articles of Association of Companies, a
Partnership Agreement is a purely private agreement between the partners and its terms do not bind any stranger
dealing with them. No public interest is likely to be served by enforcing such a writing instead of leaving it to
partners to decide the question on consideration of their convenience and advantage.
The principal consideration which, according to the report, weighed with my colleagues seems to have been that
the suggestion has come from a substantial section of the business community.
I have not seen the suggestions from the business community and am not aware what reasons have been put
forward by them for it. It is the reasons we have to consider and not their bare opinions. And, I greatly doubt that
those who have made it voice the opinion or reflect the feelings of the huge mass of traders of the entire country.
The only persons who would be interested in the writing or benefit by it are the partners. But they may have their
own difficulties, considering probably the innumerable partnership businesses which are carried on in remote
villages of this vast country and we cannot hope to assess the difficulties or solve them by an ex-cathedra opinion.
That it would cause hardship to myriads of existing partnership is recognised. It is not so clearly visible why they
should have a writing, nevertheless. The hardship would be particularly on old existing firms who have been
carrying on for years without a deed.
A very pertinent question to ask would be what would hap if there is no writing. The result would be to make it
impossible under Section 91 of the Evidence Act to prove a partnership. Now, suppose two persons are carrying on
a business as partners, and their books clearly show how they have been sharing profits for years. This provision
would enable the partner who is bossing the show to deny the partnership and make it impossible for the other
partners to prove the partnership in the absence of a deed. This provision would therefore be of real benefit to
fraudulent partners to defeat the rights of a partner. As was found, in the case of the Statute of Frauds, the statute
could be used to perpetrate a fraud without the benefit of the equitable principle which enabled English Courts to
get round the Statute in such cases.
I shall presently deal with the “hardships and administrative difficulties” referred to in the report, only to be brushed
aside.
SECTION 57-A
The proposals not only make a writing compulsory, they also make registration compulsory under Clause 57-A.
Here again the first question to ask is what would happen if the firm is not registered. The proper logical conclusion
would be to say, as it has been said in respect of companies by Section 11 of the Companies Act that trading by
such firms would be illegal and forbidden under penalties. My colleagues realise the impossibility of such a
provision and leave the consequences virtually as they are under Section 69 of the existing Act, though my
colleagues are of the opinion, contrary to decided cases, that subsequent registration after suit should not get over
the bar in Section 69, because as they point out at page 12, an unregistered firm whose registration is compulsory,
is not a firm in the eye of law.
It is pertinent to note that the proposals nowhere provide that an unregistered firm is not a firm at all in the eye of
law. The difficulties of such a view would appear on examination. If it is not a firm, what is it?
Section 4 of the Partnership Act which has not been sought to be altered gives definitions of ‘Partnership’ and ‘firm’
which would certainly include a business of this character, even though unregistered.
There is no law even in these proposals which forbids joint trading by two or more persons. Such trading will
lawfully go on. What are such businesses if not a firm according to the definition of Section 4?
It will be remembered that not only joint businesses of this nature but also joint family businesses exist in any
number. It is not proposed to touch them. If joint family business as also other joint ventures can go on without
registration, what reason of public interest is there in requiring partnerships to be registered?
The considerations of administrative difficulties in insisting on writing and registration have been referred to in the
report but we are asked, nevertheless, to take this bold step having regard to the advantages which have not
however been elucidated.
As I have indicated, in connection with the requirements of writing. there is no advantage to the public in making the
registration compulsory. For whatever is contained in the Partnership Deed is a matter between the partners only
which does not bind any one except the partners. Further, a partnership, unlike a Company, makes the partners
jointly and severally liable,—so that any person dealing with the firm is amply protected if only he takes the ordinary
care of ascertaining beforehand who are the partners. In the Companies Act not only registration, but numerous
other things are necessary.—reports arc to be filed from time to time which give the public an exact idea as far as
possible of the assets and the solvency of the company. That is a matter of great importance. Because the liability
of the company is limited to the value of the shares. The same reason does not exist in the case of partnership. As I
have pointed out before, the compulsory registration might, on the other hand, become an instrument of fraud.
Considering that the existing partnerships are also required to be registered within a limited time, it would put a
serious pressure upon the existing partners and enable a fraudulent partner to deny his obligation arising out of the
contract of partnership by a plea simply that the partnership has not been registered. I do not visualise any other
benefit to the public from this clause.
No doubt one might say that registration of every contractual legal relation between the persons is desirable so that
they should be placed on an absolutely unchallengeable footing. But that is obviously a counsel of perfection.
On the other hand, the administrative difficulties recognised by the Report are that there are not merely ephemeral
partnerships but fairly substantial partnerships spread all over the length and breadth of the country in remote
villages which have been carrying on without registration. To require all of them to be registered would place an
impossible burden on the thousands of business undertakings in the villages.
The administrative difficulties are enormous. At present the only thing mentioned in the Partnership Act is that it
may be registered. It is obvious that mere registration does not carry us very far, unless returns are made keeping
the Registers up-to-date not only in respect of the matters which the Report provides but also in respect of other
matters. It must be remembered that at present, at any rate in West Bengal, partnerships are registered by the
Registrar of Joint Stock Companies who has his office in Calcutta and there is no sort of agency in the Mufassil. To
make registration of village partnerships compulsory, there must be at least one full-fledged registration office in
each district if not in smaller areas and there must also be provisions such as we have in the Registration Act for
the copies of the registers and partnership deeds to be sent to other registration offices. A huge lot of paper work
will have to be done. The Registrar of Partnerships would become a different official from the present Registrar.
One can visualise the vast amount of expenditure and the enormous staff which will be required for the purpose of
an efficient organisation for compulsory registration of Partnership initially and for the registration of other reports
and other things in the course of years. The expenditure of public fund upon this must necessarily be enormous and
the organisation will take time. In the absence of any public benefit from incurring this expenditure and complexity. I
cannot agree that compulsory registration of partnership should be introduced now. In my opinion, therefore, the
amendments sought in Sections 11 and 57-A of the Draft as well as the consequential provisions in Sections 58,
59, 63(a) and 69, except the addition suggested after sub-section (4) of Section 69, should be omitted.
With regard to Section 59, sub-section (2), also I consider this amendment superfluous. In the case of companies
the use of the word ‘Limited’ and now the word ‘Private’ is necessary in order to give the persons dealing with the
companies the exact idea of the status of the company which is material, because the liability of the company is
limited to the capital and does not extend to the members personally. There is not the same necessity for the use of
the word ‘registered’ beyond encumbering the business name of the firm.
GIPN-S1-1 M. of Law/67-27-2-68—450 N. C. SEN GUPTA.
1 Gazette of India, 1931, Part V, pp. 31, et. seq.

2 A model code drawn up and approved by the Conferences of Commissioners on Uniform State Laws on the 14th
October, 1914 and adopted in same of the States of the United States of America.
1 Gazette of India, 1931, Part V, pp. 31, et. seq.
3 Lindley on Partnership, Eleventh Edition, 1950, p. 4.
4 “The Uniform Partnership Act.—A reply to Mr. Cranes’ Criticism” by William Draper Lewis, (1915-16) 29 Harward Law
Review, p. 167.
5 Gazette of India, 1931, Part V, p. 33.
6 AIR 1956 SC 354 : (1952) 29 ITR 535. [See also Bhagwanki v. Alembic Chemical Works, AIR 1948 PC 100 : ILR
(1948) Bom 293; Commissioner of l.T. v. Figgis, AIR 1953 SC 455 : 2-1 M. of Law/ 67.
8 Report of the Civil Justice Committee, p. 465.
9 Edw. 7 VII, c. 24.
10 Gazette of India, 1931, Part V, pp. 34-39.
12 Ibid, 1932, Part V, p. 1.
13 Dropadi v. Bankeylal, I.L.R. (1939) All. 577.
14 Venkataswami v. Venkataswami. A.I.R. 1954 Mad. 9.
15 Rehmatunnissa v. Price, I.L.R. (1917) 42 Bom. 380, (388).
16 See, for instance, pp. 425-426 of the Indian Partnership Act by Pollock and Mulla (1950 Edition) and pages 235-236 of
“The Law of Partnership in India and Pakistan” by S.T. Desai (1956 Edition).
17 Ponnuchami Gounder v. Muthusami Gounder, I.L.R. (1942) Mad. 335; Dwijendranath v. Govinchandra, A.I.R. 1953 Cal.
597; Abdul Karim v. Ramdas Narayandas, I.L.R. (1951) Ngp 81.
18 Pollock & Mulla, Partnership Act, 1950 Ed., p. 424.
19 Surendra Nath v. Manohar De, (1935) I.L.R. 62 Cal. 213; Firm Krishen Lal v. Abdul Ghafur, AIR 1935 Lah. 893;
Shahzadkhan v. Darbar Babu Kuppi, I.L.R. (1936) 15 Pat. 810.
20 Syed Ibrahim Sahib v. Gurulinga Iyer, ILR (1939) Mad. 980; Ramappa v. Babu Sidappa, ILR (1939) Bom. 104;
Ramgopal v. Net Ram, AIR 1941 All. 178; Syed Fakir Hussain v. Chandra Bai, AIR 1940 Nag. 367.
21 Section 69 of the Act came into force on the 1st October, 1933.
* Dr. Sen Gupta has signed the Report, subject to the note appended at the end.
End of Document
APPENDIX VII Relevant provisions of Code of Civil Procedure, 1908


(5 of 1908)
[Relevant Provisions]
ORDER XX JUDGMENT AND DECREE
***
15- Decree in suit for dissolution of partnership.—Where a suit is for the dissolution of a partnership or the
taking of partnership accounts, the Court, before passing a final decree, may pass a preliminary decree declaring
the proportionate shares of the parties, fixing the day on which the partnership shall stand dissolved or be deemed
to have been dissolved, and directing such accounts to be taken, and other acts to be done, as it thinks fit.
***
ORDER XXI
EXECUTION OF DECREES AND ORDER
***
49. Attachment of partnership property.—(1) Save as otherwise provide by this rule, property belonging to a
partnership shall not be attached or sold in execution of a decree other than a decree passed against the firm or
against the partners in the firm as such.
(2) The Court may, on the application of the holder of a decree against a partner, make an order charging the
interest of such partner in the partnership property and profits with payment of the amount due under the decree,
and may, by the same or a subsequent order, appoint a receiver of the share of such partner in the profits (whether
already declared or accruing) and of any other money which may be coming to him in respect of the partnership
and direct accounts and inquiries and make an order for the sale of such interest or other orders as might have
been directed or made if a charge had been made in favour of the decree-holder by such partner, or as the
circumstances of the case may require.
(3) The other partner or partners shall be at liberty at any time to redeem the interest charged or, in the case of a
sale being directed, to purchase the same.
(4) Every application for an order under sub-rule (2) shall be served on the judgment- debtor and on his partners or
such of them as are within 1[India].
(5) Every application made by any partner of the judgment-debtor under sub-rule (3) shall be served on the decree-
holder and on the judgment-debtor, and on such of the other partners as do not join in the application and as are
within 2[India].
(6) Service under sub-rule (4) or sub-rule (5) shall be deemed to be service on all the partners, and all orders made
on such applications shall be similarly served.
50. Execution of decree against firm.—(1) Where a decree has been passed against a firm, execution may be
granted—
(a) against any property of the partnership;

(b) against any person who has appeared in his own name under rule 6 or rule 7 of Order XXX or who has
admitted on the pleadings that he is, or who has been adjudged to be, a partner;
(c) against any person who has been individually served as a partner with a summons and has failed to
appear:
Provided that nothing in this sub-rule shall be deemed to limit or otherwise affect the provisions of 3[section 30 of
the Indian partnership Act, 1932 (9 of 1932)].
(2) Where the decree-holder claims to be entitled to cause the decree to be executed against any person other than
such a person as is referred to in sub-rule (1), clauses (b) and (c), as being a partner in the firm, he may apply to
the Court which passed the decree for leave, and where the liability is not disputed, such Court may grant such
leave, or, where such liability is disputed, may order that the liability of such person be tried and determined in any
manner in which any issue in a suit may be tried and determined.
(3) Where the liability of any person has been tried and determined under sub-rule (2) the order made thereon shall
have the same force and be subject to the same conditions as to appeal or otherwise as if it were a decree.
(4) Save as against any property of the partnership, a decree against a firm shall not release, render liable or
otherwise affect any partner therein unless he has been served with a summons to appear and answer.
4[(5) Nothing in this rule shall apply to a decree passed against a Hindu Undivided
Family by virtue of the provisions of rule 10 of Order XXX.]
***
ORDER XXX
SUITS BY OR AGAINST FIRMS AND PERSONS CARRYING ON BUSINESS IN NAMES OTHER THAN THEIR
OWN
1. Suing of partners in name of firm.—(1) Any two or more persons claiming or being liable as partners and
carrying on business in, 5[India] may sue or be sued in the name of the firm (if any) of which such persons were
partners at the time of the accruing of the cause of action, and any party to a suit may in such case apply to the
Court for a statement of the names and addresses of the persons who were, at the time of the accruing of the
cause of action, partners in such firm, to be furnished and verified in such manner as the Court may direct.
(2) Where persons sue or are sued as partners in the name of their firm under sub-rule (1), it shall, in the case of
any pleading or other document required by or under this Code to be signed, verified or certified by the plaintiff or
the defendant, suffice if such pleading or other document is signed, verified or certified by any one of such persons.
2. Disclosure of partners’ names.—(1) Where a suit is instituted by partners in the name of their firm, the plaintiffs
or their pleader shall, on demand in writing by or on behalf of any defendant, forthwith declare in writing the names
and places of residence of all the persons constituting the firm on whose behalf the suit is instituted.
(2) Where the plaintiffs or their pleader fail to comply with any demand made under sub-rule (1), all proceedings in
the suit may, upon an application for that purpose, be stayed upon such terms as the Court may direct.
(3) Where the names of the partners are declared in the manner referred to in sub-rule (1), the suit shall proceed in
the same manner, and the same consequences in all respects shall follow, as if they had been named as plaintiffs
in the plaint:
6[Provided that all proceedings shall nevertheless continue in the name of the firm, but the name of the partners
disclosed in the manner specified in sub-rule (1) shall be entered in the decree.]
3. Service.—Where persons are sued as partners in the name of their firm, the summons shall be served either—
(a) upon any one or more of the partners, or

(b) at the principal place at which the partnership business is carried on within 7[India] upon any person
having, at the time of service, the control or management of the partnership business, there, as the Court
may direct; and such service shall be deemed good service upon the firm so sued, whether all or any of the
partners are within or without 7[India] :
Provided, that in the case of a partnership which has been dissolved to the knowledge of the plaintiff before the
institution of the suit, the summons shall be served upon every person within 7[India] whom it is sought to make
liable.
4. Right of suit on death of partner.—(1) Notwithstanding anything contained in section 45 of the Indian Contract
Act, 1872 (9 of 1872), where two or more persons may sue or be sued in the name of a firm under the foregoing
provisions and any of such persons dies, whether before the institution or during the pendency of any suit, it shall
not be necessary to join the legal representative of the deceased as a party to the suit.
(2) Nothing in sub-rule (1) shall limit or otherwise affect any right which the legal representative of the deceased
may have—
(c) to apply to be made a party to the suit, or

(d) to enforce any claim against the survivor or survivors.
5. Notice in what capacity served.—Where a summons is issued to a firm and is served in the manner provided
by rule 3, every person upon whom it is served shall be informed by notice in writing given at the time of such
service, whether he is served as a partner or as a person having the control or management of the partnership
business, or in both characters, and, in default of such notice, the person served shall be deemed to be served as a
partner.
6. Appearance of partners.—Where persons are sued as partners in the name of their firm, they shall appear
individually in their own names, but all subsequent proceedings shall, nevertheless, continue in the name of the
firm.
7. No appearance except by partners.—Where a summons is served in the manner provided by rule 3 upon a
person having the control or management of the partnership business, no appearance by him shall be necessary
unless he is a partner of the firm sued.
8[8.
Appearance under protest.—(1) Any person served with summons as a partner under rule 3 may enter an
appearance under protest, denying that he was a partner at any material time.
(2) On such appearance being made, either the plaintiff or the person entering the appearance may, at any time
before the date fixed for hearing and final disposal of the suit, apply to the Court for determining whether that
person was a partner of the firm and liable as such.
(3) If, on such application, the Court holds that he was a partner at the material time, that shall not preclude the
person from filing a defence denying the liability of the firm in respect of the claim against the defendant.
(4) If the Court, however, holds that such person was not a partner of the firm and was not liable as such, that shall
not preclude the plaintiff from otherwise serving a summons on the firm and proceedings with the suit; but in that
event, the plaintiff shall be precluded from alleging the liability of that person as a partner of the firm in execution of
any decree that may be passed against the firm.]
9. Suits between co-partners.—This Order shall apply to suits between a firm and one or more of the partners
therein and to suits between firms having one or more partners in common; but no execution shall be issued in such
suits except by leave of the Court, and, on an application for leave to issue such execution, all such accounts and
inquiries may be directed to be taken and made and directions given as may be just.
9[10. Suit against person carrying on business in name other than his own.—Any person carrying on business
in a name or style other than his own name, or a Hindu undivided family carrying on business under any name, may
be sued in such name or style as if it were a firm name, and, in so far as the nature of such case permits, all rules
under this Order shall apply accordingly.]
1 Subs. by Act 2 of 1951, sec. 3, for “the States.”

2 Subs. by Act 2 of 1951, sec. 3, for “the states”.
3 Subs. by Act 104 of 1976, sec. 72 for “section 247 of the Indian Contract Act, 1872 (9 of 1872)” (w.e.f. 1-2-1977).
4 Ins. by Act 104 of 1976, sec. 72 (w.e.f. 1-2-1977).
5 Subs. by Act 2 of 1951, sec. 3, for “the States”.
6 Subs. by Act 104 of 1976, sec. 78, for the proviso (w.e.f. 1-2-1977).
8 Subs. by Act 104 of 1976, sec. 78, for rule 8 (w.e.f. 1-2-1977).
9 Subs. by Act 104 of 1976, sec. 78, for rule 10 (w.e.f. 1-2-1977).
End of Document
APPENDIX VIII Relevant Provisions of the Supreme Court Rules, 2013

APPENDIX VIII Relevant Provisions of the Supreme Court Rules, 2013

ORDER I, Rule 2(1)(g)
***
(g) “Court” and “this Court” means the Supreme Court of India;
***
ORDER I, Rule 2(1)(n)(ii)
***
(ii) “Registrar” means the Registrar of the Court and shall include Additional Registrar of the Court.
***
ORDER IV, Rule 22
***
22. Two or more advocates on record may enter into a partnership with each other, and any partner may act in the
name of the partnership provided that the partnership is registered with the Registrar. Any change in the
composition of the partnership shall be notified to the Registrar.
End of Document

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1. The Indian Partnership Act, 1932

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The Indian Partnership Act, 1932

The Indian Partnership Act, 1932

Passed by the Indian Legislature

Received the Assent of the Governor-General on 8th April 1932

An Act to define and amend the law relating to partnership

1. PREAMBLE—SCOPE AND PURPOSE

2. “DEFINING AND AMENDING”

[s 1] Short title, extent and commencement.—

The Indian Partnership Act, 1932

[s 1] Short title, extent and commencement.—

(1) This Act may be called Indian Partnership Act 1932.

[s 1.1] STATE AMENDMENTS

Dadra and Nagar Haveli

In sec. 1, for sub-section (3), substitute the following:

[Vide Reg. 6 of 1963, as amended by Reg. 2 of 1965]

Goa, Daman and Diu

[Vide Reg. 11 of 1963]

Laccadive, Minicoy and Amindivi Islands

[Ref. 8 of 1965, sec. 3 and Sch. 1]

[Reg. 7 of 1963, sec. 3 and Sch. 1]

[s 1.2] LEGISLATIVE COMPETENCE

[s 1.3] HISTORY OF PARTNERSHIP LAW

[s 1.4] TERRITORIAL EXTENT OF THE ACT—SUB-SECTION (2)

[s 1.5] COMMENCEMENT OF THE ACT—SUB-SECTION (3)

[s 1.6] LIMITED LIABILITY PARTNERSHIP ACT, 2008

1 Substituted by AO 1950 for the former sub-section.

The Indian Partnership Act, 1932

[s 2.1] STATE AMENDMENT

[Vide Maharashtra Act 29 of 1984, sec. 2 (w.e.f. 1-1-1985)]

[s 2.3] “UNLESS THERE IS ANYTHING REPUGNANT IN THE SUBJECT OR CONTEXT”

[s 2.4] “ACT OF A FIRM”—CLAUSE (a)

[s 2.5] “BUSINESS”—CLAUSE (b)

[s 2.5.1] Business, Trade, Occupation, Profession

[s 2.5.1.2] Single Transaction, Whether Business

[s 2.6] “PRESCRIBED”—CLAUSE (C)

[s 2.7] “THIRD PARTY”—CLAUSE (d)

[s 2.8] DEFINITIONS CONTAINED IN THE INDIAN CONTRACT ACT 1872—CLAUSE (e)

[s 3] Application of Provisions of Act 9 of 1872.—

The Indian Partnership Act, 1932

[s 3] Application of Provisions of Act 9 of 1872.—

[s 3.1] “Express Provisions”

40 See the repealed provisions of the Indian Contract Act, 1872.

[s 4] Definition of ‘partnership’, ‘partner’, ‘firm’ and ‘firm name’.—

The Indian Partnership Act, 1932

CHAPTER 2 The Nature of Partnership

[s 4] Definition of ‘partnership’, ‘partner’, ‘firm’ and ‘firm name’.—

[s 4.1.1] Historical Background

[s 4.1.2] Elements of “Partnership”

The definition of “partnership” contains three elements:5

All this, however, is not merely a matter of curiosity.

[s 4.2.1] Number of Persons

[s 4.3] PARTNERSHIP AGREEMENT—ORAL, WRITTEN OR BY CONDUCT

[s 4.3.1] Representative Capacity The Supreme Court has held:

[s 4.3.2] Electronic Agreements

[s 4.3.3] Joint Venture Agreements

[s 4.3.4] Construction of Partnership Agreements

[s 4.4] CO-OWNERSHIP AND PARTNERSHIP