The relationship of partners among themselves, their rights and

obligations are generally given in the partnership deed. If partnership deed is

silent about it, then the partners shall have rights and obligations mentioned
in the Partnership Act.

Precisely speaking partners have following rights and obligation qua

(with regards to) other fellow partners:-

Right of a Partner:

(i) Every partner has a right to take part in the conduct and
management of the business.

(ii) Every partner has a right to be consulted before taking important

decisions. The decisions should be taken by mutual consent. If the decisions
are unimportant, then they can be enforced by majority, but consensus of all
partners is necessary for taking important decisions.

(iii) The partners have a right to inspect books of accounts. This right is
available even to their legal heirs.

(iv) Every partner will have an equal share in profits, unless otherwise
mentioned, in partnership deed.

(v) No new partner can be admitted into partnership without the consent
of all partners.

(vi) Every partner has a right to receive interest at the rate of 6% per
annum on the excess money supplied over his capital.

(vii) Every partner has a right to be indemnified by the firm in respect of

expenses incurred or losses suffered for the normal conduct of the business.

(viii) A partner has a right to get the firm dissolved under appropriate
circumstances and if the partnership is ‘partnership at will’ then merely a clear
notice to this effect to all other partners is sufficient.

(ix) The property of the firm shall be held and used exclusively for the
purpose of the business.
Obligations of a Partner:

(i) Every partner should carry on the business to the greatest common
advantage. He must perform his duties honestly and diligently.

(ii) A partner is not entitled to get remuneration for the conduct of business,
unless otherwise it is specially mentioned in the partnership deed.

(iii) A partner must indemnify the firm for loss suffered because of his
fraudulent conduct or willful neglect.

(iv) A partner is bound to keep and render true and correct accounts of the
business.

(v) A partner cannot carry on a competing business. If he carries on such

business he shall account for and pay to the firm all profits made by him in
that business.

(vi) A partner is bound to act within the scope of his authority.

(vii) No partner can make a secret profit of the partnership business by way of
commission, etc. If he does so, he must return the money to the firm

A partnership firm is not an independent entity of its own and all the
liabilities against the firm or all acts done by any one of its partners for and on
behalf of the firm shall bind all the other partners as well.

Section-18 expressly says “Subject to the provisions of this Act, a

partner is the agent of the firm for the purposes of the business of the firm”.
Repercussions of this Section are reflected back in numerous other sections
of the Act, like:-

Section 19 of the Act talks about implied authority of the partners to

bind the firm (subject to Section 22 of the Act i.e. “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”).”

The authority of a partner to bind the firm, as conferred by Section-19 is

called his implied authority and in the absence of any usage or custom of
trade to the contract, the implied authority of a partner does not empower him
to -

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

• Open a banking account on behalf of the firm in his own name.
• Compromise or relinquish any claim or portion of a claim by the
firm,
• Withdraw a suit or proceeding filed on behalf of the firm.
• Admit any liability in a suit or proceeding against the firm
• Acquire immovable property on behalf of the firm.
• Transfer immovable property belonging to the firm or to enter into
partnership on behalf of the firm.

Section 20 is another exception to the implied authority - Partners by

contract between themselves extend or restrict the implied authority of any
partner.

However, 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 - Onus to prove that
such authority of partner is restricted is upon the person who claims such a
restriction.

Thus even if the partners restrict the implied authority through an

agreement inter-se, such an agreement shall have no effect upon third
parties (i.e. outsiders dealing with the firm).

Section 24 of the Partnership Act, 1932 is another corollary of Section-

18 i.e. since a Partner is an agent of the firm, notice to an agent concerning
matters connected with the agency tantamounts to notice to his principal and
vice versa, Section-24 reads as “Effect of notice to acting partner - 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 25 of the Partnership Act takes care of every partner’s liability
in the ordinary course of firm’s business and declares it in unambiguous
terms 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 i.e. his liability is
joint and several e.g. a creditor of the firm can recover the debt from any one
or more of the partners and each partner is liable as if the debt of the firm has
been incurred on his personal liability.

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 PARTNERSHIP PROPERTY

The property of a firm is also known as partnership property,

partnership assets, joint stock, common stock, or joint estate. A partnership
property includes all property and rights, and interest in property that the
partnership firm purchases.

These purchases can also be made for the purpose and in course of
the business of the firm, including the goodwill of the firm. All partners
collectively own such properties.

Hence, a partnership property comprises of the following three items if

there is no agreement between the partners showing any contrary intention:

• All property and rights and interest in property that the partners
purchase in the common stock as their contribution to the
common business.
• All property and rights and interest in property that the firm
purchases either for the firm or for the purpose and in course of
the business of the firm.
• Goodwill of the business.

Section 14 of the Indian Partnership Act deals with the topic and reads
as:-

The property of the firm- Subject to contract between the partners, the
property of the firm includes all property and rights and interests 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

So, property used for partnership purposes is not necessarily the

partnership property viz. property belonging to a partner does not become
partnership property by being used for the purpose of partnership - There
must be some evidence of an intention to treat the property as a part of the
capital of the business - Where a partner brings certain property into the
common stock as part of his capital, it becomes partnership property.

Determining whether a particular property is partnership property

depends on the true intention or agreement between the partners.

Hence, if a firm uses the property of a partner for its purposes, it does
not make it a partnership property unless that was the real intention. At any
time, the partners may agree to convert the property of a partner or partners
into partnership property.

If such a conversion is made in good faith, then it would be effectual

between the partners and against the creditors of the firm. The partners may
also agree to convert the separate property of any partners into the property
of the firm.

As we can see, the Act has also specifically included the goodwill
among the partners of the firm subject to any contract between the partners,
in all accounts for determining the shares.

Section 14 specifies that the goodwill of a business is the property of

the firm and is subject to a contract between the partners. However, it does
not define the term goodwill.

In practice, ‘Goodwill’ is the value of the reputation of a business in

respect of the expected future profits ‘over and above’ the profits that a firm
earns in the same class of business. It is a part of partnership property. The
firm can sell the goodwill separately or along with other properties.

Practically, you can equate ‘goodwill’ with the term ‘brand-value’.

When a partnership firm dissolves, all partners have a right to have the
goodwill sold for the benefit of all the partners unless there is an agreement
contrary to the same.

After the firm sells the goodwill, any partner may make an agreement
with the buyer to not carry on any business similar to that of the firm within a
certain time-period or local limits. Such an agreement is notwithstanding
anything contained in Section 27 of the Indian Contract Act, 1872 and is valid
if the restrictions are reasonable.

Further, section 15 explains the various applications of such property

and reads as “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”.

According to section 15, the partnership property should be held and

used exclusively for the purpose of the firm. While all partners have a
community of interest in the property, during the subsistence of the
partnership no partner has a proprietary interest in the assets of the firm.

Each partner has a right to his share in the profits of the firm until the
firm subsists. He also has a right to see that the application and use of the
assets of the firm are for the purpose of the business of the partnership.

*It has been held that a partner cannot transfer any part of the property
of firm till the continuation of the partnership –

Addanki Narayanappa vs. Bhaskara Krishnappa, AIR 1966 SC 1300

Besides, clause (a) of Section 16of the Act, stipulates that-

“Subject to contract between the partners, 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.”

I believe this much is sufficient for the day. Apply your own mind to it
and in case of any difficulty or doubt feel free to contact through ‘Google-
classroom’ or e-Mail.

Thank you, students. Do take care. See you tomorrow.