SAM UU MOL Can aa ol thet ellaa cdTHE PARTNERSHIP ACT, 1932 Contents CHAPTER TOPIC . 1 Definition and Nature of Partnership . 2 Relations of the Partners Inter Se 3 Relations of Partners to Third Parties, . 4 Incoming and Outgoing Partners 6 Dissolution of a firm 6 Registration of firm d 2+ Limited Liability Partnership Act, 2008Chapter-1 DEFINITION AND NATURE OF PARTNERSHIP LAW OF PARTNERSHIP > In General ‘The source of the law of partnership ii) Legislation ~ \ndian Partnership Act, 1932 ii) Case Laws — Where there are no indian cases, or the act is silent about a particular matter, English cases are referred as para materia, ie. the interpretation given. in the similar circumstances is applied to the Indian cases arising before the court. > Need for partnership as a mode of business The traditional business was sole ownership business i.e. a single person was owning and carrying on the business. This business, gradually felt with many disadvantages. They are a), Only small size business can be carried. b) It can be carried on with less capital and if the business needed more capital then it was not possible for a Single person to put the required capital 8). The needs of the people or customers were not being fufflled by the sole ownership business. 8) The work-load was heavy on the sole-wner. So, the business people tetttteerresd of coming together of two or more persons which can ‘overcome their defects. Thus, the partnership business tame into existence. ‘Advantages to partnership are: i) Contribution to capital ii) Contribution of the labour for work ii) More capital iv) Futflment of the needs of consumers. Need for the separate enactment for the law of partnership Prior ic the new Act, the law relating o partnership was contained in Chapter XI of the Indian Contract Act (10) which was by no means a complete code relating to law of partnership. ‘Sections 239 *9.268 of the ICA provided for the partnership law. In fact, many important ‘matters had been purpo:ely left untouched by Chapter XI. The result was that Indian Courts had to depénd largély onithe English cases, where the Act was silent: But, the developments in the Indian trade, necessitated the enactment of the new Act DIFFERENCE BETWEEN ENGLISH AND INDIAN ACTS The main difference between the English Law ane the Indian Law of partnership (Act, 1932) is that, the former had not given:the prominence to the personality of the fim. in fact, the Indian Act, fecognises the continuous personality .with various changes of the members constituting the partnership. provides for introduction retirement, expulsion etc. of a partner and accordingly. the effect of such changes. ‘Another important aspect in thé new Indian Act, is the provision dealing with the disposal of the, “goodwill” ‘One more aspect af the Indian Act, is regarding the registration of the fivm and effect of non- registration, which was absent in the English Act. So, by there new aspects, the new Act was enacted in April, 4932. It also provides for the application ofthe Indian Contract Act wherever applicable. :DEFINITION AND NATURE OF PARTNERSHIP > Nature of partnership in general Partnership is derived from the word part ie. arelaticnship where each party wl gt his part for the business (profit) by providing labour, skil or capital. The object of partnership, as in any other business is, to eam profit and to share among all partners. The basic elements of partnership are ~ i) Mutual trust and confidence, il) Unlimitedipersonal liability in relation to third parties. Partnership is less than a company and more than a sole ownership. The defects in the partnership lead to the origin of the companies. > Definition Before 1932, the Law of partnership, as said earlier, was contained in Sections 239 to 266 of the Indian Contract Act (ICA), 1872. Section 239 of ICA defined partnership as “Partnership is the relation’ between persons who have agreed to combine their property, labour or skillin somé business and to share the profits between them’. > Ingredients of this defini i} .Relation ~ Abstract ii) Persons — Plural - legal or natural ii) Agreement - Means contract between persons iv) Combination ~ Combination of labour, skill, property etc. was must. All must combine any of these business, V) Business ~ Any adventure if successful gives profit (tes!) vi) Sharing of profit - Between the persons. \n (Section 239 ICA) CRITICISM Justice Jessel M. R. in Pooley v. Driver criticised the above definition on the following grourids:~ i) This definition requires the combination of some property, labour ot skill, in the business, by all ‘persons. But tis not true, Hére, goodwill and good reputation of a person has been ignored. ii) Element of agency has been an important aspect of partnership. Its omitted in this definition. It is the basis on which partnership stands. . iii) This provision (definition did not tell anything that how the business of the firm shall be conduct). a ais definition id not state from where the partnership relationship commences. ‘So, toperone all these defects she new Act Le. IPA has defined partnership in Section 4, Section(4 IPA defiies partnership as “a relation between persons who have jagréed to share profits of a Business carried on by all or any one of them acting for al." ESSENTIALS ee L.. Relation 7 2 I. Persons” -lIl._ Agreement IV. Business 7 ; : V.. Share.of Profits : % VI. Mutual Agency VII. By all or any of them — how carried? .1. RELATION Partnership is actually the relation’of partners/persons. The persons aré related by mutual ‘rust (which refers to honesty and integrity) and confidence (which refers to the capacity to carry ‘pn). If this trust and confidence is shaken the relation between the persons breaks resulting in ‘he breaking up of partnership. So; there is always a limitation on the number of partners i.e. 10 for banking business and 20 for non-banking business, Proverb: "It is difficult to get one friend, impossible to get two’, i PERSONS . Partnership is the relation between persons. The definition has used ‘persons’ is plural. So, it refers to two or more,persons. te Persons also include natural persons and legal persons. Two natural pefgons may enter into partnership, or it may be between a natural person and legal person, or it between two legal persons. % ~ Partnership fim sno legal person (Dulichand vs. CT) MARY Cola Storage vs. C. LT. $991) Thus a partnership could be formed between an individt al and clone yetween the two companies. However there would be practical dificalti jes in the? working ‘of partnership between companies. It is important ta note that a partnership Be a legal person and therefore a fim as such is not entitled to enter into paftnership"Wwith another firn or individuals. (Dulchand v. Commr. of Income Tax AIR 1956 SC}, The parters of a fim can however enter into partnership in their individual capacity wit ariather individual or partner of another firm (Commr, of Income Tax v. Jadavji Narsidas & c. 1963 SC), WL AGREEMENT . * 7 = Partnership arises due to thé relation réshlting in the agreement entered into by the persons. — Agreement may be express or implied. The Actidoes not prescribe the form of agreement, it may be either writen coral or it:may red from the conduct of the parties. The agreement must be of voluntary nate. In Lakshmibai v. Roshan Lal 1972 Raj itws held that when there is no writin agreement. It i the conduct of the partes thatidetermines the existence of partnership. Section 5 statés that tte felation-atise$ from contract and not from status. So, the contact of Brnersip ust satis the essentials ofa valid conic provided under Section 10 of !. C, The essentials are — i) Free consagrutoartes. ii) Parties my pteito contract. ii mu tee Ptons'eration. Thefe must | object and ee (1. C. A) declared to be void E ‘OeF bsnl are — . a) Intétjion to creaté legal relationship. <{ b). Must Hot be immoral or opposed to put ie policy (Section 23) > Contract and not from status. } ~ Contracts the resulf of the willoj the. parties, whereas, status comes from birth. ~ Members of Hindu joint family acquire status by bth, Just because, they afe members of the J. H’F., they will not become partners. . ~ -Hindu joinUndivided family is not simitar to the partnership. H. U. F. is a non-contractual relationship, non-partnership realionship and more than tha, itis governed by the Hindu law.In Sanyasi Charan vs. Krishna Dhar (1922), Justice Laurence Jenkins, held that Hindu Joint Family business means ancestral business. But it does not mean that they cannot form partnership. They can form partnership by entering into agreement. Cases: i) In Jaldu Anotha Raghuram Arya v. Jaldu Bappana Rao - AP. High Court observed that there can be no quarrel with the proposition that co-ownership is not the same thing as partnership. The mere fact that the legatees or donees under a will or deed intervivos as the case may be, of heirs at law happen to be have a common interest in something Which is divisible among them would not make them partners. But if such person continues the business either after death of the testator or when inheritance falls as the ‘case may be, it could not be postulated that there was no partnership, ii) Murlidar v. CIT, M.P. ~ held that there is nothing in law to prohibit a family from forming a Partnership. Moreover, grant of exclusive control to any one paiftner or nion-tegistration of partnership under partnership act for one year did not indicate that partnership agreement was not genuine. 4 : il) Dulichand v. CITA partnership firm is not a legal entited to enter into partnership with another firm ogindividuals. ee iv) “Mifza Mal vs. Rameshwar- if a manager or member (fa Hindligoint family enters into 2 partnership wih some strangers tothe family, the obmembets ae not necessary partners with the strangers. Section 3 of Indian Partnership Act “3, a itis made clear inthis section that, unless th smpbirec C. A. are inconsistent with the provisions of | P. A., the unrépebiled provisions of fhe. C. A. apply to the firm. Even, when a deed is named ‘ag “Pariershipk Deed’, it cannot be said that. itis Partnership. In S. K. Parthasaradhi Naidu vs."K. Rama Naidu (AIR 2001), it was held that “the nature of the partnership is nét,deterMinedsby the mere use of word ‘partnership’ ether Nel elements enss before any relationship can in the agreement or in the pleadingynless | be called a partnership comesinto e a) There mustbe an agreemenentated into by all the parties concerned; b) The = to 1e profits of the business; and c) The business ts Je Catred on by all or any of the persons concerned in action for ll & Co, Ltd. v. CIT A partnership could bé fornted between number of ss but there would be practical difficulties in working of such partnership from view of company's act ii) Metal Refining Company v. CIT West Bengal - The Calcutta High Court has exfiessed the view that though there is possibilty of an incorporated company forming partnership with another incorporated compainy iri oose sense of term for purpose of Income tax. The regular concept of partnership cannot be appiied to say that there exists a partnership between one incorporated oo. and another co. i-tegular andl technical sense. Justice, P.B. Mukherjee observed: a) If two companies under Indian company act enter into partnership they become agents of each other which might not be permissible by their charters, articles and ‘memorandum. ) “t would be dificult to apply the specific rights and obligations as contained in ection 9.10 17, Section 18 to 30 and Section 39 to 55 of IPA. 3c) Then there is need for registration of fims and companies and as:a résult they will have to obey 2 Masters — the Registrar of firms and the Registrar of companies. d) Access of each partner to other paitner’s book of account will: make nonsense of co. fet. IV. BUSINESS > Carrying of Business: Business is defined in Section 2 (b) of |. P. A. It defines ‘business’ includes every trade, ‘occupation and profession. This definition has been criticised by Prof. Underhill. It says it as a weak, vague and,does: not clearly lay down what is meant by business. Because, occupation and profession may not be @ business in many times. He defines business as “callings in which a man is ready to send t0 all comers, goods, skit, assistance or other services". Professor Underhill also further says that “whether calling/venture is a business or not has to be recognised by businessman”, Case: In Smith vs. Anderson, James L. J. said: “The term business niust be taken in a practical sense ie. in a senge in which men of business would rose that term” Section 8 alsd says “A person may become a partner with another person in particular adventures or undertakings.” On this point, the case is Minick v. Roshanlal Shorey. » Purchasing goods for self-consumption Business is the joint operation for the sake of gain. ~ Apartnership may exist ina single business venture. ~ But, whether temporary or permanent, the business mus! be in existence. An agreement to cary on business at a fulure time does not ré&ult in present partnership, Case: i) Coope v. Eyre ~ Oil was not meant fot zesale and therefore there was no business being carried on by Eyre & Co. and others and hence there was no partnership between them. es Business. should be lawful i.e. not unlawful or opposed to public policy i) Mahadeddas v, Gheriilal Parekh — A partnership ‘where partners agree to engage if forward contract without ty intention of actual delivery but only to deal in diference, the agreement is merely wagering. Such a partnership is valid because though the wagering agreementtis void: they are not illegal, immoral or opposed to public policy. Thus, a partnership agreement would be void it the business if forbidden by law is immoral or ‘opposed to public policy within the meaning of Section 23 of Indian Contract Act. ii) Kanmappa Nadar v. Kanuppiah Nadar — Parinership between two persons to carry on business of transport service which is in contravention of pravisions of motor vehicles act Aeegafent ‘opposed to public policy. 9 Bulginess shovid be ‘carried on’ ‘The business should be carried on by all the partners or any of them acting for all of ther, Cartyirig on of a business involves a series of transactions. Merely a single isolated transaction ‘of purchase and sale by a number of persons does not mean carrying on of a business. Case: R. R. Sarna vs. Reuben ~ Relationship of partnership comes into existence only cee when the business commences. However, it is possible that tHie’partners may engage in a:single adventure or : single undertaking and that may involve carrying on of a business. % ‘According to Section 8, “there cai he a ‘particular partnership’ where partners engage themselves in particular adventures and undertaking” Thus, persons can be-parter in 5working out of a coal-mine, or production of a fim because although that may be a single adventure but same requires a sense of transaction and continuous relationships. > Gases of single venture amounting to carrying on of a business: i) Senaji Kapurchand v. Pannaji Devichand — if the bales of yam are purchased at one time but sales are to go on, profits are to be realised and then distributed there is carrying on of business. ii) K. Jaggaiah v. Kokumanu ~ There was held to be a partnership in road building activity. Such activity though arising out of single contract was spread over period of time and the firm had to employ certain workers, supervise the work, prepare the bills and get the approval from the goverment and finally receive the bills and all that meant carrying on of business. The effect of distinction between a single transaction and carrying on of business has been stated in Ramdas v. Mukutdhari as follows: “A single venture or transaction finishes immediately after purchase and sale, There is no continuity or carrying of business in the sense that one or more partners continue to have responsibily and to apply their discretion in buying, storing, selling and keeping charge of money over a length of period. If this length of period and the scope of the business are defined with reference to particular reason or particular quantities of commodities then we have particular partnership. If in the agreement, itself the period and scope ate not precisely defined then we may call it general partnership. Either way it has to be a business carried on with repetitions of process of purchasing and and seling and keeping charge of commodities and money.” < ‘SHARING OF PROFITS ‘The agreement must be to share the profits of a business. Sharing of profits by allis e must, (Raghumal v. Official Assignee of Calcutta). the contract does not provide for sharing of profits then equally. [13 (b)] The definition of parinership presupposes a business carried on for Profit. So, associations of individuals: rung businesses but not with a view 0 profit, individually will not fall within thedefinitorent gartnership. 7 Thus charitable associations, ‘mutual bereft societies, mutuaT MVEStment societies, trade protection societies;, mutual, insufaiqge' societies, social clubs, building’ societies, coaching institutions etc. wil él be partherstip Blisiness. ‘The object of every'partnershifginust be to carry on business for sake of profits and to share the same but every Péi ‘ who shares the profit need not always be. a partner. For rofits to a Manager instead of paying a fixed salary. in Grace v. that every man who shares the profits has also to bear his of Lords laid down that the persons sharing the profits of a business do i the liability of the partners unless the real relation between them is that of ‘This principle laid down in Cox v. Hickman forms the basis of Section 6 of IPA, which caution that the presence of only, some of essentials of partnership does not necessarily result in partnership. . | Seetion 6 lays down -."In determining whether a group of persons is or is not a'firm or whether‘a person is or is not a partner in firm, regard shall be ‘had to. the real relation between the’parties, as shovin by all relevant facts taken together.” -". Explanation 1: Makes the position further clear by stating that sharing of profits between = certain persons does not of itself make such persons partners. -Explanation 2: Mentions four particular instances where a person may be staring the profits with-another or may be getting some payment contingeri. spon or varying, with the. profits and iil the real relation between the persons thus sharing the profits may not be that of a parr. These instances are — 1. Money lender sharing the profits2, Servant or agent 3, Widow or child of deceased partner 4, Seller of goodwill 4. Money lender sharing the profits The decision of House of Lords in Cox v. Hickman is an illustration of money lender sharing the profits of a business of which he's not a partner. Facts: - One Smith & Sons cartied on a business and due to some financial difficulties executed a deed in of arrangement of their creditors, As a result of i, five representatives of creditors were to be appointed as trustees who were to ranage business of Smith & Son Cox was one of the five trustees. The plantif Hickman supplied someigoods while the business was being managed by the trustees. One of the trustees accepted the bill of ‘exchange drawn by Hickman undertaking to pay the price of goods. Hickman sued Cox for payment. ey Held: Although the creditors were sharing the profits and bud :s was being fanaged by the trustees the relationship between the creditors and the tiustees on one hand and Smith & Co. on the other was that of a creditor and r and not OffegtreteFrercioe, "1 Cox was not liable. Case: i) Mollow March & Co. v. Court of Wards & Facts: A Hindu Raja advanced a large sum of mondo fitfn and therefore was given extensive power of control over business.:it was agféed that Raja. was to get commission.on profits until the repayment offloan with 12% intérest. Held: it was held by Privy Councitthat wuld not be made liable-for the debts ir to create partnership but simply to 2. Servants or agents sharing pr ‘Sometimes servants or agent jare in profits of business as an incentive so that he takes more interest d does not there In Me fssistant in a firm of brokers was paid a share in profits over and above ‘i signed some letters and documents on behalf of the firm. It was faid on only acted as a sérvant or the agent of the firm and the mere fact t FOlts did not make him partner in the firm. Abdul Latif v. Gopeswar, A:who had undertaken to load and ya Lid. company appointed B to that job. B was to be paid 75% of 0 liable for losses, i any. It was held that relationship between A and bf deceased partner sharing profits or child of deceased partner who share the profits in accordance with the sment does not become the partner merely because he or she is sharing the profits in the@ysiness. Casel |) Holme v. Hammond Fact: Fivé persons entered into partnership for 7 years and agreed to share the profit and losses equally. They further agreed thal if any one of them died before the expiry of ssaid period of 7 years, the others would continue the business arid pay the share of Profits of the ‘deceased to his executors. On the death of one of the partners, the ‘survivors ‘started paying to the executors of the deceased his share of profits. The surviving partners enteredinto contract with the plaintiff and the plaintif sued the ‘executors of the deceased to make them liable in respect of the said contract.v. Held: The executors though sharing the profits had not become pariners and therefore they cannot be made fable. However, there is no bar to the widow or thé son of the deceased partner to enter into partnership after the death of the deceased but a clear agreement to that affect has to be proved as has been held in CIT v. M/s Kedarmal Keshar Deo. 4, Seller of goodwill sharing the profit ‘A person selling the goodwill of his business may be entitled to share the profits of a business in consideration for sale of goodwill but such a person cannot be deemed to be a partner simply because he is sharing the profs. Case: i i) Pratt v. Strick Facts: A doctor sold the goodwill of medical practice and enteredipto,an agreement with the buyer that he would help him to introduce patient$sfor three To he ‘would be entitled to half the share of profits and incurs halt Held: it was held that the doctor had not become a partneh the goodwill was soll. Simiar decsions were al en in a Hawksley v. Outram. person db whom Y y. “Clarke and MUTUAL AGENCY Acsorig io Secon 4 of PA. buses rut bo carlo a all or any of them acting for aif’. \t enables partner to carry on the business on behaifigFothers. Section 12 (IPA) also provides that subject 16 contract betWeen the:partnérs, every: Bartner has a right to take part in the conduct of the business. Every paitner, therefore, car bind others by his act done on behalf of the firm. The element of biitig authority of thé'Bartner is provided in Section 2 (a) ie. “act of firm’ meains any act or omission by. all the’partners or-by any partier or agent of the firm Which gives rise to a’right enforceable by Or.against the firms" Every partner can be agent of any other partner and that relationship is thal of are Section 18 of |. P. A. clearly states that a partner is the agent of the firm for the of the business of the firm. Section 23 |. P. ‘A. provides “An admission on representation inadé by a partner conceming the affairs of firm is evidence (Section 18 of indian oa ainst the fn, if tis made inthe ordinary course of business. Sectign 24.1. P. A at Notice to a partner is notice to all. This notice is constructive n any iner occupies the dual position that of principal and agent. The éxstence of tlgfutual dency among the pariners isthe real et forthe existence of partnership, as: was heldkig Cox v. Hickman. In that case, the trustees were managing the but they did not thereby become partners. The reason is that the 's of Smith & Sons but they were not the principals and thus there ‘of person with whom he is sharing profits since such a servant or agent does position of principal there is no mutual agency and thus-the servant or agent e profits cannot be termed as partner. 5 hip firm ~ not a separate legal entity : The poston on tis point was ‘explained by Supreme Cout in Dulichand Laxmi ‘Narayan v. CIT as under: “The general concept of partnership is that a firm is not an entity or person in law but is merely an association of individuals who constitute the firm. In othet words, a firms name is merely an, expression only;-a -compendious mode of designating. the persons who have agreed to ‘carry on business in partnership. Thus, to import the definition of the.word ‘person’ occurring in Section 3(42) of General Clauses Act 1897 into Section 4 of IPA will be totally repugnant tothe subject of partnership law’.¥ Mercantile view: Firm distinct from its partners In strict legal sense, a firm is not different from its partners but in commercial world the firm is treated as different from ‘ts members who constitute it. In the preparation of partnership account, the firm is showin as debtor toward the partners in respect of capital and other amounts brought “in. @ partnership for conducting a firm's business. Similarly, the partners may be shown as debtors to the firm for what they take out of the firm. Thus in Mercantie view, instead of partners being tteated as debtors or creditors to each other, they are treated as.dgbtors or creditors of the firm. In that sense, the fim is treated as a different identity apart from its members. ~ 1's personality for tax purpose For the purpose of tax laws, a firm a taxale unto person deri om the paners and in that sense it has a personality of its own. According to Section 2(31) of Income Tax ‘Act the term person inckides a firm and six other categories. of asse8se@zor units of assessment, Thus, under Income Tax Act unlike the partnerstilp.act a firm pane and distinct legal entity or a separate unit of assessment. In view ofthe fact that under the ineame Tax Acta fim is separallspersonyst 5% taxble Lnit distinct from its members, there is 8 possibilty of there being fwo:Separate firms though they consist of same partners. In Income Tax Commissioner v. G.P. Naldu & Sons, the Income Tax Ofcr cibbed the income of two firms and assessed the assessee firm accordingly of the grounds that the constitution and ownership of two businesses was one. and the same. The contention of the assessee that there were two different:firms independent of each other and there was no interlocking and intermixing between the two firms and hence the profits of two firms were _ not:to be clubbed together but taxed separately ‘was,accepted by Income Tax appellate tribunal. The AP. High Court on appeal he'd that under Income Tax Law 3 firh is an independent and distinct juristic person for purpose ofagsessmentt as well as for recovery of tax as itis @ person within the meaning of Section 2(81),0fITA and therefore the two firms had to be treated as separate entities for the pulrposeof assessment, Asimilar approach has been adopisd'by Bombay High Court in Jesingh Bhai v. CIT, Bombay, Puna and Haryana’ High Cour. in Oswal Hosiery & Mahavir Woollen Mills v. IT, Punjab and'Mad oa in Mahendra Kumar y. State of Madras and recentiy approved by soe S in Deputy Commissioner Sales Tax v. M/s K, Kelukuity. Facts: The respdndent MIS’ K. Kelukuity was @ partnership firm canying on timber business. Thos partfigfs also constituted another partnership fim in name of Mis K.K.K Sons and 9 sei Hil Held: fe wa igdhat jor the purpose of sales tax the two firms were distinct units and over done limi Could not be included in the turn over of the other. The Supreme Court é ol ~artnership agreement creates and defines the relation of partnership and, { Shogtor. ie is the firm. Thus,’ éach partnership agreement niay constitute a distinct and ership and, therefore,-distinct and separate firms. The firm’s name is only a for he nl paves By such paveship a dnt lao . 's personality for tax purpose~q. - i) Muishiram vs. Municipal C e ~ In this case, the Supreme Court held that all the partners will have to pay taxes, becdbse firm is not a legal person. ii) Keshayji Ravji Co. vs. Commissioner of , T. - The Supreme Couit held that fie is not a legal person, Fim isan assessee"for the pupése of inoome fax, but it doesnot mean that itisa legal person : i): Shankar Housing Corporation vs. lilonhan Devi - Supreme Court held that fir is & ‘hort and combined namé of all the partners. .> Partnership at will ‘When the partners have not decided about the duration of partnership such partnership is know as partnership at wil ‘According to Section 7 “where no provision is made by contract between the partners for the duration of their partnership or for determination of their partnership, the partnership is partnership at wil’ Thus, a partnership is deemed to be a ‘partnership at will in following two situations: i) When no provision is made in the partnership agreement as to its duration. ii) When no provision is made in the partnership agreement as to its determination. ‘The provisions regarding as ‘6 the duration or determination of on Ge may be either express or implied. In a partnership at wilt partners are not legally bound to continue im ne shi for oa specified period and partnership can be ended at the sweet any Section 32(1) (c) of IPA postulates “in a partnership at wi fre may fétire by giving a notice to all other partners of his intention to retice". if Section 43(1) lays down ‘where the partnership is, i the, smi A ‘olved by any partner giving notice in wring to all the other partners of histintentift dissolve the frm’ Section 43(2) lays down that the firm is dissolved oN “date mentioned in the notice as to the date of dissolution or i no date is so mefianed as from the date of communication of notice. Although a partnership al wil coud Be, dissalved by mere dice bit that does not debiar ‘a partner from filing a suit for its dissolution. (Undeé:Gaction 44, |. P. A.) In such a case, the service of summons will be deémedlo be cgmmunigation of notice for dissolution and the frm shall stand dissolved when sums are Served. The observation of Supreme Court injBanatsi Das v. Kanshi Ram is noteworthy. “The sub-section of Section 43iprovidessthat firm will be deemed to be dissolved as from dllow, therefore, that a partnership would be deemed to be dissolved whéh, the 8 1S accompanied by a copy of plaint is served on ant and on ail defendants when there are several Il be deemed to be dissolve only from one date, the at will or not depends on contract between the’ pariners, if the wessly ‘indicate nature of partnership then an inference may be fement it has to be seen that various terms of agréernent are ip at will or not. It is also supported by Section 62 of the Indian ides for the rescission of contract by the parties. ership created for three years iness continued without specifying the durations (even after three years). - Held: it became partnership at will during extended timelcan be dissolved with a tice. ~ i) Moss v. Elphick ~ — Partnership to be terminated by imutial agreement. — One partner sought dissolution by giving notice. = Held: Partnership was not at will and cannot be terminated by a notice. = Feltcher J ~ Parinership was for joint ives of parties unless terminated by muti agreement. — There is a specific provision as to its duration and in that sense was a partnership for fixed or defined terms. : iil) Abbott v. Abbott — Partnership agreement between’ father and his sons provided that the death or retirement of any partner shall not terminate the partnership, if any partner shall do or suffer any act which would be grouse! for dissolutin of the partnership by the court then he shall be considered as having retired = Contention — Since no duration is mentioned it was a partnership at will and sought {or its dissolution by notice. Held: A single partner could not, determine the partnership by a notice, alhhough he could retire or cease to be a partner allowing the partnership fim to continue. Therefore, not a partnership at will and cannot be dissolved by a notice KT. Chettiar v. EMI. Muthappa (is ~The agreement provided for canying on management of mill insolation once in four years, ~ The pariners and ther heis and those geting thi, ghls “Soi -cary on management in rotation.» & — Held: Intention of partners could not be to create partnership ‘Of at will but to have a partnership of some duration though the duration was ot expressly fixed in the agreement. 3s iv) Suresh Kumar v. Amrit Kumar (Deihi High Court) In this case, terms of partnership agreement inclided — 2 - That any partner desirous of retiring from the partnership, shall give six month notice of his intention to retire and on, expiry of the notice he shall be deemed to have ceased to be a partner. = That on the death or retirément of a partner thesfir shall be continued with respect to other partners and the noininee or Jegal heirs:of the retiring or deceased pariner as the case may be. » One partner contented that it ‘es @ partnership at wil and sought the dissolution of frm. — Held: The parties never intended shal ‘Partnership be dissolved at the sweet will of any of.the partners rather thelr intention was that business of partnership should contipg@,as | ible notwithstanding’ death or retirement of any of the partners han “ca ifhership at will ould not be dissolved by a notice. DISTINCTION SETWEEN cu anbieoonnenstiP Covimership i, (3k parlesip. But the law does not prevent the co-owners to become partners. 3. Mutual agency For a firm, mutual agency is a must. The act of one partner binds al other partners. But, in case of co-ownership, mutual agency isnot a must. The person cannot bind the co- ‘owner beyond the extent of his share, 4, Transfer of interest. ‘n aim, a periner cannot rita his interest without the corset of all other partners. | co-ownership, one owner can transfer his interest without the consent of other co-owners. *5. Maximum number of members: In partnership firm, the maximum number is limited: For banking business the maximum number is 10 and for non-banking business, the maximum number is 20, In co-ownership, it is unlimited. Sharing of profit In case of a firm, the aim of firm is always to eau Profit. It is the test.to determine partnership along with other ingredients. In case of co-ownership, the aim is not always to eam profit. The co-ownership may be in a service sector. Her, the co-ownership usualy share both profi and loss. 7. Liability Ina fim, the abil is uninited and personal. In oo-owmership, the lilt i ited to share. 8, Dissolution/End In case of frm, itis by dissolution thatthe frm comes to end, In case of co-ownership, it is by partition. DISTINCTION BETWEEN FIRM AND COMPANY 4, Personality : A firm is relationship between the persons who have agreed to. share the profits of a ‘business cartied on by all or any of them, acting for al. It does fiot have a separate personailly apatt from the partners. It is just the name given- to the collection of partners. It is not a legal person, ‘Accompany onthe other hand is having a separate existence apart fom ts members. isa legal person: 2 oo 2, Creation Partnership firm is the creation of contfact between the partners whereas company is created by the registration or incorporation unde the ingian Companies Act, as a carhpany. 3. Perpetual succession The firm's position changes according to the ctianges in the position of partners. The death, relrement,abrrission of a partnekjings & digege inthe postion of parnership In case of company, any changin the postion of members does Not affect the existence of the company. i cbntnues asitis. Sit has a perpetual succession, 4, Separate property Ina firm, a firm cant have Brae property. It cannot own property. It is the partners who actually own the. pen mh A company i property. Mer ed apt sor 5. Biability sd : the pailtrs%members’ bitty is unlimited. In a company, the members abit is A ma ig sfares of guarantee except in case of unlimited company, jproperty. It can sell or purchase the property. It can alienate the personal interest init ( V.Subramaniam v, Rajesh Raghuvendra Rao limit 6. Mutuatagency 4 Mutuakagency is the essential element of im. Nis not the essertial element of a company. The acs of directors can oniy bind the firm except in some cases. But not thé dts of all members, 7. Registration + Registration is not compulsory for a fm, though it has some disadvantages of non- registration. Bu, fora company, feistraton fs must forts creation. 8. Conduct of business “Ina firm all partners have a fit to take part in the conduct of business of the firm. They may agree as to who has to act on behalf ofthe fim. Act of every partner binds the firm. 4a 2ce.af company, itis only the direciors who can act or take part in thé conduct of business. 9, Transfer of interestIn firm, a partner cannot transfer his interest without the consent of all others. Because, itis the matter of trust and confidence. The transferee must have got the trust of confidence of the other partners. In case of private company, there is limitation on the transfer of interest as in fim. But, in Public companies, it is diferent. A member can transfer his shate to others as a negotiable instrument. 10.Numiber of members In firm, the minimum is two, maximum is 10 for banking and 20 for non-banking. For a private company, minimum is 2, maximum is 50. For a public company, minimum is 7 ‘and maximum ig unlimited 41. Dissolution In fim, the breaking of relationship by any kind, brings the frm dissolved Acompany is sohediqistedor wound up according toe yan on CO DISTINCTION BETWEEN PARTNERSHIP FIRM AND HINDU JOINT FAI 2 Broadly, a partnership firm is a mode of carrying on of thes ese thé’Hindu Joint Family is @ kind of social system. The difference betweenMie two os seefitfrom various perspectives as given under: & 1. Creation % ‘The partnership firm is the creation of the Sled tween the partners. The Hindu Joint Family (HJF) is created by status 2. Interest of members Sod In a firm every partner is having, abe cific interes business of firm, and his interest is governed by the terms of the contract on the Injan Partnetship Act Ina HJF, each member is not atl intefests ifthe affairs of HIF, and his interest is not governed by any agreement and is. govertiad bysHindu law. 3. How membership acquired In a firm itis by the sweet wil membership ofthe in, resulting in a contract that a person acquires the Section 31 (1) of if member ofthe fing wher ship Act, provides that a person acquires on becomes a the partners consented 10 it. tis because the new person must gain nor cannot be a member of partnership except to the benefits of the firm. be a member of ie iF 6. Number Sfmembers ; } Limited in firm. Case of. beni business the number of partners is 10, and in case of non- banking itis 20. In case of HJF, the number of unlimited. ‘ability . ~ Ina firmas defined in Section 8 ofl PLA, the liability is joint and several. It is unlimited 2 and personal liability is also there.". dna HF, tis oly the Karta who is having unlimited abit, but in case of others, i is only upto the extent of their share, 8. Conduct of b 4Ina firm, every member fas the right to take part in the conduct of business, But, it can be fixed by the contract. In HUF, usually Karta takes care of. But others can also take part. 9. Authority to bind Section 2 (a) makes it clear that the act of one. partner is binding on all partners i.e. firm. Section’ 18, 23, 24 all strengthens this aspect. ‘A member of the HJF cannot bind the others or his act. 10. Element of mutual agency Mutual agency isthe foremost aspect ofa firm. Iti not an important element of HSF. 11. Death of a member ° The death of a pariner, dissolves the firm if not prevented by the contract : The death of a member of HJF does not affect the continuity of HJF notably 12. Effect of insolvency Insolvency of one partner dissolves the fim if not prevented by the, contract. By, if lt partners become insolvents, then the firm is bound to dissolve; d Insolvency of a member of HUF, does not dissolve or end’the HUF. 13. Effect of non-registration Unregistered firm cannot bring a suit in a court of law for the enforcement of contractual fights. No such disabiity in case of HUF = 14, Law applicable Firm — Indian Partnership Act HUF Hind Law 15, Relation how erids In case of firm, by a suit of dissolution, the relation gets end. In HUF, the relation comes to end by/a suit of tition, Cases: % i) Kshetra Mohan Sanyasi vs. Go. PT. (1953) - The-atiairs of HUF is looked after by its Karta. Two kartascof ily. may enter into-partnership, the same is popularly known as between two undi Hfamilies. But, i the eye of lawit is partnership between two kartas. * : il) Rashik Lal a Co. aT Conimissioner, Orissa (1998) ~ Where a person nominated by the HUF rtrerShip, the. partnership is legally. said to be between such nominated srson nan ‘othe dividual partners, but HUF by itself cannot be deemed to have become a ute Lal (1933) - Where a stranger is associated with the members of @ for a business, the rights and liabiities are determined by the contract Act ‘t J ofChapter-2 RELATIONS OF THE PARTNERS INTER SE ‘Two fundamental principles govern relations of partners to one another: |. The principle of Absolute Good Faith, (Section 9) Il, The principle that mutual rights and“duties can be determined by Voluntary Agreement. (Section 11) ‘Section 11 of the Act contains the general rule that mutual rights and. “C partners are to be determined by their mutual agreement. Section 9: a ae Partners are bound to carry on the business of the firm to the greatestsmmon advantage, to be just and faithful to each other and to render true accounts and full info all things, ffecting the firm to any partner or his legal representative, “ee Section 11: . i) Subject to the provisions of this Act, the mutual rights and duti be determined by contract between the partners and such co iay.bé" expressed or implied by a cause of dealing. % a Such contract may be varied by the Consent offal thé partn expressed or may be implied by a course of dealing. “ie... il) Agreement in restraint of trad ithstanding, afylhing contained in Section 27 of ICA 1872. Such contract may provide that a paitner shall not earryon any business other than that of a firm white he is a partner. _ % According to Section 27, ICA agreement nt of trade is void but such an agreement entered into between the partners is abGgiutel Exceptions to Section 27, ICA,are 55(3) of IPA. ONE her Ge ad RIGHTS OF THE PARTNI a) Various rights and tt Sie: 12 to 17 ate “subject to contract between partners 1. Section 12(a) ~ if part in conduct of business. 2. Section 12(c) 5% fess opinion Hes, and every partner shall have the right to express his opinion before but no change may be made in nature of business wilhiut the consent of 2 of opinion. may.-be either (i) a5 to ordinary matters connected with the atts of fundamental importance. ‘Whib,the difference of opinign pértains to ordinary males connected with the business the same resolved by.a de@fsion of the majority of the partners. But before the mater is decided every partner must tie prdvided with an opportunity to express his opinion. ‘When the matter. is of-funidamental importance consent of all the partners is needed e.g. admission of a new partner of a change in nature of business. 3. Section 12(d) ~ Right to have access to books of the firm 4. Section 13 (b) — Right to share profits - Generally, the partners provile in their agreements as to what will be the proportion ‘in which ~ they will share the profifs e.g. %, % ¥4. However, Section, 13(b) lays down that in the absence of any Such agreement, the partners are to share the profits equally and also to contribute equally to the losses sustained by the firm and not in proposition in which various partners contribute capital 16Section 13(a) ~ It lays down that a partner is not entitled to receive any remuneration for taking part in the conduct of business unless otherwise agreed. 5. Section 13(c) and (4) ~ Right to interest or capital and advances If the partners agree that interest on capital is to be given, then according to Section 13(c) such interest shall be payable only out of profits Similarly if the partner makes any payment or advance beyond the amount of capital he has agreed to subscribe, he is entitled to interest thereupon at rale of 6% per annum according to Section 13(¢}. . ©. Section 13(e) — Right to indemnity A partner while acting on behalf ofthe fim may make certain payments arid also inour some liabilities. According to Section 13(e), he is entitled to claim indemnity for the sai. DUTIES OF THE PARTNER: igs 1, Duty to carry on the business to the greatest common advantage. ” Read with Section 16(a) - if a partner derives any profit for himself trom any transaetion of the firm, or from the use of property or business connection of the firm or ffom.the firmfiame he ‘shall account for that profit and pay it to the firm. ftp. Cases: i) Bentley v. Craven — Supplying sugar on his own instead of purchasing from the market and concealing this fact. ji) Gardner v. Mecutcheon ~ Held defendant not entitled to use’ partnership property joint ‘ownership of a ship) for private benefit. ° 2, Duty to be just and faithful = Partners must perform their function with utmost faiiness. Thus, Section 33 provides that even if the contract between the partnets authorised the. expulsion of the partners the fellow partner must exercise this power in good faith. ~ In case a partner is guilty of conduct which destroys mutual confidence e.g. one partner commits adultery with another partner's wife that can be the ground on which the court may order dissolution of the firm. (Abbott v. Crump) 3. Duty to render trie accounts 4. Duty to render full information of all things affecting the firm — Concealment of facts by, partner renders him liable to the other. Thus, if a partner having full knowledgé. of the'fact with regard to partnership assets purchases the share of a co- Partner witout faking fulldisclosure ofthe fact tothe other, the contract is voidable. ever ih Laws v:'Eaw, it has been held that if a partner who is entitled to repudiate the ct dos. not repudiate it and does not insist on full disclosure of the fact but rather 'S to modification of original bargain, cannot subsequently repudiate the contract. att for fraud ~ Section 10 fy partner shall indemnify the firm for any loss caused to it by 38 of the firm. lv. Campbell ~ One of the paitners of a distilery, who did not take part inthe conduit of business, had to pay penalties which were levied upon the firm in. consequence of the purchase of illicit whisky. The purchases were affected by the managing partners and the plaintiff partner had no knowledge of them. They were held liable jointly and severally to indemnify him against the amount so paid and interest on i it was-immatril thatthe loss ~ was caused by acts of legal nature, forthe plain had not taken any part in them, nor had done anything which could be regarded as acquiescence, knowledge or consent. 6. Duty to be diligent - Section 12(b) and Section 13(f) : _ ___ According to Section 12(b) every partner is bound to attend diligentty to his duties in conduct ‘of the business of the firm if the partner i§ negligent in the performance of his duty this may a 5. fraud in the conduct ofcause loss not only to the partner but to the firm as a whole. Thus, Section 13(f) provides that if a firm suffers loss by a wiful neglect of the partner he shall indemnify the frm for the same. The expression ‘wiful neglect’ means an act done intentionally and deliberately rather than by in-advertence or an accident. ~ An act done in good faith and bonafide cannot be termed wilful neglect. Cragg v. Ford ~ Delay in disposing of bales of cotton, led to loss, on account of steep fall in price cannot be termed as wilful neglect. ~The partners are free to make a contract that they will not be liable for wiful neglect ". Duty to properly use the firm's property - Section 15 and 14 Section 14: Defines property of the firm e The property of the frm includes all property and rights and interest ip, property originally brought into the stock of the firm or acquired by purchase or ot by or fakthetim or forthe purpose and in course of business of the firm and includes also the g@Bxlwil ofthe busirigss. Unless the contrary intention appears, property and rights and inte? in property acquired with money belonging to the firm are deemed to be acquired fog the fin — The property of the firm not only includes what is origi (6 the" stock of the firm bbut also whatever is subsequently acquired by purchase immovable property also into the common stack and that bet ~ Property of the firm also includes goodwill. Goodwill is. ar acquires by its reputation. itis acquired by a business in cof patronage and encouragement which isfeceivessyom constant ~ Goodwill being a property of the a be er Separately or with other property ofthe firm, ~The property belonging to any partner'dees nok become the property of the firm by merely its use in partnership business; it wll becofe the properfo the firm f there is an indication of an intention to treat such thé property of the firm. (Jayalakshmi v. ‘Shangmugham) ee = Property purchased with the, ney is deemed to be property of the firm. Thus, land purchased ith the partnegship morigy but in the name of partner. (Forester v. Hole) the firms money in partner's name (Exp. Connell), iriners the premium for which is paid by the firm (In Re rty of the firm. separate property:- Where certain property is’ purchased with ame and for the sole benefit of a partner, he becoming debtor to It becomes the personal property of the partner. Similarly-where Adarji) ste deemed Conversion of partnership mg firm shall be held and used by them exclusively forthe purpose of the business of if the section had not so provided, a joint property being the nature of'a trust, has be used for the purposes of the trust. No partners should, therefore, use the assets of r any of his personal purposes. Any such exploitation, will render the partner accountable to the fim for any ptivate advantage obtained by him. He shall also be responsible {0 indemnify the firm for damage, if any thereby caused.to its assets. The failure of a partner fo’ submit an account of his doings in reference to the property of the fim may make him fable to an action but not to a charge of criminal misappropriation of property. - 18eee 8. Duty not to eam personal profits ~ Section 16 a) If 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 of the firm name, he shall account for that profit and pay itto the firm, ) Ifa partner carries on any business of same nature as aind competing with that of the firm he shall account for and pay to the firm all profits made by him in that business. — Acpariner is the agent of the firm for the purpose of the business of the firm # an agent without the consent of his principal deals in the business of the agency on his own account instead of on account of his principal, the principal is entitled to claim from the agent any benefit which may have resulted to him from the transaction. Cases: “ i) Bentley v. Craven (Supply of sugar) 4 Similarly, if a partner, without the knowedge of the other co-pariners Rifigetiurchases the property of the firm and thereby gains some benefits, he has to:acoount for: nefit to. the frm. wey i) Gordan v. Holland - partner sold the ms and and then repurchase, = Information received as partner - The duty of pariner 23,0 theexploitaion of information received by him as a partner was thus stated in Aas’v, Benham: if a member of a partnership firn avails himself of information obtained by him in the course of the transaction of partnership business, or by reason of his connection with the firm, for any purpose within the scope of the partnership Business, or for any purpose which would compete with the partnership business, he is lable to account to the firm for ‘any benefit he may obiain from the use of suc, information; but if he uses the information for purposes which are wholly-Without the Scope: of the partnership business, and not ‘competing witht, the frm is not eid to an accoufif of such profit On the facts of the case the patiner in question, was held to be not liable to account because the business of the compatty into. which he jumped was that of ship-building whereas his firm was that of ship-brokefs 5 > Profits earned in competing business = Section 16(b) — Ifa partnexgarries on any business of same nature as a competing with that ofthe fim, he shall nie gnd pay le:lyerTmrall profits made in competing business, ~ Section 11(2) eo thal partners cén lawfully make a contract that a partner shall not cary on any Bysiness other than that ofthe fir while he is 2 partner. Such a contract ‘of the partners and has been declared to be valid inspite of rule 27 of ICA.-If such an agreement has been entered into then the net carrying on any other business competing or non-competinig does ofthat business to the firm, isiness carried on by the partner is not of the same nature and is not in petition with the firm the partner conoemned may retain the profit. =" Thepabove stated rule is subject to-contract between the partners and therefore it is possible that @ partner may be permilled by a contract to carty on competing business and also to retain profits of that business to himself. Putin v. Mahendra — A partnership was founded between certain persons for importing salt from foreign countries and to resell the same. in Chittagong. One of the partners, while operating to buy salt forthe firm, bought some quanlity for himself and resold on his personal acoouiit, He was held liable.to account for this profit fo his co-partners, as the opportunity to make it came his way while he was.on the business ofthe firm. > Section 17: Effect of change in the firm 19‘Sometimes, after certain sights & duties of partners are in existence certain changes might ‘occur in the firm. This section contemplates three kinds of changes in a partnership firm: a) Change in constitution of the firm — A change in constitution of the firm occurs either when a new partner is admitted or a partner ceases to be partner by retirement, expulsion, insolvency or death. b) Business continued after the expiry of the term ~ Partners may have originally agreed to carry on business only for fixed term, it is possible that inspite of completion of term, partners do not close down business but continue to run same. ) Carrying out of additional undertakings - A firm may have constituted to carry out one cor more adventures or undertakings but subsequently the partners may dacide to cary ‘out some mare adventures or undertakings. os In all such cases, the question arises that What wil be the position ‘@f mutual rights and duties of the parties after the changes take place. Inspite of these changéSp 1a Tights. & duties of parties after the change continue to be same as they wre existing — This rule is however subject to contract between the partner contract vary their rights and duties when one or the other of the ‘Some other relevant case law é i) Aas v. Benham — A partner in a frm of ship-brokers formation of a company for building ships. In So doing he used information which fe, had adyired as a member of ‘he firm, He received remuneration for his services and sul aa director ata salary. He was sued for an accougt of thes But was held not liable as the ationot a Gompany:€nd the business of a ship- entirely je scope of the partnership. ayashtra ~ The appellant was the working partner of a e ‘he shuld carry on the work of realising the ithe misappropriated certain sums and also he was convicted for the offence of criminal Supreme Court acquitted him. Even if there ings. ity of dishonest misappropriation of property under cause he had undefined ownership along with the other set8'Of the partnership and as such owner, in whatever way, and he used the property, he would not be liable for misappropriation. plaintiff was working in partnership with certain persons. It was ‘Lone of the partner's son as a co-manager of the firm. The plaintiff ed father complained to his partners behind the back of the plain H them to sign and serve upon the plaintiff a notice of expulsion. This was ercise of a power which authorised a majority to expel any partner without reason. - ‘The plaintitt contested the validity of the expulsion and it was set aside. The court ted out that powers are given to the majority so that in case of need they may be eX€}cised in good faith for the benefit of the firm. It is no doubt for the partners to decide whit is in the interest of the firm but they must do go in good faith. Majority powers should not be uséd for base or unworthy purpose or merely to injure a co-partner. 'v) Thomas y. Atherton - T, the managing partner of a colliery, received sotice from L, an joining owner, that the workings were being carried on beyond the boundary. T insisted that he was entited fo the disputed ground, and carried on his working..The matter, having been referred to arbitration, he was held liable to pay £6,000 as damages for the ‘trespass. His claim for contributions from his co-partners failed as the loss was not ‘suffered in the ordinary and proper conduct of the business. . “He worked beyond the jimits of the partnership colliery without proper inquiry as to limits and had acted with grass negligence and recklessness-in continuing his working 20after notice and without consulting his partner, when it was evident that his right to work in the disputed area was extremely doubtful.” v) Robinson v. Ashton — The owner of @ cotton-mill entered into partnership with two others. The business was cattied on at his mil. The value of the assets of the'mill was credited to his capital account and he was allowed interest of it. The mill was enlarged and improved by the firm and also new buildings were erected on land acquired by the firm. It was held thal the mill had become the property of the frm. « vi) Jayalakshmi v. Shanmugham — The question arose before the Kerala High Court as to ‘whether and under what principles the tenancy rights of a partner in the premises where the business of the firm is being carried on would become the property of the firm. The court noted the provisions of Section 14 and also the fact that the goodwill of the firm, being the property of all the partners, attaches to the firm's place offbusiness and came {0 the conclusion that the overriding principle is that the property of @ partner, whether it be in the shape of a tenancy right or anything else, cannot become the" reper oF the firm by the mere fact that it was being used in business. “2Chapter-3 RELATIONS OF PARTNERS TO THIRD PARTIES The relation between partners on one hand and third parties on the other is founded on principal ‘of mutual agency as contained in Section 18 which reads as under: : “Subject to the provision of this act a partner is the agent of the firm for the purpose of the business of the firm.” : Relations regarding the partners and third parties are classified under following sub-heads: |. Nature and extent of liability ofthe fim for acts of partner (Sections 18-27) |, Doctrine of holding out (Section 28) II, Rights of transferee of a partner's interest (Section 29) IV. Position of a minor admitted to benefits of partnership (Section 30) |. NATURE AND EXTENT OF LIABILITY OF THE FIRM FOR ACTS OF APARTNER 1. Nature of liability of the partners toward third parties (Section 25) ' 2. Extent ie, the kinds of acts for which the partners are liable are as follows: i} Liability for acts done within the authorty of a partner (Sections 18, 19, 20 and 22). Such authority may be either express or implied. ii) Liability when partner acts in emergency (Section 21) il) Liabilty on ratification of partners act iv) Liability for admission made by a partner (Section 23) v) Liability on notice to an acting partner (Section 24) vi) Liabilty fr torts and wrongful acts (Section 26) vii) Liability for misapplication of money or property (Section 27) 4; Nature of liability of the partnérs toward third parties - Section'25 “Every partner is lable, jointly With all otner partners and also severally forall acts of frm done while he is a pager = Liability is uni ~The leliffthat te Barner incurs for the acts of he fm done wile they ae partners. ‘pater ceases to be so either by death.or otherwise will not bind him Ana Bondi xceplitier ty is continued by reason ofthe principle.of holding out. Section 25 gona liabilly of partners for acts ofthe firm would not be applicable unless icy operates against the sleeping partners as well. Thidy too are liable for the of ostensible partners (Ashutosh v. S.O Rajasthan AIR 2005.8C} death of a partner does not preclude the surviving rom drawing on the partnership account (Tanna 8 Modi v CIT AIR’2007 SC) 2. The kind of acts for which partners are liable He a) Acts done within the authority ofa partner which may be other express or implied ° * ‘Authority’ means the-capacity to bind the other by one’s ack. Here, it is the act of a |. Partner to bind the firm. This capacity or authority derives from Section 2 (a) which defines “act of firm" as “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.” 2Section (4) of IPA, also speaks of the binding element thought the words “acting for a Even, itis clearly manifested by Section 18 which states, “partners to be agent of the firm, Thus, the authority may be express or implied. Express authority ~ Express authority is given under the terms of the contract. Because, the contract as is the result of the free will of the parties, they themselves decide and provide the authority under the’ terms of the contract ise Implied authority — Implied means understood. The reasons why the implied authority is given are as follows: (2}Always, it is not possible for any contract to lay down or agree pon all the minor aspects of the business or affair, inthe form of writing. (b) Implied authority is a necessity. Otherwise, there may be hilidrance everywhere 2 and smooth running ofthe business isnot possible. % . (6) As the partnership is the product of mutwal agency the of mutual of no use without implied authority The scope of implied authority has been explained bieSection 19{4fas unider. “The act of a partner which is done to carry on, in , business of the bind Gamred on bythe firm, binds the firm.” . b) Foran act tobe covered within the implied authority itis netassgy that ~The act should be done in ysual Way, in by the firm: Firm can be a trading firm or Rij-tradiy firm contractors’ firm, engineers’ fim, Caching, implied authorities in trading firs the the negative instruments, borowifg. and leh examples of non-trading firms are olidtors' firm etc. A partner has more rnon-trading firms. For example, the issue of money frequently, which is not usual for a nnon-trading firm, i One more point is Sey ss implied authority, to do an act, which is, in the if he wai yy act; in the vinusual way, he has to take the consent Cases: ah 2 i) Mercantila Credig§Company Ltd. v. Garrod - Fim caitied on garage business ‘and repairing of cars. ti cars by one of the pariners could be impliedly considered to be firm akthough no express authority had been given for same. other partner of the firm could be made liable. twas also held that the firm firm and ican borrow money. srace Smith & Co, - The principal is liable for the act of the agent if the act is ‘scope of agent’s ‘uthority even though the agen inay be acting for his sonal gain and principal ridy not be knowing of transactions. . ity SMjar decision was given in Hamlyn v. John Houston & Co. where one of the. partners comtimtted & tort of inducing ach of contract by bribing the clerk of rival business in ‘order to know the’ secrets - However, it is necessary that the act done by a partner must be done to carry, in the usual -way, business of the bind carried on.bj.the firm. Cases: A i) Wheatley v. Smith — In’a non-trading business, for example, that of an auctioneer, a partner ~ cannot borrow money because an auctioneer is not a trader as his business was not for buying oF selling of goods. ‘Similar decision was given in follwing two cases: ai) “Higgins v. Beauchamp - An active partner of cinema proprietors borrowed money. Held that business of the firm was fot a tradirig oné and therefore the firm was not bound by loan taken by one partner. : . ii) Porbandar Commercial Co-operative Bank Ltd. v. Bhanji Layji - The bank advanced two ‘seperate loans to a person and in respect of each loan one of the partners of two different fits stood as guarantees. It was held that the business of either ofthe firm was not to underwrite joan transaction ofthe third parties by standing as sureties and therefore no partner of the firm had an implied authority to do such act so as to bind the other partners of the firm. ii R, Sona vs. Padmavathi ~ In tis Case, it was held that, firms of engineers and contractors, are non-trading firms and cannot borrow money. And, if any partner borrows, then that will not bind the firm. e iv) Tom Limron vs. Broad Smith — In this case, it was held that appointment of an advocate is an implied authority. Because, itis the need of the fim, for advice, dealing: with thé cases etc. ‘$0, it is well within the binding authority of a partner. ae ‘Section 19(1) which defines implied authority is subject to provisions of Section 22. ln order to bind a firm the act of partner must be done in a manner mentioned in Section 22:whiich reads “In order to bind a firm an act done or instrument executed by a partner or other person on behalt of the firm shall be done or executed in the firm name, or it any other manner expressing or implying an intention to bind the firm." It has been held in number of cases that when a partner signs an instrument or executes a document without clearly indicating that he is acting as partner or on behatf of others, although the name of the firm is mentioned on lettér head or after his signatures that does not create liability of other partners. At the best the use ’of lettetihead only helps to ascertain the address of the executant but that cannot advangetthe case any further, Cases: = . The following observation of Privy Council ins: i} Janbidar v. Kishen Prasad mayzbe not “It js not sufficient that principal's name should be ‘in some way’ disclosed it must’Be disélosed'in such a way that on fairy interpretation of the instrument his name is real nam@'6{ pefSon upon the instrument.” ii) John Stone v, Jan Bibi Onda ‘thectuié"partners signed a promissory note on a note paper on.which. teaiiye of the frm vgs prifted, without indicating that he was sighM(J a partner (or on behalf ofthe fii Was hel faf'he alone was liable anid riot the other partners. Kas a ee v. Mohd. Hussain (Promissory note) Eromissory note) fheld that the use of letter head only helps to ascertain the address of the tant and were more descriptive of person signing. Therefore, no other partner could be ‘When fn act is done on behalf ofthe firm the other partners are also Tible even the dormant artnet. . Case> i)" Bekham’v, Drake - _llmay bé noted thai merely because a partner has acfed on behalf of his firm and thus +, Satisfied the requirements of Section 22 does not render the other partners ‘iable. It is also * necessary that the basic requirement of Section 19(1) gets satisfied. Thus, i a partner takes the loan or stands as a surety on behalf ofthe firm when implied authority does not warrant 4