Commercial Law

Unit- I Indian Partnership Act

Topic: Definition and Classification

Content Prepared by:

Bharat Sharma

Ph.D. in Law

(2019-20)

Faculty of Law

University of Lucknow

Lucknow

Disclaimer: This content is solely for the purpose of e-learning by students and
any commercial use is not permitted. The author does not claim originality of the
content.
 CONTENTS

Brief history …………………………………………………………………………….… 1

Nature of Partnership …………………………………………………………….……… 3

Kinds of Partnership ………………………………………………………………….….. 5

Difference between Partnership and Joint Hindu Family ……………………………….. 9

General duties of partners …………………………………………………………......... 10

Mutual rights and liabilities ………………………………….....…………………...….. 12

Rights and Duties of Partners ………………………………………………………..….. 17

Relation of Partners to third parties ………………………………………………..…… 18

Implied authority of Partner .……………………….....................................………..… 18

Partner’s authority in an emergency ……………………………………………………. 21

Effect of admission by a partner ………………………………..…………………….. 22

Effect of notice ………………………………………………………………..………. 22

Liability of a partner …………………………………………………………………… 23

Liability for wrongful acts ………………………………………………………………. 23

Misapplication of Money ………………………………………………….…………… 24

Holding out ………………………………...............................................………………. 24

Minor rights and liabilities ……………………………………………………………… 26

 Commercial Law
( Partnership, Sale of Goods Act )
Unit-1 : Indian Partnership Act

History
The partnership Act was passed in the year 1932. The first sub-section says that this Act may be
called the Indian Partnership Act, 1932.

Before this Act was passed, the law of partnership was to be found in a Chapter of the Contract
Act of 1872. In 1932 that Chapter was dropped from the Contract Act and was re-enacted in the
shape of an independent and separate Act of Parliament. The codification of the English Law of
Partnership in 1890, reflecting the changes which appeared in the flow of business life in the
crucial period of expanding trade and commerce; the development of trade in India and a number
of cases pointing out the incompleteness of the chapter on the law of partnership, made it almost
necessary that there should be for the help of the business community a more exhaustive
enactment on the law of partnership. The Partnership Act, 1932 appeared in the wake of this
development.

Sub-section (3) enforced the Act with effect from the 1st of October, 1932. The enforcement of
Section 69 was, however, kept in abeyance for a whole year. It came into force from 1 October
1933. The reason for postponing the enforcement of Section 69 for one year was that since the
section for the first time cut short the ability of an unregistered firm to sue in certain respects, it
was necessary to give time to firms to get themselves registered before any disability could be
clichéd on them.

Nature and Definition and Kinds of Partnership

In the 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,
shall have the meanings assigned to them in that Act.

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Sub-section (a): “Act of a firm”- The definition is based upon the principle that “every partner
is in contemplation of law the general and accredited agent of the partnership.” An act of a firm
may be illustrated by examples. A, B and C are partners. A on behalf of the firm enters into a
contract with a third party. If the third party commits a breach of the contract, the firm may sue
to enforce the contract. On the other hand, if the firm commits a breach of the contract, the third
party would be entitled to hold the firm liable. The contract between A on behalf of the firm and
the third party would be an act of the firm. An admission falling under section 23; a wrongful act
under section 26; a misappropriation under section 27; or the case of willful default in the
ordinary course of business, falls within the definition of an “act of a firm.” However in respect
of an act of insolvency, it cannot be said that an act of insolvency on the part of a partner is an
act of partnership. The question whether an act of insolvency of one or more partners can be
regarded as act of all partners is a question of fact in each case.

Sub-section (b): “Business”- The definition of business in the Indian Partnership Act, 1932 is of
importance as this element of business is the motive force which leads to the formation of
partnership as is seen in the definition of “Partnership” given in section 4 of our Act. The
element of business is one the three elements in the definition of partnership given in section 4 of
the Act. The definition of business is of wide sweep and has extensive meaning because the
definition starts with the word ‘includes’ and not ‘means’. The expression ‘includes’ is used in
the Act when it is intended that the term defined should retain its ordinary meaning and its scope
should be widened by specific enumeration of certain matters which its ordinary meaning may or
may not compromise. This makes the definition enumerative but not exhaustive. On the other
hand if the legislature uses the expression ‘means’ it wants to exhaust the significance of the
term defined. In Smith v. Anderson (1880) Jessel, M.R., said “There are many things which in
common colloquial English would not be called a business, when carried on by a single person,
which would be so called when carried on by a number of person.”

The term business must be taken in practical sense, that is, in a sense in which men of business
would use that term. It is taken to refer to any activity which if successful would result in profit.
Where a certain persons joined in the purchase of wheat and oil with the intention of dividing
and paying for it equally, it was held that, they being not interested in profit or loss, were not
partners. Where, on the other hand, two persons horsed a coach with their individual horses and
shared the profits, this was held to be a business.

Nature of Partnership

Section 4 DEFINITION OF "PARTNERSHIP", "PARTNER", "FIRM" AND "FIRM-

NAME".- "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.

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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."

The definition in section 4 contains three elements __

(1) There must be an agreement entered into by all the persons concerned;
(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.

There must be an agreement__ This element relates to the voluntary contractual nature of
partnership, as distinguished from non-contractual partnership relations, such as a joint Hindu
family. The question whether there is or there is not an agreement is to be answered be reference
to the provisions of the Indian Contract Act. A person who has signed an agreement of
partnership cannot plead that he signed benami for someone else and escape liability. If,
however, the parties to an agreement have not agreed to the date of the commencement of the
partnership, it cannot be said that they have become partners.

It is not necessary that there should be a very formal or written agreement. An agreement to
create a partnership may as well arise from the conduct of the parties concerned. In Abdul
Badsha Saheb v Century Wood Industries court said if two or more persons put together certain
amounts of money in certain shares for the purpose of purchasing properties and selling them for
profit for common benefit, it has to be said that such a transaction amounts to a partnership
concern … An agreement of partnership need to be express. It can arise out of mutual
understanding shown by a consistent course of conduct.

Sharing of Profits__ “Profits” is not defined in the Act, but it means the excess of returns over
outlay, that is net profits. The division of profits is an essential condition of the existence of a
partnership. There was a time when sharing of profits was considered to be the final word in the
determination of the existence of a partnership. Every man who received any portion of the
profits of a business had to incur therein the liability of a partner. This was the state of the law up
to the year 1860 when in Cox v Hickman the House of Lords reconsidered the test of
determining the existence of a partnership. The net result of this historic decision is that no man
is a partner unless he has the right to share the profits of the business. Thus, sharing of profits is
only a prima facie evidence of the existence of a partnership. The conclusive test is that of
mutual agency. It should be noted that an agreement to share losses is not essential. The section
does not insist upon sharing of losses.

Carried on by all or any of the persons concerned, acting for all__ The fundamental principal
of a partnership is that partners when carrying on the business of the firm are agents as well as
principals. Thus, if the person carrying on the business acts not only for himself but for others

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also, so that they stand in the position of principals and agents, they are partners. This is the
principle of Cox v Hickman (1860). In it the creditors of a trader entered into an agreement with
him by which the trade was to be conducted under their superintendence, and they were
gradually to be paid off out of the profits. These creditors may have agreed to take a share of the
profits, and even have supervised the business, but they did not become partners, because the
business was not carried on their behalf:__ “the real ground of the liability is that the trade has
been carried on by persons acting on his behalf.” The test of liability, therefore, is not merely
whether there is a participation or sharing of profits, but whether there is such sharing of profits
as to constitute the relation of principal and agent between the person taking the profits and those
actually carrying on the business.

Acting for all__ The other partners are bound by the act of one only when the act is in the course
of business. Whether an act is or is not done for carrying on in the usual way business of the kind
carried on by the firm, depends upon the nature of the business and the practice of persons
engaged in it. Relationship of mutual agency between the partners is the real test of partnership.
If a partner does not take part in the management of the business, it does not have the result that
he is not carrying on business as a partner because the essence of partnership is that each of the
partners is the agent of the others for the purpose of carrying on the partnership business.

Kinds of Partnership

Sec.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".

Two conditions are to be complied with before partnership can be regarded as a Partnership at
will. Firstly, there should be no provision in the contract between the partners for the duration of
their partnership. Secondly, there should be no provision in their contract for the determination
(i.e. ending) of their partnership. If either of these provisions exists, it is not partnership at will. It
is said in HALSBURY’S Laws of England that where there is no express agreement to continue
a partnership for a definite period there may be an implied agreement to do so.

In Crawshay v Maule, the same principle was laid down in these words:

The general rules of partnership are well settled. Where no term is expressly limited for its
duration, and there is nothing in the contract to fix it, the partnership may be terminated at a
moment’s notice by either party… Without doubt, in the absence of express term, there may be
an implied contract as to the duration of partnership.

Continuation after expiry of term

Where a partnership firm is constituted for a fixed period and, after the expiration of the term and
without making any new agreement, the original contract is prolonged by tacit consent; their

4
partnership will then become a firm at will. Thus, where a firm, constituted for seven years, was
constituted even after the expiry of the period, it was held that the clause had no longer any
application and each partner was at liberty to determine the whole partnership.

Fixed duration necessary for certainty

A firm brought into being for obtaining a licence for running a cinema hall has been held to be
one at will. To the same effect is a case in which it was held that “a partnership expressed to last
until a new deed was executed was for a ‘fixed term’, not ‘undefined term’. The court observed
obiter that “notice communicated to some of the partners in writing and to two others who were
away by telephone was effective”. Because of these possible uncertainties it has been suggested
that a professionally drawn partnership agreement should contain a provision dealing with the
duration of the partnership.

This definition is inserted as the phrase “partnership at will” is used in other sections, in
particular section 43. Where a partnership deed provided that upon death of a partner one of his
nephews shall act in his stead, it was held that this was a partnership at will.

In a partnership at will it is open to a partner, even if there is no dispute between the parties, to
dissolve the firm by virtue of section 43 of the Act. His right to dissolve partnership cannot be
taken away by arbitration clause in a partnership deed. The clause about arbitration in the
partnership deed has application only during subsistence of partnership and it cannot take away
right conferred on a partner by section 43 of Act to have partnership dissolved.\

Section 8 Particular partnership.__ A person may become partner with another person in
particular adventures or undertakings.

This section section was inserted to meet cases which are probably much more frequent in India
than in England. 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 truly
and substantially for the purpose of the joint adventure, the adventurers are liable as partners; but
there is no such responsibility for goods purchased before the partnership agreement upon the
credit of an individual adventurer, though they are afterwards brought into stock as his
contribution to the joint adventure. It need hardly be stated that all the requisites of a partnership
must be present before a transaction between two persons limited to a single adventure is held to
be a partnership.

Limited Partnership

In England, the Limited Partnership Act, 1907 permits formation of a partnership firms with
limited liability. But this institution is not much in use because the institution of private limited
company offers a more advantageous choice. There should be at least one general partner and
one limited partner.

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The liability of a limited partner is limited to the extent of his contribution to the capital of the
firm. He should not withdraw his capital. Even if he does so, he would remain liable to the extent
of withdrawal. He cannot take part in business. If he do so, he becomes liable as a general
partner for all debts and liabilities incurred during the period of his so working. The firm is not
affected in its continuity by his death, insolvency or insanity. He can transfer his share with the
consent of the general partners. He cannot dissolve partnership by notice. In the event of
dissolution, the affairs of the firm are wound up by the general partners.

In India, Limited Liability Partnership Act, 2008 permits registration of limited liability
partnerships. It is a new corporate form introduced by the Act. It is being held out as an
important new vehicle for professional partnerships and also for small firms. The attempt is at
the evolution of an entity based on both company law and partnership law precepts so as to
combine the best features of both entities. It has been described as a prime example of an
increasingly sophisticated law reform promise led by the government.

Salient features of LLP Act

1. LLP is a body corporate and, therefore a legal entity separate from its partners.
2. A minimum of two person can form it for any lawful business by signing the
incorporation document and getting it registered with the Registrar.
3. Its partners can define their mutual rights and obligations under their own agreement with
LLP.
4. The partnership firm would be liable to the full extent of its assets. No partner would be
liable for independent or unauthorized acts of other partners.
5. Every LLP has to have at least two individuals as designated partners.
6. The LLP has to prepare annual accounts showing true and fair view of the state of affairs.
7. A firm, private company or an unlisted public company are to be allowed to convert into
LLP.
8. An LLP may be wound up voluntarily or by the Tribunal to be established under the
Companies Act.
9. The Central Government can apply the provisions of the Companies Act to such
partnerships.

Section 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 I : 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.

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Explanation II : 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
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.

In Ross v. Parkyns Jessel, M.R. stated the law as follows:

It is said that the mere participation in profits inter se affords cogent evidence of partnership. But
it is now settled by the cases of Cox v. Hickman, Buller v. Sharp, and Mollwo, March & Co.v.
Court of Wards, that although a right to participate in profits is a strong test of partnership, and
there may be cases where upon a simple participation in profits there is a presumption, not of
law, but of fact, that there is a partnership, yet whether the relation of partnership does or does
not exist must depend upon the whole contract between the parties, and that circumstance is not
conclusive. The law as stated above has been restated in this section. The section also indicates
the manner in which the general principle is to be applied to particular circumstances. The
question whether the relation of partnership does or does not exist, “must depend on the real
intention and contract of the parties.”

The mere fact that a person is entitled to a share in the profits does not make him a partner,
because the real relationship may be one of debtor and creditor.

Illustration:

1) A Rajah entered into a contract with a partnership firm. The Rajah was to receive in
consideration of advances a commission on the net profits of the partnership business.
Large powers of control over the business were given to him for his protection, but no
power to direct transactions. It was held that the contract was not of partnership but of
loan and security between a debtor and a creditor.

The legal existence of a partnership has to be determined from all the facts. A statement in a
document that nothing therein contained is to constitute the relationship of partners, will not
necessarily prevent the parties from being partners in the eyes of law. Further, although a

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person may hold himself out to be a partner and be liable to third parties, yet it does not
necessarily follow that he is partner in law.

In Girdharbhai v. Saiyed Mohd. Kadri(1987) the Supreme Court observed that Section 6
reiterates that in determining partnership regard shall be had to real relation between parties
as shown by all relevant facts taken together. So where a partner brought in as his asset
tenancy in the premises in which partnership business was to be carried on, the fact that he
was to share profits only and was to get a fixed percentage of the profits and that he was not
to operate bank account. On this the SC concluded that it could not be said that no genuine
partnership had come into existence.

Difference between Partnership and Joint Hindu Family

A Joint family carrying on business has some features common with partnership. But Sec.5
expressly excludes them from the operation of the Act. They are as follows:

1) A family cannot be created by contract. It always arises by operation of law. A

partnership cannot arise without contract.
2) A person becomes the member of the joint family and gets an equal share in assets and
profits by the mere fact of birth. But a new partner cannot be admitted into a partnership
except with the consent of all the partners.
3) Partners are mutual agents; the members of a family are not. The manager or Karta of the
family is the only representative of the family.
4) Every agent, being an agent of the firm, has an unlimited capacity to bind his co-partners
for trade obligations. The members of a family do not have this power.
5) The liability of a partner is personal as well as joint. A co-partner is not personally liable
for business obligations of the family. Only his share of assets and profits is liable.
6) Death of a partner dissolves partnership but in case of the death of a co-parcener the
family business is not dissolved, and
7) A co-parcener cannot ask, unlike a partner, for an account of past profits and losses.

Partnership And Co-ownership

If a firm has assets, it is the joint property of the partners. To this extent partners are co-
partners also. Yet co-ownership is not the same thing as partnership. There are following
points of difference between the two:

1) A partnership can arise only by agreement. A co-ownership may arise in any other way.
2) Business is necessary for the existence of a partnership; co-ownership can exist without
it.
3) Partners are mutual agents. Co-owners are not.
4) A co-owner can sell his share without the consent of the others, but a partner cannot.

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 5) A co-owner can sue for partition of the joint state. A partner can sue his co-partners for
dissolution and accounts.

Section 9 General duties of partners.__ Partners are bound to carry on the business of the
firm to 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, his heir or legal
representative.

The duties in general are:

1) To act to the greatest common advantage;

This duty be read along with the provisions of section 16. If a partner makes a personal profit, he
has to account for it to the firm, as making a personal profit would be acting not to the greatest
common advantage.

2) To be just and faithful to each other;

Any fraudulent act or willful default on the part of a partner would be inconsistent with his duty
stated above. Sections 10 and 13(f) elaborate this duty. This duty demands uberrimae fidei
amongst the partners.

3) To render true accounts;

The provisions of sections 15 and 16 elaborate the duty enunciated herein. In order to render true
accounts, a partner has to keep accounts and vouchers relating to the partnership dealings and
moneys. If he fails to do so and mixes up with his private affairs, he has to account for the same.
A partner making secret profits has to account for the same to the firm.

4) Render full information;

This duty is part and parcel of the duty of being just and faithful to each other. The underlying
principle is that a partner should make a full disclosure and should not conceal. If a partner sells
a partnership property to a third party and then repurchases it for himself, concealing material
facts from his partners, he has violated his duty under this section and has to account for the
profit under section 16. Similarly if he sells his own goods to the firm at a higher price without
disclosure of his prior purchase, he will have to account for the profits.

Section 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.

This section is another aspect of the basic duty of partners to conduct themselves fairly and
honestly both towards their co-partners and persons dealing with the firm. Where a partner
falters from the path and loss is caused to the firm, he will be exclusively liable for the same.

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That is what is meant by saying that he must compensate or indemnify the firm against any loss
caused by his own breach of duty. The purpose of the rule is to induce partners to deal honestly
with the customers of the firm. The Scottish case of Campbell v. Campbell furnishes a good
illustration. One of the partners of a distillery, who did not take part in the conduct of the
business, had to pay penalties which were levied upon the firm in consequence of the purchase of
illicit whisky. The purchases were effected by the managing partners and the plaintiff partner had
no knowledge for them. They were held liable jointly and severally to indemnify him against the
amount so paid and interest on it.

Section 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 express 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 express 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.

“Subject to the provision of this”__ These words are intended to show that a partnership
contract will be subject to the provisions of this Act. Where a provision is mandatory, the
contract shall not prevail.

Liberty to the parties to determine their mutual rights and obligation__ This section
incorporates the principle that except in cases where this Act makes a mandatory provision, the
parties are entitled to agree to any terms and provide for their mutual rights and obligations. The
provisions of sections 12 to 17 and 42 are subject to the contract. The principles laid down in
sections 11,18 and 19 are subject to the provision of this Act.

Variations by consent.__ “ 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.”

Section 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

10
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.

Clause (a): Right of partners to attend to business.__ It provides for a partner’s right to take
part in the conduct of the partnership business. This right cannot be taken away except by a
contract. It is quite common in practice to provide by express agreement that this or that partner
need not, and sometimes even that he may not, take any active part in the business, and also for
the payment of salary to a managing or acting partner.

Clause (b): Duty to attend.__ Every partner is under an obligation to attend diligently to his
duties in the conduct of the partnership business unless partnership provides that he need not
attend. The word ‘diligently’ is of great significance. A partner has to use his knowledge and
skill in the conduct of the partnership business.

Clause (c): Majority rights.__ When every partner has the right to be consulted in the
formulation of business policy, differences of opinion among the partners may arise. How such
differences are to be resolved ? Sec 12(c) provides answer:

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 decided, but no change may be made in the nature of the business without the consent of
all the partners.

Clause (d): Access to books.__ Every partner has a right to have access to and to inspect and
copy any of the books of the firm.

A partner may exercise this right himself or by agent, but either can be restrained from making
use of the knowledge thus gained against the interest of the firm. A partner can have the accounts
inspected through an agent and need not do it personally. For eg., where a sleeping partner
wanted to sell his interest to the other partners and authorized an expert valuer to inspect
accounts to ascertain the value of his interest, it was held that the other partners could not object
to it, unless they could show some reasonable grounds for their objection.

Section 13 MUTUAL RIGHT AND LIABILITIES.__ Subject to contract between the

partners__

(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;

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 (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 willful neglect in the
conduct of the business of the firm.

Sub-section (a): Remuneration__ This clause makes an initial presumption that work done for
the firm is gratuitous as every partner including a managing partner is bound to attend diligently
the business of the firm and cannot charge his other partners with any sum like salary,
commission etc. for taking trouble in conducting partnership business. But this is a presumption
which can be dispensed with by agreement between the partners as to how the extra labour is to
be remunerated.

Sub-section (b): Share in profit and losses__ Unless otherwise agreed, partners are entitled to
share equally in the profits earned by the firm. Similarly, they are bound to contribute equally in
the losses sustained in the course of the business of the firm. This would be so even where there
is disproportionate capital contribution or some of the partners render extraordinary services.

According to Supreme Court two presumptions are clubbed by section 13(1)(b) of the Act. First,
if no specific contract is proved, the shares of partners must be presumed to be equal. So where
there is unequal shares, the first presumption has no application. The second presumption is that
where partners are to participate in profits in certain shares, they should also participate in losses
in similar shares. Hence, if profits are shared in unequal shares, that applies equally to losses.

Sub-section (c), (d): Interest on capital and advances__ Where a partner is entitled to interest
on capital, he will be paid interest only if there are profits. If, however, he advances moneys to
the firm, he will be entitled to interest at 6 per cent from the firm whether there are profits or not,
but he is not entitled to interest after the date of dissolution.

Sub-section (e): Partner’s right to indemnity and contribution__ In addition to the ordinary
claim of an agent to be indemnified, a partner may be entitled to reimbursement for what may be
called emergency or salvage expenses incurred by him personally on behalf of the firm in

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circumstances of extraordinary requirement. Money payments to satisfy debts of the firm are the
commonest examples under this head.

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 is usually carried on must evidently be determined by the nature of the
business and by the practice of persons engaged in it.

Sub-section (f): Wilful neglect and fraud__ In the case of willful neglect, partners may contract
with each other that they will not be liable to the firm for any loss caused to it by their neglect in
the conduct of the business of the firm. The case of fraud, however, stands on different footing.
A partner cannot contract himself out of his liability to the firm for any loss caused to it by his
fraud.

The words ‘wilful neglect’ would mean an act done deliberately and intentionally in
contradistinction to an act done in inadvertence or by a mistake or by accident.

The firm is liable to third persons for the willful neglect or fraud of one of the partners, but under
this section, the innocent partners are entitled to compensation from their partner for the loss
caused to them by his willful neglect.

Section 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 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 interest in property acquired with
money belonging to the firm are deemed to have been acquired for the firm.

Partner’s nature of Share in partnership property__ All joint property of partners is not
partnership property. Only property answering the description in section 14 is partnership
property. Principles of co-ownership cannot apply to partnership property e.g. Co-owner can,
without the consent of others, transfer his interest to a stranger. A partner cannot do this. One co-
owner is not the agent of the other. A partner is. As firm has no legal existence or legal
personality, partnership property will vest in all partners and in that sense every partner has an
interest in the partnership property. But during the subsistence of partnership, no partner can deal
with any portion of the property as his own. Nor can he assign his interest in a specific item of
partnership property to anyone.

Partnership property__ Property belonging to the partners or to one of them, does not become
partnership property merely by being used for the purposes of the business. In Davis v. Davis a
testator devised his residuary estate comprising his business, the premises on which the business
was carried on and some adjoining premises, to his two sons as tenants in common. The sons

13
continued the business for three years without any express agreement. It was held that sons were
partners in the business but that the premises on which the business was carried on belonged to
them as co-owners. Co-owners may be partners in respect of a business carried on or upon the
property without being partners in respect of the property itself.

By virtue of section 14 of the Act, even immovable property can be thrown into partnership
stock without any formal document and registration for transferring the property to partnership
is not necessary. What is required is that there must be evidence that such property was brought
into stock of firm and the evidence of mere user of property by the firm for its business does not
make it a partnership property.

Individual right in property could be merged into partnership asset by conduct__ In

Shreedhar Govind Kamerkar v. Yesahwant Govind Kamerkar the appellant, clamied full
ownership in tenanted premises and in business on ground of being sole assignor of property.
Parties herein are brothers. The dispute between them is tenancy right in respect of a premises
known as ‘Navalkar Building’. The appellant allegedly acquired the said tenancy right in terms
of a deed of assignment entered into by and between him and one Saraswati Balkrishna and three
others. He was said to have obtained possession of the said premises on 23/3/1978, whereafter he
started a business under the name and style of ‘Shree Medico’. He along with his three brothers,
entered into partnership on 1-4-1971. The same was dissolved on 31-3-1977, inter alia, on the
premise that the appellant had been claiming full ownership in relation to the said tenanted
premises.

In the absence of any instrument of partnership, the Court was left to gather proof of what form
the assets of the partnership form only the admission of parties and other documents filed. The
appellant admitted that the royalty received from the said tenanted premises was being deposited
in the partnership account. This was held to be a clear pointer to show that the same was the
property of the partnership. The fact that the usufruct of his lease hold was to be deposited in the
partnership account was itself proof that the tenancy formed the part of the assets of the
partnership.

Partnership arrangement does not annihilate individual property rights of a partner__ A

partnership firm is an association of persons. But in spite of that unity between themselves, every
partner can have his own separate existence from the firm. Holding that any right which a partner
has over any property, other than the partnership property, would remain as his individual asset,
the Supreme Court ruled in Shashi Kapila v. R.P. Ashwin that 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. Referring to the section, the Court said
in the instant case, it was an admitted fact that appellant was a tenant of the building even earlier
than the formation of the firm M/s Shiva and Co. In such a situation the tenancy right of the
appellant in respect of the building is a separate right available to the appellant individually over
which the partnership has no claim. Appellant never contended that he had offered the suit

14
property as an asset of partnership firm nor did the firm at any time claim that appellant threw
the tenancy right over the building into hotchpot of the partnership at any time.

Goodwill__ Goodwill of business is inclusive of positive advantages such as carrying on

commercial undertaking at a particular place and in a particular name and also its business
connection, its business prestige and several intangible advantages which business may acquire.
Goodwill of business is an asset like any other asset and representatives of deceased partner are
entitled to share in it. If an action be taken in time the surviving partners can be restrained by
injunction from appropriating goodwill. Goodwill 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
undertaking being preserved in the shape of the right to use the old name and otherwise. It may
be summed up as ‘the whole advantage of the reputation and connection of the firm which may
have been built up by years of honest work or by lavish expenditure.

Section 15 APPLICATION OF THE PROPERTY OF THE FIRM.__ Subject to the contract

between the partners, the property of the firm shall be held and used by the partners exclusively
for the purposes of the business.

The rule laid down in this section is subject to the contract between the parties. Words in this
section indicate that the partnership property must be used exclusively for the partnership
business. The word ‘exclusively’ would indicate that such property is not to be used for a
purpose other than that of partnership business. So a mortgage of partnership property by a
partner for his own benefit is invalid.

If a partner uses the property of the firm for his own purposes, he will be liable to account to the
firm for the profits, if any, that he may make. A contract of partnership is uberrimae fidei.

Section 16 PERSONAL PROFITS EARNED BY PARTNERS.__ Subject to the contract

between the partners,__

(a) if a partner derives any profits 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.

Personal profits__ The rules laid down in this section flow as consequence of the main and
dominant principle viz. a partner is an agent of the other partners, underlying the Partnership Act.
The said rules also flow from the duties stated in section 9. The rule (a) is applicable even after
dissolution and the Privy Council in one case directed the partner to account for the assets
together with interest thereon. This section may be illustrated by the following illustrations:

15
 1) 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.

Competing business__ One or more persons may, with the knowledge and consent of all
parties, be members of two distinct firms carrying on as 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 user’s special information for the purposes of B. The rule enunciated in clause (b) will not
apply if the business carried on by a partner is not of same nature or competing with that of
the partnership business nor injurious in any way to the partnership business nor if it is totally
independent business not within the scope of the partnership business.

Section17 RIGHTS 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.__ 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, and 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.

This section gives general rules for the determination of the rights and duties of the partners
after the happening of events which would otherwise leave these rights and duties
undetermined.

Sub-section (a): Change in the firm.__ This sub-section would cover the case of a new
partner introduced into the firm. This sub-section was applied to a case in which A and B
were partners with ten annas and six annas share. 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 held
entitled to ten annas share. A new partner, however, may not be bound by a special term of
which he had no notice.

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 Sub-section (b): Extension of partnership.__ The continuance of business without
liquidating the partnership affairs is presumed to be a continuance of the partnership. Where
the partnership is continued after the expiry of the period fixed by the partnership agreement,
such terms of the partnership agreement as are consistent with a partnership at will remain
applicable, but such terms as are inconsistent with a partnership at will cease to be
applicable.

The following provisions have been held to be consistent with the incidents of a partnership
at will__

(1) Option for a surviving partner to purchase a deceased partner’s share at a fixed valuation;
(2) Articles of partnership for a fixed year having an arbitration clause and the partnership is
continued beyond that fixed year. It was held that the arbitration clause is still binding,
and
(3) A power to nominate a successor.

Sub-section (c): Additional undertakings__ This sub-section contemplates a case in which

the partners are the same, but there are further or other undertakings that those for which the
partnership was originally formed.

Relations of Partners to Third Parties

Section 18 PARTNER TO BE AGENT OF THE FIRM.__ Subject to the provisions of this
Act, a partner is the agent of the firm for the purposes of the business of the firm.

Partner is agent__ In the leading case of Cox v. Hickman Lord Wensleydale laid down the law
as follows: “ A man who allows another to carry on trade, whether in his own name or not, to
buy and sell, and to pay over all the profits to him, is undoubtedly the principal, and the person
so employed is the agent, and the principal is liable for the agent’s contracts in the course of his
employment. So if two or more agree that they should carry on trade, and share the profits of it,
each is a principal, and each is an agent for the another, 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.” In other words, a partner transacts business for
himself as principal, and also as an agent for the other partners even though the other partner is a
sleeping partner.

Section 19 IMPLIED AUTHORITY OF PARTNER AS AGENT OF THE FIRM.__ (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.

The authority of a partner to bind the firm conferred by this section is called his "implied
authority".

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(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,

(b) open a banking account on behalf of the firm in his own name,

(c) compromise or relinquish any claim or portion of a claim by the firm,

(d) withdraw a suit or proceeding filed on behalf of the firm,

(e) admit any liability in a suit or proceeding against the firm,

(f) acquire immovable property on behalf of the firm,

(g) transfer immovable property belonging to the firm, or

(h) enter into partnership on behalf of the firm.

“Implied authority”__ 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 scope
and objects of the partnership. The implication of sub-section (1) is that the most intelligent and
prudent partner may be liable for the acts of an imprudent or a reckless partner provided they are
done in usual course of business. His want of knowledge of such acts serve no purpose. If the act
is ‘outside the usual course of the business of the firm’ It will not bind the firm, even if it is
prudent or has benefited the firm, unless it is ratified and approved by all the partners.

What partners may generally do__ 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. In an ordinary
partnership, every partner may bind the firm by any of the following acts:-

1) He may sell any goods or personal chattels of the firm.

2) He may purchase on account of the firm any goods of a kind necessary for or usually
employed in the business carried on by it.
3) He may receive payment of debts due to the firm, and give receipts. A release by one
partner binds the firm.
4) He may engage servants for the partnership business.

In the case of partnerships of a general, commercial or trading nature, a partner

1) May accept, make and issue bills and other negotiable instruments in the name of the
firm. In trading firms every partner has implied power to bind the firm if there is no
agreement to the contrary.

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 2) May borrow money on the credit of the firm;
3) May for that purpose pledge any goods or personal chattels belonging to the firm;
4) May for the like purpose make an equitable mortgage by deposit of title deeds belonging
to the firm
5) May hire on the credit of the firm any goods of a kind used in its business. Where a
partner hired an elephant to trap wild elephants and one of the terms was that the hirer
should pay Rs. 5000 if the elephant died during the period of hire, it was held that the
other partners were bound by that term.

Sub-section (2): What a partner cannot do__ It gives a list of acts which do not fall within
a partner’s implied authority, unless there is any usage or custom of trade to the contrary,
such acts, however, can be ratified by the partners. 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. It is not within the implied authority of a partner to set off his own separate debt against
the debt due to the firm.

1) Submitting dispute to a arbitration:

According to the Chief Justice, an authority can only be implied for what is necessary to carry on
the trade in which partners are concerned. To enter into a submission for arbitration is not part of
the ordinary business of a trading firm.

However, it has been held that it is possible for other partners who were not a party to reference
to arbitration to ratify the act of reference to arbitration made by the other partner and this
ratification can be express or implied. 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.

2) Standing as surety:

A partner signing as a surety on behalf of his firm cannot bind the other partners of the firm to
answer the claim of the creditor who can make the signatory partner liable as a surety. In
Porbander Commercial Cooperative Bank Ltd v. Bhanji Lavji it was held that unless it can be
shown that the giving of guarantee is necessary for carrying on the business of the firm in the
ordinary way, one of the members will be held to have no implied authority to bind the firm for,
generally speaking, it is not usual for persons in business to make themselves answerable for the
conduct of other people.

Usage or Custom__ The term usage of trade is to be understood as referring to a particular usage
to be established by evidence. To prove such a usage, there need not be either the antiquity, the
uniformity, or the notoriety of custom in its technical sense; usage may still be in course of
growth, and may require evidence for its support in each case.

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Custom of trade refers to a general custom of merchants which has been ratified by decisions of
Courts and adopted as settled law.

Partnership not automatically liable under section 138 NI Act__ Under section 141 of the
Negotiable Instruments Act only those partners of a firm can be proceeded, who were in charge
of the affairs of the company and responsible to it. However, every partner of the firm cannot
automatically be roped in section 141 of the Negotiable Instruments Act raises a legal fiction in
terms whereof the Directors of a company which would include the partners of a firm would be
deemed to have committed an offence along with the company if they are in charge of the affairs
of the company and responsible to it.

Section 20 EXTENSION AND RESTRICTION OF PARTNER'S IMPLIED

AUTHORITY.__ 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.

Restriction of authority__ A third party is not affected by a secret limitation of a partner’s

implied authority, unless he has actual notice of it. The reason for this rule is that a third party is
entitled to assume that all the partners have full implied authority.

Section 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.

There is no case directly on the point. But the court may, perhaps, be guided by the principles
relating to agencies of necessity. The requirements of this section may, however, be restated:

1) There should be an emergency.

2) The partner should have tried to protect the firm from loss threatened by the emergency.
3) The act must be reasonable in the circumstances.

Section 22 MODE OF DOING ACT TO BIND FIRM.__ 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.

Act binding firm.__ A firm can only be bound 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. Where a partner
took some premises on lease in his own name, it was held that he did not intend to act on behalf

20
of the firm nor to act as its benamidar nor did he intend to bind the firm. Where a managing
partner executes a surety bond and from the terms thereof it appears that he clearly meant to act
on behalf of the firm, the other partners become liable. According to English law no partner can
bind the firm by giving a guarantee unless he is authorized by special agreement or it is allowed
by general usage of firm engaged in that kind of business.

Section 23 EFFECT OF ADMISSION BY A PARTNER.__ An admission or representation

made by a partner concerning the affairs of the firm is evidence against the firm it is made in the
ordinary course of business.

Partner’s admission__ A partner’s admission is at most evidence against all the partners of the
firm and as such evidence it may affect them more or less. Of course a partner cannot increase
his authority to bind the firm by any statement of his own about it. This section is subject to
provisions of sec. 19.

The admissions are not conclusive evidence. A partner’s statement about the extent of his
authority can add nothing to the authority he has in fact.

Representations or misrepresentations made by a partner in the course of the business of the firm
are binding upon the firm. But representations by a partner as to the scope of his implied
authority do not bind the firm because that authority depends upon the usual manner of carrying
on the business and not upon a partner’s representations. If this were not so partnership firms
would be at mercy of unscrupulous partners.

Section 24 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.

Notice to partner__ Notice to any habitually acting partner of anything relating to partnership
affairs is generally notice to the firm. It is not a mere question of constructive notice or inference
of fact, but a rule of law which imputes the knowledge of the agent to the principal, or, in other
words, the agency extends to receiving notice on behalf of his principal of whatever is material
to be stated in the course of the proceedings.

The partner receiving notice should not have withheld it from the firm either by his own fraud or
in conspiracy with the third party. Where proper notice is given it will be effective even against a
retired partner. A firm issued a promissory note and before it was paid, a partner retired. The
note being dishonoured on maturity, the payee gave notice of dishonor to the acting partner and
that was held to be a sufficient notice to the retired also.

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Section 25 LIABILITY OF A PARTNER FOR ACTS OF THE FIRM.__ 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.

Joint and several liability__ This section is very important from the point of view of a creditor
who has dealt with the firm. A creditor can sue the partners jointly as well as separately. A
creditor has therefore several actions in respect of the same debt. So the telephone department
rented out to a firm telephone and the firm defaulted to pay the dues in respect of the telephone
charges, whereupon the telephone dept. disconnected the telephone line held by a partner in his
own name as well as the line held by a firm. In an action by a partner for disconnecting his own
telephone line, it was held that any payment due by the firm in respect of the telephone was the
joint and several liability of the partners.

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. A firm is not a legal entity. It is only a
collective name for all the partners. A decree in favour of or against a firm in the name of 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 partners were incurring liability and so the partners remain
jointly liable and severally for all the acts of the firm.

This section make a distinction between a continuing partner and an erstwhile partner. Its
principle is clear and specific that every partner is liable for all the acts of the firm done while he
is a partner jointly along with other partners and also severally. Therefore, it cannot be held that
the said liability ceases merely because a partner has ceased to be partner subsequent to the said
period.

Section 26 LIABILITY OF THE FIRM FOR WRONGFUL ACTS OF A PARTNER.__

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 therefore to the same extent as the partner.

The principle of this section is a breach of the universal rule that everyone must answer for the
acts and defaults of his servants or agents in the course of their employment. This section refers
to two kinds of tortuous acts viz. i) one done while acting in ordinary course of business, and ii)
the one done with the express or implied authority of the other partners. In respect of first
category the firm would be liable for the acts of a partner which he was to do properly but which
he did improperly. If the wrongful act is done by a partner within the scope of his employment,
the firm would be liable. The next section amplifies sec. 26. The chief difficulty that occurs in
practice is that of knowing whether the neglect or fraud of a partner really took place in the
“management of business of the firm”. 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; in this case firm is liable for

22
misappropriation by a partner, whether he was partner originally trusted or not, and whether he
acted in the exercise of apparently regular authority or not.

In Hamlyn v. Houston one of two partners without the knowledge of his copartner by bribery
induced a clerk of the plaintiff a competitor in trade, in breach of duty to his employer to divulge
confidential information in regard to the plaintiff’s business. It was in the ordinary course of
business of the firm to obtain such information by legitimate methods, and the partner acted in
the interests of the firm. Both partners were held liable to the plaintiff.

Section 27 LIABILITY OF FIRM FOR MISAPPLICATION BY PARTNERS.__ 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.

Difference between sub-section (a) and (b) __ Under the first paragraph the receipt and
misapplication of the money or property must be by the same partner before it reaches the firm;
whereas under the second paragraph the firm receives money or property, and the money or
property so received is misapplied by any of its members. In both cases the firm is liable to make
good the loss. The other distinction is that clause a) contemplates that an act may not be within
the ordinary course of the firm’s business but it may have been within the scope of his ostensible
authority. Clause (b) refers to an act within the implied authority of a partner.

Where a party trusts or deals only with a partner and not with the firm, the firm may not be
liable. A customer of a banking firm deposited with the firm a box containing securities.
Afterwards he authorized one of the partners only to take out some of the securities and to
replace them by some others. The firm was held not liable when that partner misappropriated
some of the securities.

In Rhodes v Moules the plaintiff applied to R, a member of a firm of solicitors, requesting him to
raise a loan on the mortgage of his freehold estate. R obtained the loan, but falsely told the
plaintiff that lender required some additional security. The plaintiff accordingly deposited with R
certain share warrants payable to bearer. R promptly sold the warrants, misappropriated the
proceeds and absconded. His co-partners were held liable for the plaintiff’s loss.

Section 28 HOLDING OUT.__ (1) Anyone who by words spoken or written or by conduct
represent 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.

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(2) Where after partner's death the business 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 is based on the well known principle of estoppels. The principle of estoppels
introduced in this section imposes liability on two distinct classes of persons viz., i) a person who
is not a partner, and ii) a person who may be an ex-partner who suffers the other partners to
represent that the ex-partner continues to be the partner. The result is that he is held liable to such
persons as if he were a partner. This section does not refer to tortuous acts at all. The creditor
must in fact have given credit to the firm in the belief, induced by express or tacit representation
of the supposed partner that he is a member of the firm.

Where a man holds himself out as a partner, or allows others to do it he is then properly stopped
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.

Proof of “holding out”__ The creditor need not prove specifically that he gave credit to the firm
on the faith of a certain person being a partner in it. Giving credit to a firm is the same thing as
giving credit to all and each of the persons believed by the creditor to be its members. It is a
question of fact in each case whether credit was given on the faith of the representation. In order
to establish a liability under this section the creditor must prove by clear evidence that the person
charged was acting as a partner and under sec. 109 of the Indian Evidence Act the onus is then
on the firm to show that the apparent partner was not really a partner.

By words or conduct represents__ Oral representation that he is a partner or signing receipts of

cargo for transport. The representation as the basis of holding out may be express or implied. It
may consist of verbal or written statement or even may be by conduct. Even omission or mere
neglect of a person where there is an obligation to do a particular act may amount to conduct.
Whether particular words or conduct amount to holding out or not is a question of fact depending
on facts and circumstances of that particular case.

Knowingly permits himself to be represented__ This would seem on principle to be a particular

case of leading another person to believe that one is a partner. There is nothing to show how
much more passive assent is signified by the ‘knowingly permits’ of this section. 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. But there is an amount of silence, in the
face of known persistent representations made to persons likely to be misled, which may be good
evidence of ‘knowingly permits himself to be represented.’

Effect of holding out__ If a person holds himself out to be the partner of a firm, he becomes
personally liable. He does not therefore become a partner in the firm; and is not entitled to any
rights as against those who are in fact partners in the firm. He mere makes himself personally
liable for the credit given to the firm on the faith of his representation.

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Registration of firms and holding out__ Where the provisions of Chapter VII are made
applicable cases of a person being liable on the ground that he has held himself out to be a
partner will seldom occur. The Register will give information as to who are really partners; and
though there is no duty to take inspection it is unlikely that a third person will act on a
representation of partnership without such inspection; and if he does, no estoppels will arise, for
the doctrine of estoppel does not apply, where the facts are known to both sides.

Section 30 MINORS ADMITTED TO THE BENEFITS OF PARTNERSHIP.__ (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 a 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 accounts 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 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, such person 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 :

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 of 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 person
asserting that fact.

(7) Where such person becomes a partner –

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(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 be to become a partner, -

(a) his rights and liabilities shall continue to be those of a minor under the section upto the date
on which he gives public notice;

(b) his share shall not be liable for any acts for 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.

Incapacity for being full-fledged partner

The relation of partnership arises from contract… A minor is incompetent to contract and,
therefore, a contract of partnership cannot be entered into with a minor. There cannot be a
partnership consisting of all minors or of one adult and all other minors. According to a decision
of the Supreme Court a minor cannot even become a full-fledged partner in an existing firm.
The only concession that Section 30 gives is that a minor may be admitted to the benefits of an
existing firm.

Admission to benefits and rights

When a minor is admitted to the benefits of a firm, the question arises what are his rights and
liabilities.

Firstly, the minor has the right to receive his agreed share of the property and of the profits of the
firm. For the purpose of finding out his share, and even otherwise, he may have access to and
inspect and copy any of the accounts of the firm. But as long as he remains in the firm he does
not have the right to sue the partners for an account or payment of his share of the property or
profits. If he wants to sue he should first leave the firm and sever his connection with it. When he
gives notice to the partners of his intention to leave the firm, any partner or all of them who have
the right to dissolve the firm may elect in such a suit to dissolve the firm.

No personal liability during minority

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Secondly, the minor’s share in the property and profits is liable for the acts of the firm. He is
entitled to only what would fall to his share after paying off the liabilities of the firm. But he is
not personally liable for any act of the firm.

Option on attaining majority and liability

Thirdly, on attaining majority he has to decide within six months whether he shall remain in the
firm or leave it. These six months run from the date of his majority or from the date when he first
comes to know that he has been admitted into the firm. Within this period he should give public
notice that he has elected to become or that he has elected not to become a partner. If he fails to
give any notice, he automatically becomes a partner on the expiry of six months.

If he becomes a partner his right and liabilities will be similar to those of a full fledged partner.
He will be personally liable for all the acts of the firm done since he was first admitted to the
benefits of the firm.

If he elects not to become a partner:

(a) his rights and liabilities shall continue to be those of a minor up to the date of public
notice,
(b) his share shall not be liable for any acts of the firm done after the date of the notice,
(c) he shall be entitled to sue the partners for his share of the property and profits.

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