Unit 1: Introduction To Partnership: Pre-Requisites For Forming Partnership

INDIAN PARTNERSHIP ACT BUY BOOKS @ WWW.AKPUNE.
COM
UNIT 1: INTRODUCTION TO PARTNERSHIP

INTRODUCTION
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PRE-REQUISITES FOR FORMING PARTNERSHIP
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INDIAN PARTNERSHIP ACT BUY BOOKS @ WWW.AKPUNE.COM
TRUE TEST OF PARTNERSHIP

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DISTINCTION B/W “PARTNERSHIP & FIRM”

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FIRM NAME
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SOME IMPORTANT DISTINCTION

1. PARTNERSHIP & COMPANY:
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2. PARTNERSHIP & CLUB:
3. PARTNERSHIP & HUF
4. PARTNERSHIP & CO-OWNERSHIP:
POSITION OF A MINOR IN PARTNERSHIP

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Analysis of Minor’s Position:

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RIGHTS OF A MINOR:
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LIABILITIES OF A MINOR:
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TYPES OF PARTNER
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Ex: X & Y are partners in a partnership firm. X introduced Mr. A, a manager, as his partner to Z. A remained silent. Z, a
trader believing A as partner supplied 100 TVs to firm on credit. After expiry of credit period, Z did not get amount of
TVs sold to partnership firm. Z filed a suit against X & A for recovery of price. Here, in given case, A, Manager is also
liable for price because he becomes a partner by holding out.
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TYPES OF PARTNERSHIP
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UNIT 2: RELATION OF PARTNERS

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MUTUAL RIGHTS OF A PARTNER
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DUTIES OF PARTNERS
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PARTNERSHIP PROPERTY
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RIGHTS & DUTIES OF PARTNERS AFTER RECONSTITUTION OF FIRM

How Reconstitution takes place:
RIGHTS & DUTIES OF PARTNERS AFTER RECONSTITUTION OF FIRM

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Ex. Modes of dissolution
RELATION OF PARTNERS TO THIRD PARTY

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IMPLIED AUTHORITY OF A PARTNER

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Ex: Lending of Money in ordinary course of business is within implied authority of Partners of Banking Firm because
such firms lend money to public in ordinary course of business but same is excluded from implied authority of other firms
because they do not lend money in ordinary course of business.
Following Acts are within Implied Authority of Partner:
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Following Acts are BEYOND the Implied Authority of Partner:

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EXTENSION & RESTRICTION OF IMPLIED AUTHORITY

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Ex: A, a partner, borrows from B ` 1,000 in the name of firm but in excess of his authority, & utilizes same in paying out
debts of firm. Here, fact that firm has contracted debts suggests that it is a trading firm, & as such it is within implied
authority of A to borrow money for business of firm. This implied authority, as you have noticed, may be restricted by
an agreement between him & other partners. Now if B, lender, is unaware of this restriction imposed on A, the firm will
be liable to repay money to B. On contrary B’s awareness as to this restriction will absolve firm of its liability to repay
amount to B.
ACT BY PARTNER IN EMERGENCY
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EFFECTS OF ADMISSION/REPRESENTATION BY PARTNER (Sec 23)

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Ex: X & Y are partners in a firm dealing in spare-parts of motorbikes. Z purchases a spare part for his Yamaha bike after
being told by Y that spare part is suitable for his bike. The spare part proved to be unsuitable for motorbike & it is
damaged. Both X & Y are liable.
NOTICE TO ACTING PARTNER SERVES AS A NOTICE TO THE FIRM [SEC 24]

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Ex: A, an active partner bought goods for firm knowing particular defect in goods. Ordinarily, his knowledge would be
treated as knowledge of firm. But because A was in league with seller to do fraud with firm, his knowledge would not be
treated as knowledge of firm. Thus other partners will be entitled to reject goods.
LIABILITY OF THE FIRM TOWARDS THIRD PARTY [SEC 25 to 27]

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Ex: One of two partners in a coal mine acted as a manager was guilty of personal negligence in omitting to have shaft of
property fenced. As a result, thereof an injury was caused to a workman. The other partner was held responsible for
same.
MISAPPROPRIATION OF PAYMENT [Sec 27]

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RIGHTS OF SUB-PARTNER [SEC 29]

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INTRODUCTION OF NEW PARTNER (Sec 31)

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RETIREMENT OF PARTNER (Sec 32)

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Right of Outgoing Partner
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Ex: A, B & C are partners in a manufacture of machinery. A is entitled to 3/8 th of profits. A becomes bankrupt whereas
B & C continue business without paying out A’s share of partnership assets or settling accounts with his estate. A’s
estate is entitled to 3/8th of profits made in business, from date of his bankruptcy until final liquidation of partnership
affairs.
Ex: A, B & C are partners. C retires after selling his share in partnership firm. A & B fail to pay value of share to C as
agreed to. The value of share of C on date of his retirement from firm would be pure debt from date on which he ceased
to be a partner as per agreement entered between parties. C is entitled to recover same with interest.
EXPULSION OF A PARTNER [SECTION 33]

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Expulsion by Majority:
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Ex: A, B & C are partners in a Partnership firm. They were carrying their business successfully for past several years.
Spouses of A & B fought in ladies’ club on their personal issue & A’s wife was hurt badly. A got angry on incident & he
convinced C to expel B from their partnership firm. B was expelled from partnership without any notice from A & B.
Whether they can expel a partner from firm.
Answer: A partner may not be expelled from a firm by a majority of partners except in exercise of powers conferred by
contract between the partners in good faith. In this case power has not been exercised in good faith.
Thus expulsion is not deemed to be in bonafide interest of business of the firm.
Neither partner to be expelled is served with a notice nor he is given an opportunity of being heard.
Thus expulsion is null & void. Therefore, expulsion of Partner B is not valid.
INSOLVENCY OF A PARTNER (SECTION 34)

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DEATH OF A PARTNER [SEC 35]

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Ex: X was a partner in a firm. The firm ordered goods in X’s lifetime; but delivery of goods was made after X’s death. In
such a case, X’s estate would not be liable for debt; a creditor can have only a personal decree against surviving partners
& a decree against partnership assets in hands of those partners. A suit for goods sold & delivered would not lie against
representatives of deceased partner. This is because there was no debt due in respect of goods in X’s lifetime.
REVOCATION OF CONTINUING GUARANTEE BY CHANGE IN FIRM (SECTION 38)

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UNIT 3A: DISSOLUTION OF FIRM

DISSOLUTION [Sec 39 – 47)
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MODES OF DISSOLUTION
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A. VOLUNTARY DISSOLUTION
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Ex: A firm is carrying on business of trading a particular chemical & a law is passed which bans on trading of
such a particular chemical. Business of firm becomes unlawful & so firm will have to be compulsorily dissolved.
B. DISSOLUTION BY COURT
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Ex: If one of partners keeps erroneous accounts & omits to enter receipts or if there is continued quarrels b/w
partners or there is such a state of things that destroys mutual confidence of partners, court may order for
dissolution of firm.
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CONSEQUENCES OF DISSOLUTION (SEC 45 TO 55)

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ex. Receiving money from debtors
Ex: X & Y become partners for 10 years; X pays Y a premium of Rs. 2,000. At end of 8 years a quarrel arises between
X & Y & dissolution is declared. In such case, X will be entitled to a return of such amount of the premium from Y as
may be deemed reasonable. What is reasonable will depend upon circumstances of each case.
SETTLEMENT OF A/C B/W PARTNERS UPON DISSOLUTION
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UNIT 3B: REGISTRATION OF FIRM

APPLICATION FOR REGISTRATION [SECTION 58]
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WHEN REGISTRATION IS COMPLETE? [SEC 59]

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LATE REGISTRATION ON PAYMENT OF PENALTY [Sec 59A-1]

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CONSEQUENCES OF NON-REGISTRATION (SECTION 69)

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Ex: A & Co. is registered as a partnership firm in 2015 with A, B & C partners. In 2016, A dies. In 2017, B & C sue X in the
name & on behalf of A & Co., without fresh registration. Now first question for our consideration is whether suit is
maintainable.
Answer: As regards question whether in case of a registered firm (whose business was carried on after its dissolution
by death of one of partners), a suit can be filed by remaining partners in respect of any subsequent dealings or
transactions without notifying to Registrar of Firms, changes in constitution of firm, it was decided that remaining
partners should sue in respect of such subsequent dealings or transactions even though firm was not registered again
after such dissolution & no notice of partner was given to Registrar.
Test applied in these cases was whether plaintiff satisfied the only two requirements of Section 69(2):
(i) Suit must be instituted by or on behalf of firm which had been registered;
(ii) Person suing had been shown as partner in register of firms. In view of this position of law, suit is in case by B & C
against X in name & on behalf of A & Co. is maintainable.
Ex: Now, in above example, what difference would it make, if in 2017 B & C had taken a new partner, D, & then filed a suit
against X without fresh registration?
Answer: Where a new partner is introduced, fact is to be notified to Registrar who shall make a record of notice in entry
relating to firm in Register of firms. Therefore, firm cannot sue as D’s (new partner’s) name has not been entered in
register of firms. It was pointed out that in second requirement, phrase “person suing” means persons in sense of
individuals whose names appear in register as partners & who must be all partners in firm at date of suit.

Unit 1: Introduction To Partnership: Pre-Requisites For Forming Partnership

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INDIAN PARTNERSHIP ACT BUY BOOKS @ WWW.AKPUNE.

UNIT 1: INTRODUCTION TO PARTNERSHIP

PRE-REQUISITES FOR FORMING PARTNERSHIP

TRUE TEST OF PARTNERSHIP

DISTINCTION B/W “PARTNERSHIP & FIRM”

SOME IMPORTANT DISTINCTION

2. PARTNERSHIP & CLUB:

3. PARTNERSHIP & HUF

4. PARTNERSHIP & CO-OWNERSHIP:

POSITION OF A MINOR IN PARTNERSHIP

Analysis of Minor’s Position:

UNIT 2: RELATION OF PARTNERS

MUTUAL RIGHTS OF A PARTNER

RIGHTS & DUTIES OF PARTNERS AFTER RECONSTITUTION OF FIRM

RIGHTS & DUTIES OF PARTNERS AFTER RECONSTITUTION OF FIRM

RELATION OF PARTNERS TO THIRD PARTY

IMPLIED AUTHORITY OF A PARTNER

Following Acts are BEYOND the Implied Authority of Partner:

EXTENSION & RESTRICTION OF IMPLIED AUTHORITY

EFFECTS OF ADMISSION/REPRESENTATION BY PARTNER (Sec 23)

NOTICE TO ACTING PARTNER SERVES AS A NOTICE TO THE FIRM [SEC 24]

LIABILITY OF THE FIRM TOWARDS THIRD PARTY [SEC 25 to 27]

MISAPPROPRIATION OF PAYMENT [Sec 27]

RIGHTS OF SUB-PARTNER [SEC 29]

INTRODUCTION OF NEW PARTNER (Sec 31)

RETIREMENT OF PARTNER (Sec 32)

Right of Outgoing Partner

EXPULSION OF A PARTNER [SECTION 33]

INSOLVENCY OF A PARTNER (SECTION 34)

DEATH OF A PARTNER [SEC 35]

REVOCATION OF CONTINUING GUARANTEE BY CHANGE IN FIRM (SECTION 38)

UNIT 3A: DISSOLUTION OF FIRM

CONSEQUENCES OF DISSOLUTION (SEC 45 TO 55)

ex. Receiving money from debtors

SETTLEMENT OF A/C B/W PARTNERS UPON DISSOLUTION

UNIT 3B: REGISTRATION OF FIRM

WHEN REGISTRATION IS COMPLETE? [SEC 59]

LATE REGISTRATION ON PAYMENT OF PENALTY [Sec 59A-1]

CONSEQUENCES OF NON-REGISTRATION (SECTION 69)

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