Chandan Poddar

The Indian Partnership Act, 1932

Q.1 Three brothers, X (age 19 years), Y (age 18 years), Z (age 17 years), decide to form a
partnership with a provision that Z will share the profit only. Can they do so?

Hint: No, because all the persons entering into partnership agreement must be competent
to contract. Z is not competent to contract because he is a minor. Hence, a partnership cannot
be formed with a minor as a partner but as per Sec. 30 after the formation of partnership a
minor can be admitted to the benefit of a firm with the consent of all other partners. [Leading
case: Shivaram v. Gauri Shankar]

Q.2 X, Y and Z agreed to share the profits of a business carried on by all or any of them acting
for all. The management and control was entrusted in X with power to restrict the rights of
Y and Z. Is there a valid partnership?

Hint: Yes, because all the essential elements of partnership exists under the partnership
agreement.][Leading case: K.D. Kamath Co. v. Commission of Income Tax (1972) 82, ITR
680(SC)

Q.3 X and Y agreed to share the profits of a business carried on by all or any of them acting
for all. Later on, Z lent Rs. 1,00,000 to the firm on the condition that he will take 25% share
in profits. Can Z be regarded as a partner?

Hint: No, because sharing of profit, which is a prima facie evidence, exists, but the mutual
agency relationship among X, Y and Z, which is a conclusive evidence, does not exist. [Leading
case: Mollow March cPc Co. v. The Court of Wards]

Q.4 X, a contractor, appointed Y, one of his servants to manage his business of loading and
unloading railway wagons. Y was to receive 50%, of the profits of the business and also to
bear the losses, if any. Is Y a partner of X?

Hint: No, because sharing of profit which is a prima facial evidence, exists but the mutual
agency relationship among X and Y, which is a conclusive evidence, does not exist. Here, Y is
an agent of X but X is not an agent of Y. [Leading case: Munshi Abdul Latif v. Gopeslzwar
Chattoraj]

Q.5 X, Y and Z were equal partners in a firm. X died. It was agreed that the window of X would
receive the same equal share of profits of business as annuity. Is the window of X a partner?

Hint: No, because sharing of profit which is a prima facial evidence, exists but the mutual
agency relationship among X, Y, and widow of X which is a conclusive evidence, does not
exist. [Leading case: I.T. Commissioner v. Kesharmal Keshardeo]

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Q.6 Can X and Y be regarded as partners in the following cases?

(a) X and Y who jointly own a house, let it out on rent of Rs. 10,000 p.a. and share the
rental income equally.
(b) X and Y who jointly own a house, converted the house into a hotel after investing Rs.
1,00,000 each. X manages the hotel and meets all expenses and retains half of gross
earnings and hands over the other half to Y.
(c) X and Y who jointly own a house, converted the house into a hotel after investing Rs.
1,00,000 each. It was agreed that X would manage the hotel on his own behalf and on
behalf of Y and the net earnings would be divided equally.
(d) X, a publisher agrees to publish at his own expense, a book written by Y and to pay Y
half of the net profits.
(e) X admits Y as a partner. Y does not bring any capital. He is not liable for any loss and
is to receive Rs. 1,000 p.m. as salary in lieu of profits and have all the powers of a
partner.

Hint:

(a) No, because X and Y are merely co-owners who are sharing the gross returns arising
from a joint property.[ [Leading case: Govind Nair v. Maga]
(b) No, because X and Y are merely co-owners who are sharing the gross returns arising
from a joint property.[ [Leading case: Govind Nair v. Maga]
(c) Yes, because All the essential elements of partnership exist.
(d) No, because Sharing of profit, which is a prima facial evidence, exists but mutual
agency among X and Y, which is a conclusive evidence does not exist.
(e) Yes, because All the essential elements of partnership are present. Bringing of capital
and sharing of losses are not essential elements of constitute a partnership.

Q.7 X, Y and Z are partners in an unregistered firm. Is the suit maintainable in the following
cases?

(a) X filed a suit against the firm for the recovery of his share of profit.
(b) X filed a suit against Y who was stolen the property of the firm.
(c) the firm filed a suit against W, a customer for the recovery of the amount due from W.
(d) the firm filed a suit against W, a customer for the recovery of the amount due from W.
and immediately after filling the suit, the firm got itself registered.
(e) the firm filed a suit to restrain the third party from misusing the Patent right of firm.
(f) W, filed a suit against the firm for the recovery of Rs. 1,00,000 due from the firm. W
also owed Rs. 6,000 to the firm. The firm claimed a set off of Rs. 6,000.
(g) X filed a suit for the dissolution of the firm.
(h) X filed a suit for the accounts of a dissolved firm.

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(i) X filed a suit for claiming share of the assets of a dissolved firm.

Hint:

(a) No, because as per Sec 69(1), a partner of an unregistered firm cannot file a suit
against the firm or any partner of the firm to enforce any right arising from contract.
(b) Yes, because Section 69(1) prohibits the institution of civil suit and not the criminal
suit.
(c) No, because as per Section 69(2), an unregistered firm cannot file a suit against a third
party to enforce any right arising from contract. Here, the firm is not registered at the
time of institution of the suit.
(d) No, because as per Sec 69(2), an unregistered firm cannot file a suit against a third
party to enforce any right arising from contract. Here, the firm is not registered at the
time of institution of the suit. The subsequent registration cannot cure the initial
defect. [Puran Mal v. Central Bank of India]
(e) Yes, because as per Sec 69(4), Right to enforce a right arising otherwise than out of a
contract is not affected by non-registration of a firm.
(f) Yes, because right of a third party to file a suit against the unregistered firm of
partners thereof is not affected by non-registration of a firm. An unregistered firm
cannot claim a set off exceeding Rs. 100 in value as per Sec 69(3).
(g) Yes, because as per Sec 69(3)(a), Right of a partner to sue for the dissolution of the
firm is not affected by non-registration of a firm.
(h) Yes, because as per Sec 69(3)(a), Right of a partner to sue for the accounts of a
dissolved firm is not affected by non-registration of a firm.
(i) Yes, because as per Sec. 69(3)(a), Right of a partner to sue for claiming share of the
assets of a dissolved firm is not affected by non-registration of a firm.

Q.8 X and Y purchased a taxi and they were plying it in partnership. The firm was not
registered. After 1 year, X sold the taxi without Y’s consent and did not pay anything to Y. Y
filed a suit against X to recover his share in the sale proceeds. X defended the suit on the
ground that the firm was not registered.

Hint: The suit was maintainable because it was for the realisation of the assets of a dissolved
firm. [Basant Lal v. Chiranjit Lal]. As per Sec 69(3)(a), Right of a partner to sue for claiming
share of the assets of a dissolved firm is not affected by non-registration of a firm.

Q.9 P, X, Y and Z are partners in a registered firm. X died and P retired. The firm filed a suit
against W in the name and on behalf of firm without notified to the Registrar of firms about
the changes in the constitution of the firm. Is the suit maintainable?

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Hint: Yes, because both the requirements of Section 69(2) have been complied with (i) the
suit must be instituted by or on behalf of the firm which had been registered; (ii) the persons
suing must have been shown as partners in the Registrar of Firms. Persons suing means all
the partners at the date of instituting the suit. [Leading case: Durga Das v. Preete Shah]

Q.10 X, Y and Z are partners in a registered firm. X died and D was admitted as a partner. The
firm filed a suit against W, in the name and on behalf of firm without notifying to the Registrar
of Firms about the changes in the constitution of the firm. Is the suit maintainable?

Hint: No, because first requirement of Section 69(2) that the suit must be instituted by or on
behalf of the firm which had been registered, had been complied with, whereas the second
requirement of Section 69(2) that all the partners at the date of instituting the suit have been
shown in the Registrar of Firms, had not been complied with. [Leading case: VS. Behal v.
Kapur & Co.]

Q.11 X and Y are in partnership. X was appointed to buy goods for the firm. Is X accountable
to firm for profit he makes in the following cases?

(a) X without the knowledge of Y, supplied his own goods to the firm at market price
and made a huge gain.
(b) X without the knowledge of Y, obtains for his own sole benefit a lease of the building
in which the partnership business is carried on.
(c) X without the knowledge of Y, received commission from Z, a supplier of goods to the
firm.
(d) It is found out that X is engaged with Z in the supplying goods to the customers of
firm.

Hint:

(a) Yes, because subject to contract between the partners, if a partner derives any profit
for himself from any transaction of the firm, he must account for the profit and pay it
to the firm (Section 16(a)).[Leading case: Bentley v. Craven]
(b) Yes, because subject to contract between the partners, where a partner derives any
profit for himself from the use of the property of the firm, he must account for the
profit and pay it to the firm u/s 16(a). [Leading case: Featherstonhaugh v. Fenwick]
(c) Yes, because subject to contract between the partners, if a partner derives any profit
for himself from any transaction of the firm, he must account for the profit and pay it
to the firm (Section 16(a)).
(d) Yes, because subject to contract between the partners, if a partner carries on
competing business, he must account for and pay to the firm all profits made by him
in that business u/s 16(b). [Leading case: Loch v. Lynam]

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Q.12 A, B, C, D and E are partners. A and B executed a promissory note in favour of C
agreeing to pay him a certain sum due to him on taking partnership accounts. Are D and
E bound by the promissory note?

Hint: No, the principle of agency is applicable only to the act done by partners for the
purpose of the business of the firm u/s 18. [Leading case: Hoshiar Singh V. Udairam]

Q.13 Is was in the course of the business of a firm of grain merchants to obtain by
legitimate means information in regard to contracts made by competing firms and one of
the partners obtained such information by bribing a clerk of a competitor in damages.
Will the competitor succeed?

Hint: Yes, because the firm is liable for the wrongful act of partner done in the ordinary
course of the business. [Leading case: Hamlyn v. Houston & Co.]

Q.14 X, Y, Z are partners in a trading firm. They decide that no partner shall have the right
to borrow beyond Rs. 20,000 without the consent of other partners. X without consulting
Y and Z borrows from W Rs. 25,000 in the name of the firm and utilized the same in paying
off the debts of the firm. Is the firm liable to pay to W? Would it make any difference if W
was aware of this restriction?

Hint:

Part (a): As per Sec 20, the firm is not liable to pay to W because W was unaware of the
restriction.

Part (b): As per Sec 20, the firm is not liable to pay to W because W was aware of the
restriction.

Q.15 Virat Kohli, a renowned sportsman assumed the honorary presidentship of a

publishing business bringing out a sports magazine because other partners requested
him to do so. A supplier gave credit to the firm in the bonafide belief that Virat Kohli was
a partner in the firm. Is Virat Kohli liable to the supplier?

Hint: Yes, because Virat Kohli is a partner by estoppel. Both the conditions of Section 28
are fulfilled.

1) Virat Kohli has knowingly permitted himself to be represented as a partner.

2) Supplier has acted on the faith of such representation. [Leading case: Lake v. Duke
of Argyll]

Q.16 X, Y, Z, P and Q are partners. The firm ordered W to supply a machine to the firm. After
the order was placed, but before the machine was delivered, Z retires, P dies and Q is

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 Chandan Poddar
declared as insolvent. W delivered the machine without having notice of the change. State
the name of partners who can be sued by W in the following cases:

(a) Z gives notice of retirement to the other partners but no public notice of Z’s
retirement, P’s death and Q’s insolvency is given and Z, P and Q are active partners,
(b) Z gives notice of retirement to the other partners but no public notice of Z’s
retirement. P’s death and Q’s insolvency is given and Z is a dormant partner (sleeping
partner) but P and Q are active partners.

Hint:

(a) As per Sec 32(3), a retiring partner is liable for firm’s acts done after his retirement
if no public notice is given. As per Sec 45, No public notice is required on the
death/insolvency of a partner. As per Sec 35, the estate of the deceased partner is not
liable for any act of the firm done after the date of his death. As per Sec 34, the estate
of an insolvent partner is not liable for any act of the firm done after the date of order
of adjudication. Hence, W can sue X, Y and Z.
(b) As per Sec 32(3), a retiring partner is not liable to any third party who deals with the
firm without knowing that he was a partner. As per Sec 45, No public notice is
required on the death /insolvency of a partner. As per Sec 35, the estate of the
deceased partner is not liable for any act of the firm done after the date of his death.
As per Sec 34, the estate of an insolvent partner is not liable for any act of the firm
done after the date of order of adjudication. Hence, W can sue only X and Y.

Q.17 X, Y and Z are partners sharing profits in the ratio of 3:4:1. X becomes bankrupt and
Y and Z continued the business without setting accounts with his estate. X’s estate claims
3/8th of the profits made from the date of X’s insolvency? Will this claim sustain?

Hint: Yes, As per Sec 37, where any member of a firm has died or otherwise ceased to be a
partner, and the surviving or continuing partners carry on the business of the firm with the
property of the firm without any final settlement of accounts as between them and the
outgoing partner or his estate, then, in the absence of a contract to the contrary, the outgoing
partner or his estate is entitled at the option of himself or his representatives to such share
of the profits made since he ceased to be a partner as may be attributable to the use of his
share of the property of the firm or to interest at the rate of 6% p.a. on the amount of his
share in the property of the firm.

Q.18 X, Y and Z are partners in a firm. State whether the court may pass an order for
dissolution of a firm in each of the following alternative cases:

(a) If X (a dormant partner) becomes insane and the suit is filed by Y.

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(b) If X has adulterous relations with W’s wife.
(c) If X continuously omits to enter receipts of money in the books of accounts.

Hint:

(a) No, as per Sec 44, the court may not pass an order for dissolution because such a
partner does not take an active part in the conduct of firm’s business.
(b) No, as per Sec 44, the court may not pass an order for dissolution as X’s conduct
does not affect prejudicially the carrying on of the business. [Snow v. Milform]
(c) Yes, as per Sec 44, the court may pass an order for dissolution since there was
persistent breach.

Q.19 X paid Y and Z a premium of Rs. 20 lacks on entering into partnership for 10 years and
the firm is dissolved at the end of 8 years. State whether X is entitled to repayment of
proportionate premium in each of the following alternative cases:]

(a) If the dissolution is by the death of Y.

(b) If the dissolution is due to X’s own misconduct.
(c) If the dissolution is in pursuance of an agreement which contains no provision for the
return of the premium.
(d) If the dissolution is due to Y’s misconduct.
(e) If the dissolution is due to the insolvency of Y.

Hint: (a), (b) and (c) : As per Sec 51, X is not entitled to claim any return of premium because
the right to return of premium is not available under these three cases.

(d) and (e): As per Sec 51, X is entitled to claim Rs. 4 lacs (i.e., Rs. 20 lacs ×2/10).

Q.20 A, B, C, D and E are partners in a firm. They decided to dissolve the firm from 1st January
but failed to give a public notice of its dissolution and continued the business of the firm even
that date. C, a dormant partner retired on 4th Jan, D died on 5th January and E was declared
insolvent on 10th January. On 11th January, A borrowed in the firm’s name Rs. 20 lacs from R
who was ignorant of the dissolution. Discuss the liability of partners for Rs. 20 lacs.

Hint: As per Sec 45, A and B are liable but C being a dormant partner and the estate of D and
E are not liable for Rs. 20 lacs because Partners continues to be liable to third parties for any
act done by any of them after the dissolution until public notice is given of the dissolution
but this provision is not applicable to the estate of deceased partner, insolvent partner and
dormant partner who had retired.

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Q.21 State with reason whether the following agreements are valid or void:

1) An agreement among the partners that no partner shall not carry on any business
other than that of the firm while he is a partner.
2) An agreement with an outgoing partner that he will not carry on any business similar
to that of the firm in the same locality for the next 3 years.
3) An agreement among the partners upon the dissolution of the firm that some or all of
them will not carry on a business similar to that of the firm in the same locality for
the next 3 years.
4) An agreement by a partner with the buyer of goodwill of the firm that he will not carry
on any business similar to that of the firm in the same locality for the next 3 years.

Hint:

1) The agreement is valid as per Sec 11(2) of The Indian Partnership Act, 1932.
2) The agreement is valid as per Sec 36(2) of The Indian Partnership Act, 1932 as the
restrictions in regard to time and vicinity seem to be reasonable.
3) The agreement is valid as per Sec 54 of The Indian Partnership Act, 1932 as the
restrictions in regard to time and vicinity seem to be reasonable.
4) The agreement is valid as per Sec 55(3) of the Indian Partnership Act, 1932 as the
restrictions in regard to time and vicinity seem to be reasonable.

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