Indian Partnership Act

1. Sec 4 defines Partner

a. A relation b/w persons who have agreed to share profit of a business carried
on by all or any of them acting for all.
2. Essentials:
a. Agree – Partner is created by contract; not by success or inheritance etc.
b. Formal agreement is not necessary – may arise from conduct.
3. Abdul Badshah v. Century Woods
a. Two brothers inherited property, did not divide it – sold property and invested
the sum in a business
b. It was held that there was no formal partner but they intended to share profit in
the business they invested
4. Business – Sec. 2 clarifies that business include every trade, occupation in profession.
a. Smith v. Anderson
i. Business means any activity which if success would result in profit.
ii. Society for religious and charitable purposes is not partnership.
5. Sharing of profits
a. Cox v. Hickman
i. Held that no one is a partner unless he has the right to share profit in a
business
6. Mutual Agency
a. Partners stand in a relation of principle as well as agent each other
7. Cox v. Hickman
a. Iron Merchant was in financial constraint and made a compromise with his
credit under which property of the firm was given to few credit who were
made trustee. They were empowered to carry business and divide the net
income. After debt was cleared, business was to returned to the merchant.
b. Cox was one trustee who never acted and other trustees continued business
and they purchased certain quantity of
8. Sec 4, Sec 6 and Sec 11 [Essentials of partnership] – Partnership is a relation
dependent
9. Section 6 embodies the principle laid down in Cox v. Hickman [read]
10. Real relations of the parties is supreme which is dependent on intention
11. Second explanation to sec 6 provides the list of those who might be interested in
profit but not in partnership
12. Joint ownership is not partnership
a. Govind Nayyar v. N Maga
 i. A and B purchased a tea shop, bought additional items, contributed in
expenses and then leased it out. Court said parties are utilising common
property to obtain return. It is not partnership.
13. Lender of money agreed to receive profit from a firm engaged in business is not
partner by this reason only.

Badley v. Consolidated Bank

A lender advanced money to a contractor to enable him to contract with the third party and he
was allowed to receive 10% profit – there was no intention of partnership.

Thus, he was not a partner.

Servant-Agent allowed for profit – not partners

On death of partner, if there is sharing of profits with the widow or child of the deceased –
doesn’t itself make them partners

Seller of goodwill receives profit doesn’t become partner by itself. [Goodwill is the
reputation attached to a business]

Duties of partners

1. Duty of good faith [Sec. 9]

a. Fiduciary relationship b/w the partners
b. They must try to secure maximum profit for the firm and should not make a
secret profit
c. Bentley v. Craven
i. One partner was allowed to buy sugar, he supplied it from its own
stock which he had got at a very low price.
ii. He charged prevailing market price to the firm and made profit .
iii. Co-partner’s action for profit was allowed.
2. Duty not to compete [Sec. 16]
a. Partner should not carry similar business with a firm. This is subject to the
agreement b/w the partners.
b. Non-Compete clause in partnership agreement is not restraint of trade.
3. Duty to indemnify under sec. 10
a. Every partner shall indemnify he firm for any loss caused to it by his fraud in
conduct of business.
4. Duty to make full disclosure and render accounts [Sec. 9]
5. Due diligence [Sec. 12(b)]
a. Partner is bound to act diligently in conduct of business and shall indemnify
the firm for any loss caused to it by his wilful neglect.
 b. Wilful neglect is different from mere error of judgment
c. Cragg v. Ford
i. Defendant was managing partner and was allowed to conduct
dissolution. Plaintiff advised him to sell goods immediately, but the
defendant decided to sell at the end of the dissolution.
ii. Goods when sold – prices fell down
iii. Question: whether it is a wilful neglect by the defendant – held it was
not wilful neglect – it was a mere error of judgment
6. Duty to use the property of the firm exclusively for the purpose of the firm [Sec. 15]
a. E.g., printing machine of the firm must be used for the firm
7. Duty to account for personal profit [Sec. 16]

Rights of Partners

1. Right to take part in business [Sec. 12(a)]

a. This right is subject to the agreement
b. Suresh Kumar v. Amrit Del HC
i. Act done which was harming the reputation of the firm was not
allowed. Injunction granted
2. Partners have right to inspect the account books and other papers related to firm [Sec.
12(d)]
3. Right to express opinions upon any differences arisinga in any ordinary manners –
Sec. 12[c] – majority opinion prevails
a. For fundamental change consent of all
b. If the matter which may have fundamental impact on the business or firm, then
consent of all partners must be taken care [Sec. 12(c)]
4. Right to Profits [Sec. 13(a)] and Remuneration – [Sec. 13(a)]

Relation of Partner with third party [Sec. 25]

1. Sec 25 – relation of Partner with three parties – partners are jointly and severally
liable
2. Partner can be jointly or individually sued by third parties
3. Act done after the person ceases to be partner, then – not liable for that act except in
holding out.

1. Implied authority of Partners – Sec. 19 – “USUAL” way. Sub-sec 2 of 19 puts

restrictions.
a. It puts restrictions on ‘immovable’ property
 b. There are 2 types of restrictions – (a) statutory restrictions – binding on
everyone, even the third party – knowledge immaterial (b) restrictions based
on partnership contract – knowledge material

Section 28: Holding Out1

1. Person is liable by holding out when he is represented himself to be partner of the

firm.
2. A.R. Porter v. W Incell
a. Defendant gave loan to a person. He used his personal influence to obtain
lease. The plaintiff also supplied building material on credit
b. The defendant was held liable
3. When a person retires from a firm and public notice is not given, retiring partner is
liable by holding out
4. Notice is not needed in following cases:
a. Insolvent partner
b. Deceased partner
c. Dormant partner – who is not represented by the firm

Section 30: Minor admitted to the benefit of Partnership2

1. Share in profits and also in property, but being a minor s/he will not be liable
2. Minors can ask for the record and inspect it
3. The minor cannot sue the partner for the share, minor can only sue only when the
share of profit is severed.
4. Read language of the section
5. Minor is incompetent, cannot become partner but maybe admitted to the benefits of
the firm with consent of all other partners.
6. Minor has right to receive agreed share from the property or profit.
7. He has right to inspect the documents
8. He cannot sue the partners for the payment of his share until he severes his connection
with the firm
9. If the firm is dissolved, the court shall value his share according to sec. 48
10. Minor’s share in property and profit is liable for the act of firm, but he is not
personally liable
11. On being major, within 6 months from the date of his majority or from the date he
firsts come to know that he has been admitted into the firm. He has to decide whether
he wants to remain in the firm or leave. If he fails to do so, he automatically becomes
partner after expiry of months.

1
V IMPORTANT
2
V IMPORTANT!
Section 48

1. For valuation of profit after the dissolution

Dissolution of the firm – Sec. 403

1. Firm will not operate – by consent of the parties, by agreement [in accordance with
the contract]
2. Partnership at will – if there is no fixed date till when the partnership firm will exist,
then it will be considered as partnership at will. Even one partner can give notice and
dissolve the firm. – sec 7 and 43.
3. Compulsory dissolution – Sec. 41 – insolvency, unlawful business or if partnership is
pursued, business will become unlawful.
a. Exception – firm involved in multiple ventures, if one becomes unlawful that
will be severed and the other ventures will continue.
4. Dissolution by Court – Sec. 444

Implied Authority – Sec. 18

1. Read section

Scope of implied authority – Sec. 19

1. Subject to the other provisions of the act, if the partner has done anything in usual
way of business, then the firm is bound by that act
2. E.g., firm engaged in buying and selling of goods – it is usual to take goods on credit/
3. Usual way depends on the nature of business
4. Restriction on scope of authority are of two types:
a. Statutory restrictions
b. By partnership deed/ by agreement
5. Statutory restrictions are binding on every person contracting with the firm.
Restrictions imposed by partnership deed is not effective against the person who has
no knowledge of the agreement.

3
Important section.
4
Important section – will come in exam.
Mode No. 2 – Compulsory dissolution

1. This covers 2 situations: -

a. Insolvency of all partners or insolvency of all partners but one.
b. When the conduct of business of partnership firm has become unlawful or
illegal [Sec 41].

Mode No. 3

1. Contingent dissolution

a. Expiry of fixed period

b. When the firm is constituted to carry out specific venture(s) and if they are
completed, the partnership dissolves
2. By Death of a partner
3. By adjudication of the parties as insolvent
4. Dissolution of firm by will and by notice [Sec 43 + Sec 47]
a. Within this mode of partnership at will is provided in Sec 7 and when there is
no provision by contract b/w partners for the duration of their partnership or
for determination of their partnership, then the partnership can be terminated
upon notice of a partner for dissolution.

Section 44: Dissolution by Court

The Court may dissolve in the following cases:

1. Insanity
a. When one of the partners has become of unsound mind then any partner
including the one who is insane may apply in the court for dissolution. [legal
insanity].
2. Permanent Incapacity [Mental, Physical]
a. White Well v. Arthur
i. The partner of a firm got paralytic attack and was permanently
incapable to conduct a business. This was a valid ground for
dissolution.
3. Misconduct
a. Essel v. Hayward
i. Misconduct of breach of trust by a partner which was harming
reputation of a firm was sufficient ground for dissolution.
b. Snow v. Miford
i. Partner committed adultery with several women in the same city where
the business was conducted. His wife left him.
 ii. The co-partners applied for dissolution of the firm. It was rejected by
the Court – Personal misconduct is generally not a ground for
dissolution of the firm.
4. Persistent breach of agreement
5. Transfer of interest to third party by a partner
6. Perpetual loss in the business
7. Or any other ground which the court thinks just and equitable that the firm should be
dissolved.

Registration of the firm [Sec 58 & 69]

Section 58

1. Particulars to be included: -
a. Name of the firm
b. Principle place of business of the firm
c. Any other place where the business has been carried out
d. Date of joining of all partners
e. Name and permanent address of the partners
f. Duration of the firm
2. Partnership is not compulsorily registrable, no penalty for non-registration but Sec 69
limits the ability of the unregistered firm and its partners.

Section 69

1. A partner of an unregistered firm cannot sue a third party or his present or past
partners.
2. An unregistered firm cannot sue any third party for enforcement of any right arising
from the contract
3. If it is not registered then the partners or firm cannot claim for set off of other
proceeding arising from the contract.
4. Change is constitution of a partnership firm must also be registered.