Study Notes

INDIAN PARTNERSHIP
ACT, 1932
Torts of a Partner
Torts of a Partner

TORTS OF A PARTNER

- The word 'injury' in section 26 implies a tort. The liability of a firm for the torts of a partner
rests on precisely the same principles as the liability of a master for the torts of his
servant, inasmuch as both are merely branches of the law of principal and agent.
- Section 27 of the Act proceeds to deal with the liability of the firm for misapplication by a
partner of money or property of a third person received for or lying in the custody of the
firm. This section lays down that where-
(a) a partner acting within his apparent authority, receives money or property
from a third party and misapplies it, or
(b) the firm in the course of its business receives money or the 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.

- 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 one of the partners while it
is in the custody of the firm, the firm is liable to make good the loss.

Clause (a) of section 27 varies from clause (b), under clause (a) to hold the
firm liable it is necessary to prove that a partner while acting in an apparent
authority has received money or property from the third party. The property
so received shall be deemed as property received by the firm. It is immaterial
whether the co-partners have any knowledge of receiving that property.
Because a partner receives that money or property as an agent of the firm.

However, the firm will not be liable for the property misapplied by a partner when-

(a) the partner or agent has received that property not in the course of business,
(b) such property received by him not under the authority of an agent but for his
personal use.

Clause (b) of section 27 lays down that where a firm receives money or
property from the third party in the ordinary course of business, and any
partner of that firm, misapplied that property while the property is in the
custody of the firm, the firm is liable to make the good the loss. Under this
section to hold the firm liable, the following conditions must be satisfied-
(a) the firm has received that property in the ordinary course of business,
and
(b) at the time of misapplication such property must be in the custody of
the firm.

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Torts of a Partner

 Essentials.- To make the firm liable under this section the following requirement
must be fulfilled-
(a) that the partner has acted in his apparent authority,
(b) that the partner received money or property from a third party
(c) that the partner has misapplied such property;
 The firm will be liable when-
(a) it receives money or property in the ordinary course of business; and
(b) such property was applied by its partners while in its custody.
 To make the firm liable for the acts of a partner, it is necessary that such a
partner while receiving money or property from a third party acted within his
apparent authority. If the act done is outside such authority, the firm cannot be
made liable for the same.
 Where a party trusts or deals with a partner and not within the firm, the firm may
not be liable. A customer of a banking firm deposited with the firm a box
containing securities. Afterwards, he authorised 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.

- Section 28: Holding out

(1) "Anyone who by words spoken or written, or by conduct represents 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.
(2) Where after a partner's death the business is 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
acts of the firm done after his death."
 A liability of a third person may accrue in a case where he is not a partner of a
firm. He may be held liable, though he is not a partner of the firm, by holding
himself out as a partner in the firm.
 Section 28 of the Indian Partnership Act enunciates the principle of holding out.
According to this section where a person either orally or in writing or by his
conduct represents himself as a partner in a firm or voluntarily induces some
other person to be a partner in a firm, he will be liable as a partner of a firm, when
on his inducement any person delivers a credit to the firm.
 The principle of holding out is a branch of doctrine of estoppel. Section 115 also
lays down the doctrine of estoppel. The doctrine has been laid down by the Privy
Council.
 A minor does not incur liability by holding himself out as a partner. If a minor
admitted to the benefits of partnership holds himself out as a partner on his
attaining majority, he will incur liability under this provision. His option to elect to
become or not to become a partner by giving a public notice as provided in

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Torts of a Partner

section 30(5) will not affect any liability which he may incur by projecting himself
to be a partner within the period of six months of his attaining majority. A person
who merely holds himself out as willing to become a partner does not incur any
liability under this provision. The partners, in a suit for recovery were found to be
holding out when they did not enter the witness box to explain letters and account
books showing them as partners thereby prompting the Court to return a finding
of existence of a partnership firm.
1. Representation:
 The person sought to be charged with liability for holding out must
have represented himself to be a partner in the firm. Representation
may be made either by words, written or spoken or by conduct. An
express representation takes place when a person allows his name to
be used in the affairs of the firm. For example in the name, title or
signboard of the firm.
 The representation may not only be oral or written but it may also be
implied from the conduct of the parties. Under section 28(1) a person
may make representation through his conduct that he is a partner. The
same will apply if he knowingly permits himself to be represented.
2. Knowledge of representation:
 The person seeking to hold another liable by holding out or estoppel
must show that the he had knowledge of the representation and acted
on it.
 If the plaintiff has acted on the faith of the representation liability is
incurred to him and it is immaterial that the defendant did not know
that his representation had reached the plaintiff. But if the plaintiff has
not heard of the representation or having heard, did not believe it or
know the real truth or would have been given credit to the firm in any
case, no liability by holding out arises, because he has not been
mislead by the representation. While on the one hand, it is necessary
to prove that the person giving credit or supplying goods to the firm
had knowledge of the representation, on the other hand it is not
necessary to prove that the person who represented himself as a
partner had the knowledge that his representation reached the person
giving credit or goods to the firm

- Principle of Holding out and the Retired Partner

 When a partner retires from the firm or leaves the firm, ordinarily his liability also
ends for the acts of the firm after the death or his retirement. But this is not
practical because the fact of his retirement must be known to the third parties.
Therefore, section 32(3) provides "notwithstanding the retirement of a partner
from a firm, he and the partners continue to be liable as partners to third parties
for any act done by any of those which would have been an act of the firm if done
before the retirement until public notice is given of the retirement: Provided that a

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retired partner is not liable to any third party who deals with the firm without
knowing that he was a partner.

- Exception to the principle of holding out

 The principle of holding out on retirement without giving public notice does not
apply to the following cases:
(1) Deceased Partner: The estate of a deceased partner is not liable for
any act of the firm done after his death even if the business is
continued by the surviving partners in the same style and place and
even if his name appears in the name and affairs of the firm. Death is
notice by itself.
(2) Insolvent Partner: Insolvency of partner also terminates his liability
forthwith. A person ceases to be a partner from the date of his
insolvency and his estate is no more liable for any act of the firm done
after his insolvency whether notice has been given or not.
(3) Dormant Partner: A dormant or sleeping partner means a partner
whose existence as partner is not reflected by the name of the firm or
otherwise. He has never taken part in the conduct of business as,
partner and, therefore, he is not known to the customers of the firm.
As long as he remains a partner his liability for the acts of the firm is
the same as that of any acting, apparent or ostensible partner. But
when retires, public notice is not requisite to terminate his liability. His
presence in the firm was not known to the public and his exit need not
be publically announced.

- Transferee of Partner's Interest (Section 29)

 Section 29 of Indian Partnership Act dealt with the rights of transferee of a
partner's interest in a firm. Generally a third person or party could not become a
partner in a firm without the consent of acting partners. It is clear that a partner
could not transfer his interest in a firm to a third person to become a partner
without the consent of his co-partners. However, in Indian Partnership Act, a
partner can transfer his interest in the firm to a third person. This transfer may be
absolute or by mortgage. This transfer of interest does not put the transferee in
the same position as the transferor. In such transfer of interest a partner does not
cease to be a partner nor a transferee becomes a partner. Such transferee may
be termed as sub-partner.
 Thus if a partner transfers his interest in the firm to a third party, under section
29(1) the transferee can get the share of profits of that partner. But so long as the
firm exists and carries on business, he cannot interfere in the business of the firm
nor can he inspect the accounts of the firm. It may be noted here that section
29(2) applies only after the partner has transferred his interest in the firm to a
third party. Partition is not a transfer.

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Torts of a Partner

- Section 30: Minors Admitted to the Benefits of Partnership

 At the very outset section 30 lays down that a minor cannot be a partner in a firm
but with the consent of all the partners, he may be admitted to the benefits of
partnership.
 In India, minor is not competent to contract at all (section 11 of Indian Contract
Act) and therefore cannot be a partner of a firm.
 Section 30 lays down that 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 lies on the person asserting that fact.
 Sections 4 and 5 of the Indian Partnership Act, 1932, partnership arises out of
contract since a minor is incompetent to contract, he cannot be a partner. A
minor can, however, be admitted to the benefits of partnership. Section 30(1) of
the Partnership Act provides. "A person who is 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"

- Minor's Admission to the Benefits of Partnership

 The agreement by a minor is void but he is capable of accepting benefits. In
consonance with this position of law, section 30(1) provides that a minor 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.
 The introduction of a minor to the benefits of partnership presupposes existence
of valid partnership between persons competent to contract. There can be no
partnership of all minors, but a partnership between persons competent to
contract must exist before a minor can be admitted to its benefits.

- Minor's Position During Minority

 The minors thus admitted has a right to such share of the property and of the
profits of the firm as may be agreed upon. He however, cannot go to the Court of
law to enforce his rights in respect of such share so long as he continues to be
admitted to the benefits of partnership. This disability is removed when he is
severing his connection with the firm. He can also have access to any of the
accounts of the firm and can inspect them and copy them.

- Right of election to become or not to become a partner by a minor after he

becomes a major
 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.
 A minor admitted to the benefits of partnership cannot be impleaded in
insolvency proceeding against the firm on the ground that he had become a
major after the dissolution of the firm but had not exercised his option to become

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Torts of a Partner

or not to become a partner. A minor cannot be held liable on the mere ground
that he had not exercised his rights of election under section 30(5).

- Agreement with Minor

 Every partner is jointly and severally liable for all acts of the firm. Moreover, his
liability is unlimited and can extend to his personal property. A minor, on the
other hand, is not personally liable for any such act. It is only his share which is
liable for the acts of the firm. Sometimes without the knowledge of a minor, his
guardian may have accepted his admission to the benefits of a partnership and
the minor may have remained ignorant of his admission to the benefits of
partnership even after he has attained majority.
 According to section 30(9), if after attaining majority, he represents or knowingly
permits himself to be represented as a partner in the firm, his liability on the
ground of holding out can still be there.