BUSINESS LAWS

Chapter V
INCOMING AND OUTGOING
PARTNERS
Section 31-38
Chapter 5
 Any change in the
relation of partners will
result in reconstitution of
the partnership firm.
Thus, on admission of a
MODE OF ADMISSION
new partner, or
retirement of a partner or
expulsion of the partner
or on insolvency of a
partner etc a firm will be
reconstituted.
 Mode of Admission
A new partner can be admitted into a firm with the
consent of all the partners. The relations of
partners being based on trust and confidence, only
MODE OF ADMISSION
such person can be admitted in whom all the
partners have confidence. This is however subject
to contrary arrangement as agreed among the
partners. The partners can even delegate this
power of admission to any existing partner and as
such a single partner can perform function.
 INTRODUCTION OF A PARTNER-
(1) Subject to contract between
the partners and to the
provisions of section 30, no
person shall be introduced as
INTRODUCTIO a partner into a firm without
N OF A the consent of all the existing
partners.
PARTNER
SECTION 31 (2) Subject to the provisions of
section 80, a person who is
introduced as a partner into a
firm does not thereby become
liable for any act of the firm
done before he became a
partner.
 It is one of the fundamental
principles of the partnership law
that no person can be admitted as a
partner without the consent of all
the existing partners in a firm, as
partnership requires mutual trust
and confidence however if the
INTRODUCTION OF partnership deed gives right to
A PARTNER
SECTION 31 partner to introduce a new partner
than primacy is given to the deed. It
means it is subject to a contract
between partners and to the
provisions regarding minors in a
firm, no new partners can be
introduced into a firm without the
consent of all the existing partners.
 As per section 31(1), as a general
rule, no person shall be introduced as
partner into the firm without the
consent of all the existing partners.
That means, it includes both acting as
well as sleeping partners. A new
MODES OF partner can be introduced into a firm
INTRODUCTION OF subject to following conditions-
A PARTNER
1) With the consent of all the existing
partners
2) In accordance with a contract
between the partners
3) In accordance with the provisions
of section 30
 The relationship between the
partner is based upon mutual
confidence and trust. For the
harmonious working of a
partnership it becomes
INTRODUCTION necessary that a new partner
WITH THE
CONSENT OF ALL should not be introduced without
THE PARTNER the consent of all the partners.
This section, therefore, provides
the general rule that no person
shall be introduced as a partner
into the firm without the consent
of all the existing partners.
 The rule stated above is subject to contract
between the partners. If a contract between
the partners permits the introduction of a new
partner even without the consent of all the
existing partners that can possibly done.
INTRODUCTION IN Eg the contract provides that majority of the
ACCORDANCE partners shall be competent to admit a new
partner of any one of them may nominate a
WITH A CONTRACT partner or appoint his successor, a new
BETWEEN THE partner could be introduced accordingly.
PARTNERS In such cases even if some of the partners are
unwilling to the introduction of some particular
person, they will be bound by their contract
and the introduction will be valid.
It means consent of all the partners is not
required and consent of majority will prevail.
 Byrne v Reid 1902, A B C and D were
four partners and they, in their partnership
deed, authorized A to admit his son, S
into partnership when S had attained the
age of 21 years. When S attained the
age of 21 years A nominated him as a
INTRODUCTION IN partner in accordance with the partnership
ACCORDANCE deed and he accepted the nomination, but
WITH A CONTRACT the other partners refused to recognize
BETWEEN THE him as a partner. It was held that the son
PARTNERS on accepting the nomination had become
a partner. A person does not become a
partner merely by his nomination. He has
an option to become a partner or not. He
becomes a partner when after nomination
he expressly or impliedly agreed to the
same.
 A minor admitted to the benefits of partnership
can become a partner according to the
procedure mentioned in section 30(5).
If a minor is admitted to the benefits, then it is
his right whether to become a partner in the
firm or not and if he chooses to become a
partner then the consent of all other partners
is immaterial.
MINOR ADMITTED When a minor was admitted to the benefits of
TO THE BENEFITS partnership, he may make an election, within
OF PARTNERSHIP 6 months of his attaining the majority or
BECOMING A obtaining knowledge that he had been
PARTNER admitted to the benefits of partnership,
whichever date is later and give a public
notice whether he become a partner or not. If
he opts to become a partner by such notice,
he becomes a partner of the firm. If he fails to
give such notice within the time, then on the
expiry of such time, he automatically becomes
a partner. In case of such a minor becoming a
partner the consent of other partners is not
required.
 The deed of partnership between two
persons contained a clause that one
would have the right to bring in his son
into the partnership on his attaining 21
years of age. The other partner refused
to accept the son. The court held that
he could not do so, because the
partnership deed are a contract and it
CASES stands binding on the contracting
parties.
In such cases even if some of the
partners are unwilling to the
introduction of some particular person,
they will be bound by their contract and
the introduction will be valid, the
position was explained in Lovergrove
V. Nelson 1834
 Liability of an Incoming Partner:
The liability of the new partner
commences from the day he is admitted
as a partner as per Section 31(2) of the
Act. He is not liable for any pre-existing
debts. The new partner may however
LIABILITY OF AN
agree with the partners to be liable for
INCOMING
PARTNER the debts incurred up to the date of
admission. But such an agreement is
binding only in between the partners
and does not give the right to any
creditor to sue the new partner for any
past debts. In order to make the new
partner liable for any past debts a
complete novation must be proved and
it requires two things:
 Firstly, the new partner should have
assumed the liability for the past debts and
secondly, the creditors must be informed of
this new arrangement. The liability can be
accepted impliedly or even expressly by the
creditor.
LIABILITY OF AN B.M. Devaiah V. Canara Bank 2003, the
INCOMING documents on record showed that the new
PARTNER partner had acknowledged pre-existing
liability and was also trying the clear the
existing dues. The bank, which was
informed of the entry of the new partner,
had continued to supply the cash credit
irrespective of changes occurring in the
firm. The court invoked the said principle
and the liability of the new partner in
context of the pre-existing debt was
upheld.
 Thus, the liabilities of the new partner
ordinarily commence from the date
when he is admitted as a partner,
unless he agrees to be liable for
obligations incurred by the firm prior to
the date. The new firm, including the
LIABILITY OF AN new partner who joins it, may agree to
INCOMING assume liability for the existing debts
PARTNER of the old firm and creditors may agree
to accept the new form as their debtor
and discharges the old partners. The
creditor’s consent is necessary in
every case to make the transaction
operative.
But mere agreement amongst
partners cannot operate as Novation.
 An implied rejection of the new
arrangement occurs when a creditor,
after knowledge of the admission,
LIABILITY OF AN continues to deal with the old partner
INCOMING alone. This happened in British Home
PARTNER Insurance Corporation V. Paterson 1902,
where A knowing B and C to be
partners, refused to contract with them
jointly and insists on contracting with B
alone, he cannot afterwards treat C as
liable.
 Section 25, “every partner is liable
.. for all the acts of the firm done
while he is a partner”.
A person who is introduced as a
LIABILITY OF AN partner doesn’t become liable for any
INCOMING acts of the firm done before he
PARTNER becomes a partner, so it means the
liability of an incoming partner begins
from the date of his joining the firm
and become partner.
Except under section 30(7), in which
minor’s liability starts from the date on
which he was admitted for benefits.
 The position of a minor
becoming a partner under
section 30 is however
different. His liability
towards third parties does
LIABILITY OF AN INCOMING
PARTNER not commence from the
date of his becoming a
partner, but it relates back
to the date of his admission
to the benefits of
partnership. (Section
30(7)(a))
 If a partner acknowledges the
act of the firm done before he is
becoming a partner, whether a
liability can be imposed on him
LIABILITY OF AN
or not?
INCOMING In this situation he’ll be liable for
PARTNER the acts of the firm done before
his becoming a partner because
partnership is type of agency
and in case of agency the
principal can acknowledge the
acts of the agent. So therefore,
he will be liable for it.
 But nothing can prevent a partner from
agreeing to be liable for the acts done
before his admission. If he makes such an
agreement with his co-partners the same
will be binding only between him and the
co-partners and the third parties cannot
LIABILITY OF AN take advantages of such an agreement.
INCOMING The creditors can make him liable if they
PARTNER can show that the incoming partner had
agreed with them, expressly or impliedly
for being liable towards them for the acts
done before his admission. The basis of
liability for the past acts, in such a case
will be the agreement rather than the fact
of his admission as a partner.
 Section 32 to 38 deals with
situations when the partner
cease to be a partner but
the firm is not dissolved and
it continues with the
OUTGOING PARTNERS
remaining partners, by
following ways:
-by retirement
-by expulsion
-by insolvency
-By death
 Retirement means
voluntary withdrawal of a
partner from the firm, as
opposed to expulsion, when
a partner is made to quit. It
RETIREMENT OF A covers such cases where
PARTNER SECTION 32
on the withdrawal of a
partner from the firm, the
firm is not dissolved but the
business of the firm is
continued with the
remaining partners.
 According to Section
32(1) a partner may retire-
a) With the consent of all
the other partners,
b) In accordance with an
HOW CAN A PARTNER
express agreement by
RETIRE? the partners, or
c) where the
partnership is at will,
by giving notice in
writing to all the other
partners of his
intention to retire.
 As a general rule no partner
can retire whenever he
likes. The partnership
business depends upon the
continued support from all
the partners. The
WITH THE CONSENT OF
ALL THE OTHER
retirement of partner might
PARTNERS mean a serious dislocation
of the whole business. A
partner can therefore retire
with the consent of all the
other partners. Such
consent may be express or
implied.
 A partner is said to retire
when he ceases to be a
member of the firm
WITH THE CONSENT OF
without bringing to an
ALL THE OTHER
PARTNERS end the subsisting
relations between the
other members, or
between the firm and the
third parties.
 In case the agreement
between the partners
themselves provides the
retirement provisions with the
consent of all partners, a
IN ACCORDANCE WITH
partner may retire
THE EXPRESS accordingly. For instance,
AGREEMENT BY THE
PARTNERS the partnership deed provides
that a partner may retire with
the consent of the majority of
other partners or by giving
one year’s notice, a partner
can retire in accordance with
such an agreement.
 A partner may retire at any time with
the consent of all his partners.
Where there is an agreement
between the partners about
retirement, a partner may retire
according to the terms of that
IN ACCORDANCE WITH agreement. The Supreme Court
THE EXPRESS
AGREEMENT BY THE regarded an agreement to be valid
PARTNERS which permitted a partner to retire
by one month’s notice Vishnu
Chandra V. Chandrika Prasad 1983
SCC And in such situation where a
partner wants to retire from the
partnership, the partnership
business will not comes to an end.
 In case of partnership at
will,(Section 7) a partner
may retire by giving a notice
in writing to all the other
partners of his intention to
IN PARTNERSHIP AT
retire. Section 32(1)(c))
WILL BY A NOTICE TO
OTHERS In a partnership at will a
partner has also a right to
get the firm dissolved by
giving a notice in writing to
all the other partners of his
intention to dissolve the
firm. (Section 43)
 Section 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".
IN PARTNERSHIP AT
WILL BY A NOTICE TO It means a partnership where no
OTHERS contract has been made between the
partners for its duration or
determination. The duration of the
firm is left uncertain and it survives as
long as each and every partners is
willing.
A partner can retire by notice only
when the firm is “at will” as so defined.
 In case of partnership at will, a
partner can also retire with the
consent of other partners or with
accordance to any express agreement
Vaiyapuri Mudaliar and Sons V. Sri
Arunodhaya Textiles, 1996
Usha Gopirathnam V. Shri P. S.
IN PARTNERSHIP AT Ranganathan 2008, a partner gave
WILL BY A NOTICE TO
OTHERS
notice, by letter, written to another
partner who habitually was acting in
business of the firm, expressly
stating that he was desirous of
retiring from the firm and that his
accounts also be settled by assessing
assets and liabilities of the firm. It
was held to be a clear expression of
his intention to retire.
 Notice should be in writing
signed by the partner and
should be served upon all
the partners. Walter v
Bingham, The Times 1987
IN PARTNERSHIP AT
WILL BY A NOTICE TO
OTHERS As between the partners,
the retirement becomes
effective from the date
mentioned in the notice or if
no date is mentioned from
the date of service.
 On retirement a partner ceases to
be a partner but the other partners
can still continue to carry on the
business of the firm, and the
partnership between the remaining
partners can still continue. So that
the partnership between the
FIRM NOT DISSOLVED
ON RETIREMENT OF A
remaining partners can continue
PARTNER after the retirement of a partner, it
is necessary that after such a
retirement there must be at least
two remaining partners between
whom the partnership is now to
continue. Thus if all the partners, or
all except one, retire the firm has to
be dissolved.
 Abbashbhai v R.G. Shah, 1988, The
Bombay High Court has held that if on
the retirement of all the partners but
one, the remaining one partner
continues the business with other
outside parties, as stipulated by the
partnership deed, the firm is not
dissolved thereby and the old firm still
FIRM NOT DISSOLVED continued. This decision does need
ON RETIREMENT OF A re-consideration. As section 41(a)
PARTNER says A firm is (compulsorily) dissolved
by the adjudication of all the partners
or of all the partners but one as
insolvent. In the above situation the
firm is dissolved, when all except one
partners retire, and then a new
partnership is created between the
remaining one partner and the other
outside persons.
 His position after retirement-
The question arises regarding liability of a
retiring partner for the acts of the firm done:
1) Before his retirement
2) After his retirement
Every partner is liable for all the acts of the
LIABILITY OF RETIRING
firm done while he is a partner. If liability has
PARTNER arisen during the period while a person was a
partner, such liability does not come to an end
by his retirement. According there is a scope
of discharge of liability of a partner if any
agreement is made to that effect with the third
party as well as other partners of the firm and
such agreement may be even implied by
course of the dealing. The abovementioned
procedure for discharge of a retiring partner
from liability is by way of novation.
 Every partner is liable for all acts
of the firm done while he is a
partner.(Section 25)
LIABILITY FOR ACTS
DONE BEFORE HIS If liability has arisen during the
RETIREMENT
period while a person was a
partner, such liability does not
come to an end by his
retirement.
 According to Section 32(2),
“A retiring partner may be
discharged from any liability to
any third party for acts of the
firm done before his retirement
by an agreement made by him
with such third party and the
LIABILITY FOR ACTS
DONE BEFORE HIS
RETIREMENT SECTION
32(2)
partners of the reconstituted
firm, and such agreement may
be implied by a course of dealing
between such third party and
the reconstituted firm after he
had knowledge of the
retirement.”
 A retired partner remains liable to the
creditors for the acts of the firm done
before and up-to date of his retirement.
The continuing partners may agree to
release him from such debts. But
notwithstanding any arrangement
between the partners, the retired partner
remains liable to the creditors. Court v
LIABILITY FOR ACTS Berlin 1897
DONE BEFORE HIS
RETIREMENT SECTION This discharge of a retiring partner from
32(2) liability is by way of novation. Novation
means substitution, with the creditor’s
consent, of a new debtor for an old one.
This is done by substituting a new
contract in place of an old one, thereby
discharging the liability of the original
debtor and creating that of a new one in
his place. It is essential that the creditor
must agree to such a substitution.
 To obtain a release from the creditors
also, a complete novation has to be
proved and this requires two things:
-firstly, the remaining partners must have
agreed with the retired partner to release
him from the existing debts and liabilities
LIABILITY FOR ACTS
DONE BEFORE HIS -secondly, the creditors should be
RETIREMENT SECTION informed of the retirement and the new
32(2)
arrangement and then the retired partner
will be discharged from his liability to a
creditor who has expressly or impliedly
agreed to release the retired partner and
to accept the reconstituted firm as his
debtor. Shivaraj v Patil and KG
Balakrishanan 2003
 An implied agreement arises when
a creditor continues a deal with the
reconstituted firm after he has
knowledge of the retirement.
Syndicate Bank v RSR Engg
LIABILITY FOR ACTS
Works 2003, An implied
DONE BEFORE HIS agreement may arise from the
RETIREMENT SECTION
32(2) course of dealing between the third
party and reconstituted firm. If the
creditor takes a new security for the
debts from the continuing partners,
it would show the intention to deal
with them for the existing debts.
 Eg X has a right of action
against the partner A B C. A
retires and then X agrees to
make only B & C liable. A is
thereby discharged from his
LIABILITY FOR ACTS liability. In partnership when
DONE BEFORE HIS
RETIREMENT SECTION the creditor accepts the
32(2)
security of continuing partners
in discharge of that of the
former partners, the outgoing
partner is thereby discharged
from his liability towards such
creditor.
 A partner will continue to be liable
for all the acts done before his
retirement, but he can be
discharged from liability towards
3rd person by entering into a
contract.
LIABILITY FOR ACTS Section 32(2) requires that for the
DONE BEFORE HIS proper discharge of the retiring
RETIREMENT SECTION partner from the liability there
32(2)
should be contract between all the
three parties i.e outgoing partners,
members of reconstituted firm and
creditors (third party).
By such ways, retiring partner
may obtain a valid discharge in
relation to such liability.
 Mere agreement between the
outgoing partners and the
continuing partners that only
the continuing partners will be
liable for all the past acts does
not discharge the outgoing
LIABILITY FOR ACTS
DONE BEFORE HIS
partner from his liability
RETIREMENT SECTION towards the creditor. The
32(2) concurrence of the creditor
must be there to such a
contract. It can be express or
implied, by a course of dealing
between creditor and the
reconstituted firm after he had
knowledge of the retirement.
 In order to be absolved of the liability of
the retiring partner, therefore, it has got to
prove that the creditor acquiesced in that
position and to get his dues satisfied from
the newly constructed partnership firm.
Jayantilal v Narandas 1983

LIABILITY FOR ACTS

Evans v Drummond A and B are two
DONE BEFORE HIS partners in a firm executed a bill in favor
RETIREMENT SECTION of a creditor X. A retired and thereafter on
32(2) the due date the bill was not paid to X but
a new bill signed only by B was given to
X, who fully knew of the change in the
firm. Held that by accepting the new bill
signed only by the continuing partner, the
creditor has relied on his sole security,
and had discharged the retiring partner
from liability.
 K.J. George V. State Bank of Travancore (A.I.R
2000 Kerala 214) is an example of novation
whereby the retiring partner was discharged
from his liability towards the creditor bank. In
the said case the respondent bank granted
overdraft facility and medium term loan to a
partnership firm, which included defendant as
the partner. While the amount still remained
unpaid to the bank, the defendant retired from
LIABILITY FOR ACTS the partnership firm. The notice of the partner
DONE BEFORE HIS was duly sent to the bank. Thereafter revival
RETIREMENT SECTION letters in respect of the loan and a subsequent
32(2) agreement was entered the bank and those
partners who continued in the business. The
retiring partner was not a party to the revival
agreement entered by the bank. Moreover the
entire liability was taken over by the continuing
partners. The bank also never required the
defendant to sign the revival agreement. It was
held that the bank had accepted that the
partners of the reconstituted firm alone would
be liable for the debts of the firm.
 The liability of a retired partner to the third
parties continues until a public notice of
his retirement has been given. As regards
the liability for acts of the firm done before
his retirement, the retiring partner remains
liable for the same unless there is an
agreement made by him with the third
LIABILITY FOR ACTS party concerned and the partners of the
DONE BEFORE HIS reconstituted firm. Such an agreement
RETIREMENT SECTION may be implied by a course of dealings
32(2) between the third party and the
reconstituted firm after he had knowledge
of the retirement. If the partnership is at
will, the partner by giving notice in writing
to all the other partners of his intention to
retire will be deemed to be relieved as a
partner without giving a public notice to
this effect.
 According to Section 32(3)
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 them
which would have been an act of the
LIABILITY FOR ACTS firm if done before the retirement, until
DONE AFTER HIS public notice is given of the retirement.
RETIREMENT SECTION
32(3 & 4) Provided that a retired partner is not
liable to any third party who deals with
the firm without knowing that he was a
party.
Section 32(4) Notices under sub-section
(3) may be given by the retired partner or
by any partner of the reconstituted firm.
 A retiring partner continues
to be liable to third party for
acts of the firm after his
retirement until public notice
LIABILITY FOR ACTS
of his retirement has been
DONE AFTER HIS given either by himself or by
RETIREMENT SECTION
32(3 & 4) any other partner. But the
retired partner will not be
liable to any third party if the
letter deals with the firm
without knowing that the
former was partner.
 A public notice of retirement
should be given. The notice
may be given either by the
retired partner or by any
LIABILITY FOR ACTS partner of the reconstituted
DONE AFTER HIS
RETIREMENT SECTION firm. It is in the interest of
32(3 & 4)
both. The consequences of
default in giving public notice
are two folds, holding out of
the retired partner and
estoppel against the firm.
 By retirement a person ceases to be
partner. The third parties can still
presume mutual agency between the
outgoing and continuing partners until
a public notice of retirement is given. It
is therefore in the interests of both the
LIABILITY FOR ACTS retiring and the continuing partners
DONE AFTER HIS
RETIREMENT SECTION that public notice is given. It is
32(3 & 4) therefore provided in Section 32 (4) that
such a notice may be given either by the
retired partner of the reconstituted
firm. No public notice is however
necessary in the case of deceased
partner, insolvent partner and a
dormant partner.
 By retirement a person ceases to
be a partner- The third parties can
still presume mutual agency between
the outgoing and the continuing
partners until a public notice of
retirement is given.
LIABILITY FOR ACTS
DONE AFTER HIS Section 32(3), therefore, provides that
RETIREMENT SECTION in the absence of a public notice the
32(3 & 4)
outgoing partner and the continuing
partners continue to be liable for the
act of each other towards third parties.
In order to avoid such liability it is in
the interests of both the retiring and
the continuing partners that public
notice is given.
 For the acts of the firm done after his
retirement, where he enters without
giving public notice, then the retiring
partner continue to be liable for the
acts of the firm.
If retiring partner retires from the firm
LIABILITY FOR ACTS
DONE AFTER HIS after giving public notice, then he is
RETIREMENT SECTION not liable for the acts of the firm which
32(3 & 4)
will be done after his retirement.
Who can give public notice?
Under Section 32(4), such a notice
may be given either by the retired
partner or any partner of the
reconstituted firm.
 The retired partner shall continue to
be liable by holding out for any act of
the remaining partners which would
have been the act of he firm if done
before retirement. Such liability
continues up to the date of public
LIABILITY FOR ACTS notice but is confined only to
DONE AFTER HIS
RETIREMENT SECTION customers who dealt with the firm
32(3 & 4) under the assumption that the retired
partner was still a partner. It also does
not extend to torts committed by the
remaining partners after the retirement
nor to acts of insolvency committed by
the continuing partners as held in the
case of PV Gandhi v Gitanjali 1973
 Section72 MODE OF GIVING PUBLIC
NOTICE-
A public notice under this Act is given
(a) Where it relates to the retirement or
expulsion of a partner from a registered firm, or
to the dissolution of a registered firm, or to the
election to become or not to become a partner in
a registered firm by a person attaining majority
who was admitted as a minor to the benefits of
PUBLIC NOTICE partnership, by notice to the Registrar of Firms
SECTION 72 under section 63, and by publication in the
Official Gazette and in at least one vernacular
newspaper circulating in the district where the
firm to which it relates, has its place or principal
place of business, and
(b) in any other case, publication in the Official
Gazette, and in at least one vernacular
newspaper circulating in the district where the
firm to which it relates has its place or principal
place of business.
 According to Section 72 a public notice
means a notice in the official gazette, in
atleast one vernacular newspaper
circulating in the district where the firm to
which it relates has its place or principle
place of business, and if the firm if
registered, to the Registrar of Firm
concerned. Therefore, merely publication
of the notice in a local newspaper is not
PUBLIC NOTICE sufficient and such a notice does not
SECTION 72 absolve the outgoing partner from liability
towards a third person. C Assiamma v
State Bank of Mysore 1990
The liability which arises in the absence of
public notice is nothing but the application
of the doctrine of holding out. There is a
presumption that a person who was
known to be a partner continues to be so
known to the third parties until the notice
of retirement is given.
 No public notice is necessary in case
of deceased partner, insolvent partner
and dormant partner.
In a case before the Bombay High Court
(Glorious Plastics Limited V. Laghate
Enterprises, AIR 1993 Bom 224) a
NO PUBLIC NOTICE partner retired and some three years
NEEDED
later the continuing partners incurred
liability on a bill of exchange, the
retired partner was held not liable for
the same because the party suing him
didn’t know that he ever was a partner
in the firm.
 Proviso of Section 32(2), that “a retired
partner is not liable to any third party who
deals with the firm without knowing that he
was a party.”
If a dormant partner (i.e. a person who is not
known to be a partner), retires, he is not liable
for the acts of the firm done after his retirement
even though no notice of retirement has been
given.
If a retiring partner is a sleeping partner and he
RETIREMENT OF A retires without giving public notice he is not
DORMANT PARTNER liable for the acts after his retirement.
The basis for this provision is that if a person
was not known to be a partner to a third party
there is no need of notifying to such third party
about his retirement either. The need for the
notice arises if a person who was known to be a
partner and his creditor does not know about his
retirement but still continues to believe that he is
a partner and gives credit on that belief. As held
in the case of Tower Cabinet Co v Ingram
1949
 Tower Cabinet Co. v Ingram, 1949, a
partnership consisted of Christmas and
Ingram. The partnership was dissolved and
thereafter the business was carried on by
Christmas alone in the same name. Public
notice of the dissolution of firm was not
given. Christmas used an old notepaper of
the firm bearing the names of both
Christmas and Ingram and placed an order
for the purchase of some furniture from
Tower Cabinet Co. but Christmas failed to
RETIREMENT OF A pay money. Tower Cabinet Co sued
DORMANT PARTNER Ingram to make him liable on the basis of
the doctrine of holding out. Held that
Ingram was not liable as company had no
knowledge that Ingram was a partner
before the date of dissolution. Merely
because Ingram was negligent in not getting
the old notepapers destroyed when he left
the firm, it cannot inferred that he
permitted himself to be represented as a
partner and therefore he was not liable.
 The significance of the
expression “estoppel of the
firm” is that if the retired
partner takes credit from a
customer of the firm
RETIRE PARTNER- representing that he is still a
ESTOPPEL OF FIRM
partner of the firm, the firm
would be liable if the act of
the retired partner would
have been the act of the firm
if done by him before
retirement.
 EXPULSION OF A PARTNER-
(1) A partner may not be
expelled from a firm by any
majority of the partners,
save in the exercise in
good faith or powers
EXPULSION OF A
PARTNER SECTION 33 conferred by contract
between the partners.
(2) The provisions of sub-
sections (2), (3) and (4) of
section 32 shall apply to an
expelled partner as if he
were a retired partner.
 If all these conditions are not present, then expulsion
is not deemed to be bona fide interest of the business
of the firm:
1)The power of expulsion must have existed in a
contract between the partners
2) The power has been exercised by a majority of the
partners and
3) It has been exercised in good faith
The test of good faith as required under section 33(1)
includes three things
EXPULSION OF A
PARTNER SECTION 33 1)The expulsion must be in the interest of the
partnership
2)The partner to be expelled is served with a notice
3)He is given an opportunity of being heard
If a partner is otherwise expelled, the expulsion is null
and void.
The expulsion of partners does not necessarily result
in dissolution of the firm. The invalid expulsion of a
partner does not put an end to the partnership even if
the partnership is at will and it will be deemed to
continue as before.
 Problem:
A B and C are partners in a partnership firm. They
were carrying their business successfully for the
past several years. Spouses of A and B fought in
EXPULSION OF A club on their personal issues and A’s wife was hurt
PARTNER SECTION 33 badly. A got angry on the incident and he
convinced C to expel B from their partnership firm.
B was expelled from partnership without any notice
from A and C. Considering the provisions of IPA
1932 state whether they can expel a partner from
the firm?
 The expulsion pf partner is possible when
following conditions are satisfied:
-the power to expel has been conferred
by a contract between the partners, and
-such a power has been exercised in
good faith.
NO expulsion is possible unless a power
EXPULSION OF A to that effect has been conferred by a
PARTNER SECTION 33
contract. This power must be exercised
in good faith for the general interest of the
whole firm. And good faith will be
determined by the court. If the power to
expel has been exercised bona fide the
same cannot be challenged in a court of
law. Expelled partner should be given an
opportunity of being heard. Russell v
Russell
 Blissett v Daniel 1853, According to
the partnership agreement two-third or
more of the partners were empowered
to expel a partner by a notice, without
assigning any reason for the same.
Two-third of the partner signed and
served a notice of expulsion on one of
them. It was found that the real reason
EXPULSION OF A
for such a notice of expulsion was not
PARTNER SECTION 33 to protect any commercial interest of
the firm but that the partner sought to
be expelled has opposed to the
appointment of a co-partner’s son as
co-manager with his father. It was also
found that the offended father was
instrumental in managing the
expulsion. Held that notice of
expulsion under given circumstances
was void.
 Expulsion of a partner, who had
been guilty of offence has been
considered to be Justified:
Carmichael v Evans 1904, the
power to expel existed against any
partner who was addicted to
scandalous conduct detrimental to
EXPULSION OF A the partnership business or was
PARTNER SECTION 33
guilty of any flagrant breach of
duties relating to partnership
business. One of the partners was
convicted for travelling without
ticket and he was given notice of
expulsion by the other partner.
Held that the notice of expulsion
given was justified.
 A partner cannot be expelled from a firm by any
majority of existing partners unless such power
of expulsion is conferred by contract between
the partners, and carried on within the contours
of utmost good faith. The courts strictly construe
this power because of the possibility of abuse
inherent in it (Shivraj Reddy & Bros V S.
Raghu Rao Reddy, AIR 2002 NOC 120) as
held in this case that expulsion is justifiable only
LIABILITY OF AN when it is authorized by an agreement between
EXPELLED PARTNER
the partners. In Barnes V. Young (1898 1 Ch
414), it was held that reasonable warning and
opportunity must be given.
The power of expulsion must be exercised
strictly on the grounds on which it is exercisable
and also in absolute good faith in the interest of
the firm. But the court does not interfere where
the power seems to have been exercised in
good faith and for proper purposes.
 The Calcutta High Court in Ganesh Chandra
V. Gopal Chandra, AIR 1976 Cal 459 approved
the expulsion of a partner who paralyzed the
business of the firm by giving notice to the
firm’s bankers not to pay the firm’s cheques and
offered no explanation for his conduct even
when full opportunity was given to him. The
LIABILITY OF AN power of expulsion can be exercised by a
EXPELLED PARTNER majority and not by a single partner. Where, of
the three partners, two were guilty of
misconduct and the third proceeded to expel
them, the court held that if this expulsion were
allowed it would reverse the meaning of the
Section. In such cases the better choice is
dissolution (A Solicitor’s Arbitration, Re, 1962
All ER 772).
 As regards liability towards third
parties for act of the firm done
either before or after expulsion the
position of the expelled partner is
exactly the same as that of a
retired partner. It means that:
-he continues to be liable for the
LIABILITY OF AN
acts of the firm done before his
EXPELLED PARTNER expulsion, unless he is discharged
from liability by following the
procedure mentioned in section
32(2), and
-he can be made liable towards
third parties for the acts of the firm
done after expulsion unless a
public notice of the expulsion has
been given. (Section 33(2))
 A partner who is properly expelled is in the
same position as that of a retired partner.
Where the expulsion is not proper, it is of no
effect. The expelled partner is entitled to be
reinstated in his position. He is however not
entitled to damages for wrongful expulsion,
unless the expulsion was given malicious
publicity or was otherwise maliciously harmful.

LIABILITY OF AN Moreover there is a reasonable time limit or a

EXPELLED PARTNER limitation period to file any suit with respect to
the expulsion and challenging it on the
requisite grounds.
Where the plaintiff-partner was expelled from
the firm and kept out of its business and was
also denied his share of profits etc. and the
proceeding instituted 4 years thereafter it was
held that it was barred by time under
Limitation. (Shivaraj Reddy & bros v S
Raghu Rao Reddy 2002)
 INSOLVENCY OF A PARTNER-
(1) Where a partner in a firm is
adjudicated an insolvent, he ceases
to be a partner on the date on
which the order of adjudication is
made, whether or not the firm is
thereby dissolved.
INSOLVENCY OF A (2) Where under a contract between
PARTNER SECTION 34 the partners the firm is not
dissolved by the adjudication of a
partner as an insolvent, the estate
of a partner so adjudicated is not
liable for any act of the firm and the
firm is not liable for any act of the
insolvent, done after the date on
which the order of adjudication is
made.
 When a partner in a firm is adjudicated
an insolvent, he ceases to be a
partner on the date of the order of
adjudication whether or not the firm is
thereby dissolved. His estate (which
thereupon vests in the official
INSOLVENCY OF A
PARTNER SECTION 34 assignee) ceases to be liable for any
act of the firm done after the date of
the order and the firm also is not liable
for any act of such a partner after such
date (whether or not under a contract
between the partners the firm is
dissolved by such adjudication).
 According to Section 34,
1)A partner ceases to be a partner from
the date on which he is adjudicated an
insolvent. This effect will follow whether
the firm is dissolved or not.
2)Where the firm is dissolved, and
consequently, therefore, it remains in
INSOLVENCY OF A business, the insolvent partner’s estate is
PARTNER SECTION 34
not liable for any acts of the firm after the
date of his insolvency.
3)Nor is the firm liable for any act of the
insolvent partner. This provision has
been inserted to terminate the liability
either way without the need of any public
notice. The fact of the insolvency of an
individual is by itself a public notice.
 An insolvent is not allowed to
continue as a partner and
therefore, a person who is
adjudicated insolvent ceases to be
partner on the date on which order
of adjudication is made. Whether
INSOLVENCY OF A on adjudication of a partner as
PARTNER SECTION 34 insolvent the firm is also dissolved
or not depends upon the contract
between the partners.
According to section 42(d), unless
the partners agree otherwise, a firm
is dissolved by the adjudication of a
partner as insolvent.
 When a partner is adjudicated as
insolvent, thereafter-
1)The estate of insolvent partner is not
liable for any act of the firm done after his
declaration of insolvency.
2)Firm is not liable for any act of the
insolvent partner done after the date of
adjudication.
HIS LIABILITY ON
ADJUDICATION where the firm is not dissolved on the
adjudication of a partner as insolvent and
the other partners agree to continue the
business, the estate of the insolvent
partner is not liable for an act of the firm
after the date of adjudication.
In this case he is absolved from liability
for future acts even though no public
notice of his being adjudicated insolvent is
given.
 His position is therefore, different from the
retired or the expelled partner, whose
liability for the acts of the firm continues
unless a public notice of retirement or
expulsion is given. The reason why such
a notice has been dispensed with is that
insolvency is itself a notorious fact which
is not required to be notified to any body.
HIS LIABILITY ON
ADJUDICATION No public notice is required to terminate
the liability of an insolvent partner.
If a partner is declared insolvent by the
court of competent jurisdiction then in
such a case, that partner ceases to be a
partner from the date of such
adjudication. So it means that the fact of
insolvency of an individual is in itself a
public notice.
 1) The insolvent partner cannot be
continued as a partner
2) He will be ceased to be a partner
from the very date on which the order
of adjudication is made
3) The estate of the insolvent partner is
not liable for the acts of the firm done
after the date of order of adjudication
EFFECT OF
INSOLVENCY 4) The firm is also not liable for any act
of the insolvent partner after the date
of the order of adjudication
5) Ordinarily but not invariably, the
insolvency of a partner results in
dissolution of a firm; but the partners
are competent to agree among
themselves that the adjudication of a
partner as an insolvent will not give
rise to dissolution of the firm.
 LIABILITY OF ESTATE OF
DECEASED PARTNER- Where
under a contract between the
DEATH OF A PARTNER partners the firm is not dissolved
SECTION 35
by the death of a partner, the
estate of a deceased partner is not
liable for any act of the firm done
after his death.
 Ordinarily, the effect of the death of
a partner is the dissolution of the
partnership but the rule in regard to
the dissolution of the partnership, by
death of partner is subject to a
contract between the parties and the
partners are competent to agree that
the death of one will not have the
DEATH OF A PARTNER effect of dissolving the partnership as
SECTION 35 regards the surviving partners unless
the firm consists of only two
partners. In order that the estate of
the deceased partner may be absolved
from liability for the future
obligations of the firm, it is not
necessary to give any notice either to
the public or the persons having
dealings with the firm.
 Eg. X was a partner in a firm. The
firm ordered goods in X’s lifetime;
but the delivery of the goods was
made after X’s death. In such a case,
X’s estate would not be liable for the
debts; a creditor can have only a
personal decree against the surviving
DEATH OF A PARTNER
SECTION 35 partners and a decree against the
partnership assets in the hands of
those partners. A suit for goods sold
and delivered would not lie against
the representatives of the deceased
partner. This is because there was no
debt due in respect of the goods in
X’s lifetime.
 The section provides that on the death of a
partner he of course ceases to be a partner. The
firm may or may not be dissolved. The estate of
the deceased partner deserves to be protected
from any further liability in respect of any act of
the firm done after the time of his death. This
section provide the protection to estate of
deceased partner.
On the death of a partner, his estate ceases to be
DEATH OF A PARTNER liable for the acts of the firm, done after such
SECTION 35 date, if under the terms of the partnership
agreement, the firm is not dissolved by the
death of the partner. No public notice is
required to terminate the liability of the
deceased partner as death itself is a notice. In
Bagel V. Miller 1903 2 KB 212, the estate of a
deceased person was held not liable in a suit for
price of the goods sold and delivered where the
order for goods was given in lifetime of the
deceased partner but delivery was made after
his death.
 Although on the death of a partner a
firm is dissolved but, if the other
partners so agree the firm may not be
dissolved (Section 42(c)) and the
business of the firm may be continued
with the remaining partners.
As regards the liability of his estate for
the acts of the firm done after his death
DEATH OF A PARTNER
the position is the same as in the case
SECTION 35 of an insolvent partner. If the firm is not
dissolved on the death of a partner the
estate of the deceased partner is not
liable for act of the firm done after his
death. No public notice is required to be
given on the death of a partner. So, the
position of deceased partner is same as
that of insolvent partner i.e. no public
notice is required.
 If after the death of
deceased partner, the
business is continued in
the name of the
DEATH OF A PARTNER
SECTION 35 deceased partner then in
such a case also, the
estate of deceased
partner is not liable.
Section 28(2)
 After a partner ceases to be
a partner the question of
the following rights of the
outgoing partner or his legal
representatives generally
RIGHTS OF OUTGOING
PARTNER
arises:
-Right to carry on a
competing business, and
-Right to share subsequent
profits until amount due to
him has been paid.
 RIGHTS OF OUTGOING PARTNER TO CARRY
ON COMPETING BUSINESS-
(1) An outgoing partner may carry on a business
competing with that of the firm and he may
advertise such business, but subject, to contract
to the contrary, he may not-
(a) use the firm-name,
(b) represent himself as carrying on the
business of the firm, or
RIGHTS TO CARRY ON (c) solicit the custom of persons who were
A COMPETING dealing with the firm before he ceased to be
BUSINESS SECTION 36 a partner.
(2) AGREEMENT IN RESTRAINT OF TRADE-
A partner may make an agreement with his
partners that on ceasing to be a partner he
will not carry on any business similar to that
of the firm within a specified period or
within specified local limits; and, notwithstanding
anything contained in section 27 of the
Indian Contract Act, 1872, such agreement shall be
valid if the restrictions imposed are
reasonable.
 Although this provision has imposed
some restrictions on an outgoing
partner, it effectively permits him to
carry on a business competing with
that of the firm. However, the partner
may agree with his partners that on
RIGHTS TO CARRY ON his ceasing to be so, he will not carry
A COMPETING on a business similar to that of the firm
BUSINESS SECTION 36
within a specified period or within
specified local limits. Such an
agreement will not be in restraint of
trade if the restraint is reasonable
(Section 36(2)). A similar rule applies
to such an agreement of sale of the
firm’s goodwill (Section 53(3))
 This section deals with the
right of the outgoing partner
with regard to some other
business which he may like to
carry on.
RIGHTS TO CARRY ON Section 36(1), states that an
A COMPETING
BUSINESS SECTION 36 outgoing partner, whether he
leaves the firm by retirement,
expulsion or insolvency, has
a right to carry on a business
competing with that of the
firm. He may also advertise
such business.
 This right to carry on the competing
business is subject to three restrictions:
1) he cannot use the name of the firm for
his business
2)he cannot represent himself as carrying
on the business of the firm and therefore,
he is not allowed to misled the public by
RIGHTS TO CARRY ON misrepresenting that he is still carrying on
A COMPETING the firm’s business.
BUSINESS SECTION 36
3)He cannot solicit the customer or
persons who were dealing with the firm.
He cannot approach the old customers to
persuade them to be diverted towards his
business. He can advertise his own
business and if the old customers
themselves prefer to come to him then
there is no bar to attend them.
 The retired partner has the right to carry on
any business competing with that of the
firm. He may set up his new business at a
place next door to the firm or anywhere
else. He may advertise his business and
attract customers. But in the interest of the
firm, which he has left also, deserves
protection. The Act, therefore, tries to
RIGHTS TO CARRY ON assure that the retired partner should do
A COMPETING nothing to injure the interests of the firm
BUSINESS SECTION 36 like not using the firm’s name, not
representing to carry on the business of the
firm and lastly not to soliciting the
customers of the firm. The retiring partner
does not have the right to break away the
customers of the firm.
In Trego V. Hunt 1896 AC 7 the retiring
partner was restricted from drawing a list of
customers of the firm.
 These restrictions on the outgoing
partner are necessary to protect the
interest of the firm which he leaves.
The restrictions are similar to those
which are imposed on a person who
sells the goodwill of his business.
RIGHTS TO CARRY ON
(Section 55(2))
A COMPETING
BUSINESS SECTION 36 When a partner leaves the firm he
gets his share of the assets. Such
share generally includes payment for
his share of the goodwill also.
Outgoing partner is presumed to have
sold the goodwill to the remaining
partners and therefore, such
restrictions are applicable to him.
 These restrictions are subject to
contract between the outgoing and
other partners.
1)Similar to business of firm and
2)Which is of competing nature
Ordinarily, An outgoing partner may
RIGHTS TO CARRY ON carry on a business competing with
A COMPETING
BUSINESS SECTION 36 that of the firm and he may advertise
such business’ although subject to
certain restrictions. The remaining
partners may sometimes like to have
greater protection of their interest
rather than merely imposition of
restriction on outgoing partners.
 However any of these rights have been
given to the retired partner only by an
agreement between him and the
continuing partners. If the partners
think that the statutory restrictions are
not sufficient to safeguard the interests
RIGHTS TO CARRY ON of the firm, they may agree that any
A COMPETING partner on ceasing to be a partner will
BUSINESS SECTION 36
not carry on any business similar to that
of firm. This enables the continuing
partners to deprive the retired partner
of his right to compete. Such an
agreement is in restraint of trade and is
ordinarily void under Section 27 of the
Contract Act
 But Section 36 (2) of the Partnership
Act introduces this special exception
and protects the validity of the
agreement if the agreement should
specify either the period or the local
limits of the restraint. The restriction
imposed should be reasonable. A
RIGHTS TO CARRY ON restriction is reasonable if it is not
A COMPETING greater than will afford adequate
BUSINESS SECTION 36
protection to the late partners having
regard to the nature and extent of the
partnership business. A restraint upon a
doctor retiring from a firm of doctors
not to practice within ten miles and for
a period of 2 years have been held to be
reasonable (Whetebill V. Bradford 1952 1
All ER 115).
 Section 36(2), permits an
agreement being made
between the outgoing partner
and the continuing partners
whereby the outgoing partners
RESTRICTION ON
COMPETING BUSINESS
be restrained from carrying on
business similar to that of the
firm. Such an agreement has
been declared to be valid and
constitutes an exception to the
rule under Section 27 of ICA,
which declares an agreement
in restraints of trade is void.
 It is necessary that:
1)The agreement restraining the
outgoing partner from carrying on a
similar business should stipulate that
such a business will not be carried on
for a specified period or within
specified local limits, and
RESTRICTION ON 2) The restrictions imposed should be
COMPETING BUSINESS reasonable.
It means partners can by contract
make restrictions on outgoing partners
that he shall not carry on business
which was competing with the
business of firm and that restriction
must be reasonable. What is
reasonable depends on facts and
circumstances of each case.
 Two persons entered into an agreement to run
an estate agency in partnership. There was a
covenant restraining one of them from
practicing as an estate agent on his own
account, or with other person or company,
within two miles of the partnership premises
and also within two years of the termination of
the partnership. One of the partners left the
partnership and commenced practice as an
RESTRICTION ON estate agent with another agent within the time
COMPETING BUSINESS period and within the given area. The court
enforced the covenant. The court said that the
goodwill of the partnership was a legitimate
interest, which the other partner was entitled to
have protected. The restrictive covenant should
not be describes as a covenant against
competition. The covenant was no more than
was adequate to protect the goodwill of the
partnership (Espley V. Williams 1997 QBEG 137
CA)
 RIGHT OF OUTGOING PARTNER IN
CERTAIN CASES TO SHARE
SUBSEQUENT PROFITS-
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
RIGHT TO SHARE
without any final settlement of accounts as
SUBSEQUENT PROFITS between them and the outgoing partner or his
SECTION 37 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
six per cent. per annum on the amount of his
share in the property of the firm :
 Provided that where by contract between the
partners an option is given to surviving or
continuing partners to purchase the interest of a
deceased or outgoing partner, and that option is
duly exercised, the estate of the deceased
RIGHT TO SHARE partner, or the outgoing partner of his estate, as
SUBSEQUENT PROFITS the case may be, is not entitled to any further or
SECTION 37 other share of profits, but if any partner
assuming to act in exercise of the option does
not in all material respects comply with the
terms thereof, he is liable to account under the
foregoing provisions of this section.
 Section 37 deals with rights of outgoing partners. It
lays down a substantial law relating to a liability of
the surviving or continuing partner, who without a
settlement of accounts with legal representatives of
the deceased partner utilizes the assets of partnership
for continuing the business.
RIGHT TO SHARE
SUBSEQUENT PROFITS Although the principle applicable to such cases is
SECTION 37 clear but at times some complicated questions arise
when disputes are raised between the outgoing
partner or his estate on the one hand and the
continuing or surviving partners on the other in
respect of subsequent business. Such disputes are to
be resolved keeping in view the facts of each case
having regard to section 37.
 Eg A B and C are partners in a manufacture of
machinery. A is entitled to three-eights of the
partnership property and profits. A becomes
bankrupt whereas B and C continue the business
without paying out A’s share of the partnership
assets or settling accounts with his estate. A’s estate
is entitled to three-eighths of the profits made in the
RIGHT TO SHARE business, from the date of his bankruptcy until the
SUBSEQUENT PROFITS final liquidation of the partnership affairs.
SECTION 37
Eg A B and C are partners. C retires after selling his
share in the partnership firm. A and B fail to pay the
value of the share to C as agreed to. The value of the
share of C on the date of his retirement from the firm
would be pure debt from the date on which he ceased
to be a partner as per the agreement entered between
the parties. C is entitled to recover the same with
interest.
 When a partner ceases to be a partner by retirement,
expulsion, insolvency or death his share in the property
of the firm may not be immediately paid to him and the
firm may continue the business without any final
settlement of accounts between the outgoing partner or
his estate and the others.
Section 37 gives an option to the outgoing partner or the
representative of the deceased partner, who has not been
paid his share of the property, either
i) To claim such share of the profits made since he
RIGHT TO SHARE
ceased to be a partner as may be attributable to the
SUBSEQUENT PROFITS use of his share of the property of the firm, or
SECTION 37
ii) To claim an interest at the rate of 6% per annum on
the amount of his share in the property of the firm
This is subject to the contract between the partners to
the contrary.
If an arbitration award grants interest @ 9% p.a. instead
of 6% it is an error apparent on the face of the award and
therefore, this part of the award will not be enforceable.
Nirmalabai v Girjabai 1986 SC
 Where a partner retires from a firm for
any reason whatever, it is the duty of
the remaining partners to pay out the
share of the property and profits to the
retired partner or to his representatives.
But sometimes the continuing partners
do not do either because they are
waiting for a more opportune moment
RIGHT TO SHARE or because they have obtained consent
SUBSEQUENT PROFITS of the party entitled to the share. Either
SECTION 37 way the capital, which should had been
paid out remains in the business with its
earning potential. Thus the party
entitled to any share, may receive
interest at the rate of six percent per
annum on the amount of his share in
the property of the firm (Kota
Sambasiva V. Kota Venkateshwarlu
AIR 1997 AP 331)
 These option can be exercised by the
outgoing partner or on behalf of the
deceased partner when subsequently the
profit are calculated. He can then exercise
this option the way he finds the same to be
more beneficial to him. But once the
option is made it becomes binding on the
person making it.
Where by a contract between the partners,
RIGHT TO SHARE the surviving or the continuing partners
SUBSEQUENT PROFITS purchase the share of the outgoing or the
SECTION 37 deceased partner, the right of sharing
profits is lost. If however, the partner who
was to purchase such share of the outgoing
partner or the deceased partner does not
comply with the terms of the contract of
purchase in all material respects, he is liable
to account for the right of the outgoing or
the deceased partner as stated above.
 A partnership was dissolved by
consent and it was agreed that
the assets of the firm would be
sold by an auction. Even then
one of the partners continued
RIGHT TO SHARE
the business on the partnership
SUBSEQUENT PROFITS
SECTION 37
premises and also with the
capital and assets of the firm. It
was held that he must account
to the other partner for the
profit, which was earned by the
use of his share in the property
(Turner V. Major 1862 Giff 442)
 In P.V.V Reddy V C.C. Reddy AIR 2003
S.C. 1614, the plaintiff had retired from
the firm on 05-04-1971 after selling his
share in the partnership firm. The
Court directed the appointment of
inquiry commission into valuation of
RIGHT TO SHARE his share. It was held that the share of
SUBSEQUENT PROFITS
SECTION 37 the retired partner as to be valued as on
the date he retired and not on the date
of report of the commissioner
submitted after enquiry as to the
valuation of his share of retired partner,
particularly when the firm was
reconstituted with new partners
 The estate of a deceased partner is
entitled to the benefits of any
increase in the value of the
partnership assets taking place after
his death but before the final
realization (Barclays Bank Trust V.
RIGHT TO SHARE
Blutt 1981 3 AER 232 Ch D). The
SUBSEQUENT PROFITS retiring partner does not acquire any
SECTION 37
independent interest in the property
of the firm till the firm is dissolved
and accounts settled. He has a right
to demand settlement but no right to
meddle in the affairs of the business
(RajnikantHamuklal V. Natraj
Theatre AIR 2000 Guj 80).
 REVOCATION OF CONTINUING
GUARANTEE BY CHANGE IN
FIRM-
A continuing guarantee given to a
firm, or to a third party in respect of
the transactions of a firm, is in the
absence of agreement to the contrary,
REVOCATION OF revoked as to future transactions from
CONTINUING
GUARANTEE SECTION
the date of any change in the
38 constitution of the firm.
Thus, Mere changes in the
constitution of the firm operates to
revoke the guarantees as to all future
transactions. Such change may occur
by the death, or retirement of a
partner or by introduction of a new
partner.
 In any contract of guarantee it is necessary
that subsequent to the making of the
contract the terms should not be varied.
Any variance in the terms, without surety’s
consent, discharges the surety from liability
as to future transactions. Similarly, in a
contract of continuing guarantee (Section
129 of ICA) between a partnership firm and
REVOCATION OF any third party it is expected that the
CONTINUING constitution of the firm will remain the
GUARANTEE SECTION same during the continuance of such a
38 contract. If there is a change in the
constitution of the firm either by the
introduction of a new partner to the firm or
by a partner ceasing to be one, any
continuing guarantee, given to the firm or
to the third party in respect of the
transaction of the firm, is automatically
revoked as to future transaction unless
there is an agreement to the contrary.
 The basis of the rule is that when there is
continuing guarantee given to the firm or to the
third party by the firm that is always with the
assumption that the same persons who are
partners at the time of such guarantee, shall
continue to be there for the whole period of
such guarantee. Therefore, such a guarantee
continues to be operative so long as there is no
change in the constitution of the firm, but upon
REVOCATION OF such a change the guarantee is revoked as
CONTINUING regards future transactions.
GUARANTEE SECTION
38 Neel Comul Mookerjee v Bipro Bas Mookerjee
1901, In this case a guarantee was given for the
conduct of the cashier of the firm known as
“NC Mookerji”. Subsequently there was a
change in the constitution of the firm and its
name was also changed to “N Mookerji & Son”.
Held that on this change the guarantee was
revoked and the surety was not liable for the
conduct of the cashier subsequent to such
change.
 A continuing guarantee given to a firm
or to a third person in respect of the
transactions of the firm is revoked as to
future transactions from the date of any
change in the constitution of the firm.
This rule operates when there is no
agreement to the contrary and the
REVOCATION OF
CONTINUING surety has not given his assent to the
GUARANTEE SECTION change. The rule is undoubtedly
38 intended to protect the surety’s interest.
A change in the constitution of the firm
might expose him to new kinds of risk.
A guarantee was not permitted to be
enforced in respect of a liability arising
after one of the partners had withdrawn
from the partnership. Myers v Edge 1797