INDIAN PARTNERSHIP ACT, 1932
UNDERSTAND WITH THE EXAMPLE
• A is a goldsmith. He agrees
with B to buy and provide
gold to B for making
ornaments. They plan to sell
the ornaments and share
the profit.
Question- What is the
relationship of A & B?
• Both A and B are
carpenters. They decide to
work together. But they
have an argument under
which A will keep all the
profits and pay B a pre-
determined salary.
 BASICS OF PARTNERSHIP

• PARTNERSHIP = is the relation between persons who have

agreed to share the profits of a business carried on by all/any
of them acting for all
• PARTNER = person who have entered into partnership with
one another are called individually ‘partners’ and collectively
‘a firm’ and the name under which their business is carried on
is called the ‘firm name’
 ELEMENTS OF PARTNERSHIP

Association of 2 or Agreement to share

Agreement
more persons profits

Business carried on by all or any of them

Business
acting for all
 TYPES OF PARTNERS

1. Active Partner
2. Sleeping/Dormant Partner
3. Nominal Partner
4. Partners in Profit
5. Partner by Estoppel/ Holding Out
6. Sub-Partner
7. Secret Partner
8. Minor as a Partner
 TYPES OF PARTNERS

1. Active Partner-
• takes active part in the day-to-day working of the business
• may act in different capacities such as manager, organiser,
adviser and controller of all the affairs of the firm
• also be called a working partner
 TYPES OF PARTNERS

2. Sleeping/Dormant Partner-
• one who contributes capital, shares profits and contributes to
the losses of the business but does not take part in the
working of the concern.
•  Sleeping partner is liable for the liabilities of the business like
other partners
• He cannot bind the business, i.e., firm, to third parties, by his
acts
• He is not known to the public as a partner
3. Nominal Partner-
• Partner is one who lends his name to the firm
• He does not contribute any capital nor does he shares profits
of the business
• He is known as a partner to the third parties
• On the strength of his name, the business may get more
credit in the market or may promote its sales. 
•  A nominal partner is liable to those third parties who give
credit to the firm on the assumption of that person being a
partner in the firm.
4. Partners in Profit-
• A person may become a partner for sharing the profit only
• He contributes capital and is also liable to third parties like
other partners
• He is not allowed to take part in the management of the
business.
• Such partners are associated for their money and goodwill.
5. Partner by Estoppel/ Holding Out-
• When a person is not a partner but poses himself as a partner,
either by words or in writing or by his acts, he is called a
partner by estoppel or by holding out.
• A partner by estoppel or by holding out shall be liable to
outsiders who deal with the firm on the presumption of that
person being a partner in the business even though he is not a
partner and does not contribute anything to the business.
6. Secret Partner-
• The position of a secret partner lies between active and
sleeping partner
• His membership of the firm is kept secret from outsiders
• His liability is unlimited and he is liable for the losses of the
business
• He can take part in the working of the business.
 DUTIES OF PARTNERS

Sections Duties
9 Duty of absolute good faith

16 (b) Duty not to compete

12 (b) Duty to due diligence
and 13 (f)
10 Duty to indemnify fraud

9 Duty to render true accounts

15 and Proper use of Property

16 (a)
16 Duty to account for personal profits
 CASE LAWS

Duty to absolute good faith-

Bently v Craven ( 1853)
• A partner in a firm of sugar refiners , who had great skill in
buying sugar at the right time, was entrusted to buy sugar for
the firm. He supplied sugar from his personal stock, which he
had bought earlier when the price were low.
• He charged the prevailing market price and thus made a
considerable profit .
• When his co-partners discovered this, they brought an action
from an account of the profit. The first was held entitled to
that profit.
 CASE LAWS

Duty not to compete-

Pulin v. Mahendra (1921)
• A Partnership was founded between certain persons for
importing salt from foreign countries and to resell the same in
Chittagong.
• One of the partners, while operating to buy salt for the firm,
bought some quantity for himself and resold on his personal
account.
• He was held liable to account for this profit to his co-partners,
as the opportunity to make it came his way while he was on
the business of the firm
 CASE LAWS

A partner may, however, carry on any personal work which is

outside the scope of the partnership business. Below
mentioned case is an illustration of this principle-
Aas v. Benham (1891) 2 Ch –
• A partner in a firm of ship-broker helped the formation of a
company for building ships. In so doing he used information
which he had acquired as a member of the firm.
• He received remuneration for his service and subsequently
joined the company as a director at a salary. He was sued for
an account of these earnings.
• But was held not liable as the formation of a company and the
business of a ship- building company were something entirely
beyond the scope of the partnership.
 CASE LAWS

Duty to due diligence-

Section 12(b)
In order to supplement this provision section 13(f) provides:
A partner shall indemnify the firm for any loss caused to it by his
wilful neglect in the conduct of the business of the firm
Negligence- absence of care according to circumstances and
wilful negligence has been described as “culpable negligence”
Cragg v Ford
The plaintiff and the defendant were in business in partnership.
Their business was in dissolution. The defendant being the
managing partner, the conduct of dissolution was left to him.
 Cragg v Ford
continued….
• He was advised by the plaintiff to dispose of immediately
certain bales of cotton which constituted a part of the
company’s assets.
• By that time prices of cotton went down materially and the
goods realized much less than they would have done
otherwise.
Question: whether this loss was due to “wilful neglect of the
defendant?
Decision: The court held that it was not. The defendant had no
reason to anticipate the sudden fall in prices.
The principle of this case has been followed by the Patna High
Court in Sasthi Kenkar v Man Gobinda
 RIGHTS OF PARTNERS

SECTIONS RIGHTS

12 (a) Right to take part in business

13 (c) Majority Rights

12 (d) Access to books

13 (e) Right to indemnity

13 (b) Right to profits

13 (a) Right to remuneration

13 (c and d) Right to interest on capital

 DOCTRINE OF HOLDING OUT/ PARTNERS BY
HOLDING OUT
• Holding out = application of the principle of Estoppel which is
a rule of evidence wherein a person is prevented or
‘estopped’ from denying a statement he made or existence of
facts that he makes another person believe.

• Holding out refers to course of action or omission that leads

others to believe that once possesses an authority which in
fact one does not.
 DOCTRINE OF HOLDING OUT IN INDIAN
PARTNERSHIP ACT, 1932
• If a person represnts that he is a partner of a particular firm,
he is estopped from denying this representation later on .
• Section 28 of the IPA, 1932 says that a person is held liable as
a partner by holding out if :
a. He represented himself or knowingly allowed himself to be
represented as a partner
b. May be spoken or written words, by conduct or knowingly
permitting others to make such representation by words or
conduct
c. The other party on the faith of such representation gave
credit to the firm
 EXAMPLE

• Akshay and Ankur are partners in a firm. Another person

Anuksha manages the firm on their behalf; places all the
orders, makes the payments due etc.
• If Anuksha places an order, Akshay and Ankur will have to pay
for the same as they have allowed Anuksha to function as a
partner and did not inform the suppliers or the customers
that Anuksha was only a manager.
• But a person who is aware that Anisshka is not a paprtner
cannot sue Akshay and Ankur to make good losses incurred
by dealing with Anushka.
 EXAMPLE

A introduced B as his partner to C. and B even after knowing

that he is not a partner let A misrepresentation him and C
believing on this fact make a deal or transaction with A.
B now hence cannot get back and will be liable in the capacity of
being a partner though he is not by estoppel and will be
liable by holding out to C
 EXPLANATION
• A Partner by holding out is lable to the person giving credit, to
make good the loss which any third party may suffer.
• However, he does not acquire any claim over the firm.
• A person does not become a liable for compensation to the
third party whom he induced as a partner by holding out and
caused such man loss or injury.
• The real partner of the firm are safe unless the partner by
holding out has acted on their orders or with their consent.
 CASE LAWS
Scarf v Jardine 1882

• Importance of notice of retirement was highlighted.

• A partner must give notice of his retirement from a firm the same way the
notice of a new member to the firm is made to the public so that the
people know about his status or rather the absence of participation of
such retiring person in the firm.
• Otherwise, he might be treated as partner by holding out no matter how
long back he retired from the firm without notice.

• Thus, the liability of a retired partner to old creditors or customers

continues till a notice of his retirement is given.
• Similarly, the firm will also be liable for the retired partner, should just a
situation arise, if the notice has not been given. It is immatirial whether
the retiring partner gives the notice or the other partners
 EXCEPTIONS

1. Death of a partner constitutes sufficient notice by itself

2. Insolvency of a partner is also sufficient notice and attracts
section 42 of the Indian Partnership Act, 1932
3. If one has been dormant or sleeping from beginning to end,
notice can be dispensed with as neither the customers nor
the clients know of his participation in the firm
 REGISTRATION OF FIRMS
PROCEDURE OF REGISTRATION
The Partnership Act authorises the State Government to
appoint Registrars for the purpose of registering partnership
firms. Office of the Registrar of Firms exists in every State.
Filing an application with the Registrar:
– Prescribed Form
– Accompanied by prescribed fee
1. Name of the firm
2. Place/Principal place of business
3. Names of any other places where the firm carries on business
4. Date when each partner joined the firm
5. Name in full and permanent address of the partners
6. Duration of the firm
 REGISTRATION OF FIRMS
PROCEDURE OF REGISTRATION
The application form should be
• Signed and verified by each partner/duly authorised agent
• If any partner refuses to sign then the firm can be registered only
by dropping the name of the said partner. (Where name of a
partner was not shown in the Register of Firms on the date of
filing of suit, the suit was not maintainable – Bombay High Court)
• Upon the Registrar being satisfied that all requirements for
registration have been complied with, the registration of the firm
is undertaken and its name entered in the Register of Firms and
a certificate of registration is issued by the Registrar duly signed
by him/her.
 REGISTRATION OF FIRMS
PROCEDURE OF REGISTRATION
Change of Particulars [S.60]
60. Recording of alterations in firm name and principal place of business – Statement may
be sent to the Registrar duly signed by all partners and accompanied by prescribed fee.
Any change of name or of the location of the principal place of business required almost an new
registration and, therefore, statement to that effect signed by all the partners and accompanied by
the prescribed fee should be sent to the Registrar. There is no time-limit prescribed for filing the
particulars. The Registrar cannot reject them only on account of delay. Attempt by some State
Legislatures to prescribe a time-limit has been prevented by courts (Harijan Boat House v Registrar of
Firms, AIR 1988 Guj 168, Maharashtra State)

When the business of the firm is discontinued at one place or extended to a new place#, or when a
partner changes his name or permanent address* or when the firm is dissolved$, or a partner
resigns or joins, or a minor having been admitted, elects to become or not to become a partner,
the Registrar should be informed.

# Sec.61(90 days prescribed in Maharashtra)

* Sec 62 (90 days in Maharashtra)

$ The Registrar has no power to make an entry that a firm is dissolved, he can only make a record of the notice. Durga Prasad v Registrar of Firms, AIR 1966 Cal 573
 REGISTRATION OF FIRMS
PROCEDURE OF REGISTRATION
Penalty for False Particulars [S.70]
The statements in the application form or amending forms
and in notices sent to the Registrar should be true and
complete. In case of false or incomplete information he is
liable to a penalty which may extend to three months of
imprisonment or fine or both.