Indian Partnership Act

1932
Definition
Sec 4 – “Partnership is the
relation between persons who
have agreed to share the profits
of business carried on by all or
any of them acting for all.
Contd-
Persons 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’s
name.
Essentials
There must be a contract
Between two or more persons
Who agree to carry on a business
With the object of sharing profits
The business must be carried on
by all or any of them acting for
all (i.e., there must be mutual
agency)
Duration of Partnership
Partnership at will – No provision
regarding duration of partnership
Particular partnership –
Partnership formed for a specific
venture
An essential character
In case of partnership, no
separate legal entity is created.
A partnership is merely an
extension of mutual
understanding {Association of
individuals}
Modification – Taxation –firm
separate entity for taxation
purposes
Test of Partnership
1. If there is an express contract
– The real relation is ascertained
from the terms of the partnership
contract.
2. If there is no express contract
– The real relation is ascertained
from all the relevant factors such
as contract of parties, books of
accounts, statements of
employees etc
Kinds of Partners
Actual or active partners
Sleeping or dormant partners
Silent partner
Partner in profit only
Sub partner
Partner by estoppel or holding
out
Minor as a partner
Cannot be a full fledged partner
– Since a minor is incapable of
entering into a contract, an
agreement by or with a minor is
void ab intio. Since partnership is
formed by agreement a minor
cannot enter into partnership
agreement.
Contd-
But with the consent of all the
partners can be admitted to the
benefits of partnership
◦ Partnership must be in existence
before a minor can be admitted to
the benefits
◦ There cannot be a partnership
consisting of all minors
◦ If a minor is made a full fledged
partner under the terms of the
partnership deed the deed would be
invalid
Rights of a minor admitted to the benefits of
partnership

Entitled to receive his agreed

share of the property and of the
profits of the firm
Not entitled to take part in
conducting the business of the
firm
liabilities of a minor admitted
to the benefits of partnership
He is liable only to the extent of
his share in the profits and
property of the firm
Not personally liable to third
parties for the debts of the firm
He cannot be declared insolvent.
Contd -
On attaining majority, the minor
must decide within six months
whether he would or would not
like to become a partner in the
firm and give public notice of his
decision. If he remains silent and
fails to give such notice, it will be
presumed that he had elected to
be a partner of the firm
Contd -
Where the minor chooses not to
become a partner
◦ His rights and liabilities continue to
be those of a minor up to the date of
his giving public notice
◦ He is entitled to sue the partners for
his share of the property and profits
in the firm
Rights of partners
Rt to take part in the conduct of
the business
Rt to be consulted
Rt to Access the books of
accounts
Rt to Share in the profits
Rt to Interest on capital
Rt to Interest on advances
Rt to indemnity
Duties
 Absolute duties
◦ Duty to carry on the business to greatest
common advantage
◦ Duty to be just and faithful inter se
◦ Duty to render true accounts
◦ Duty to provide full information
◦ Duty to indemnify for loss caused by fraud
◦ Duty to be liable jointly and severally
◦ Duty not to assign his interest
Contd -
Qualified duties
◦ Duty to attend diligently to his duties
◦ Duty to work without remuneration
◦ Duty to contribute to the losses
◦ Duty to indemnify for willful neglect
◦ Duty to use firm’s property
exclusively for the firm
◦ Duty to account for personal profits
derived
◦ Duty not to compete with the
business of the firm
Doctrine of implied authority
 Every partner is the agent of the firm for the
purposes of the business of the firm.
 The authority of a partner means the
capacity of a partner to bind the firm by his
act.
 This authority may be express or implied.
 Expressly conferred by an agreement –
express authority
 No partnership agreement or where
agreement is silent – implied authority
Contd -
 Flowsfrom the legal relations of the partners
 Founded on the principle of agency
 Subject to following conditions –
◦ Act done by the partner must relate to the
normal or usual business of the firm.
◦ Must be done within the scope of the business
◦ Act must be done in the name of the firm, or in
any other manner expressing or implying an
intention to bind the firm
Contd -
Acts within the implied authority
◦ Engaging servants for partnership
business
◦ Selling the goods of the firm
◦ Borrowing money on the credit of
the firm
◦ Settling accounts with persons
dealing with the firm
Contd -
No implied authority
◦ Submit a dispute relating to the
business of the firm to arbitration
◦ Enter into partnership on behalf of
the firm
◦ Acquire immovable property on
behalf of the firm
◦ Transfer any immovable property on
behalf of the firm
Implied authority and third
parties
Extension and restriction of a
partner’s implied authority (sec
20)– Partner’s in a firm may by
contract between them extend or
restrict the implied authority of
any partner.
◦ Firm continues to be liable to a third
party for any such act which falls
within the scope of the implied
authority of the partner
Contd -
Effect of admissions by the
partner (Sec 23) – Any admission
made by the partner concerning
the affairs of the firm is a
sufficient evidence against the
firm provided the said admission
or representation is made in the
ordinary course of business.
◦ If admission or representation is
made beyond the scope of the
authority the firm will not be bound
by it.
Contd -
Effect of notice to acting partner
(sec 24) –Notice to a partner who
habitually acts in the course of the
business of the firm any matter
relating to the affairs of the firm
operates as notice to the firm
except in case of fraud.
Liability of partner for acts of firm
(sec 25) – Every partner is liable
for all the acts done while he is a
partner
Contd -
 Liability of the wrongful acts of the partner –
(sec 26) Firm is liable to the same extent as
the partner
 Liability of the firm for misapplication (sec
27) – A firm is liable to make good the loss
where-
◦ (a) a partner acting within the scope of his
apparent authority receives the money or
property from a third party and misapplies it:
◦ (b) the firm in the course of its business receives
money or property from a third party and the
same is misapplied by any of the partners while
it is in the custody of the firm
Registration of the firm
Registration of firms is not
mandatory
Time – Registration may take place
at any time during the continuance
of the partnership firm.
Procedure – An application in the
prescribed form along with the
prescribed fee has to be submitted
to the registrar of firms of the state
in which any place of business of
the firm is situated.
Effects of non registration
No suit can be filed in a civil
court by firm against third
parties.
No suit can be filed a partner
against the firm or other
copartners.
The firm or the partners cannot
make a claim of set-off or other
proceedings based upon the
contract.
Dissolution of a partnership firm
Modes of dissolution of the
firm
By agreement
By notice
On happening of certain
contingencies
◦ death of a partner
◦ Adjudication of the partners as
insolvent
Compulsory dissolution
Contd -
Dissolution by court
◦ Grounds
 Insanity of partner
 Permanent incapacity of partners
 Misconduct
 Transfer of interest
 Persistent breach of agreement
 Continuous losses
 Consequences of dissolution
 Continuing liability of partners after
dissolution(with regard to winding up affairs of
the company)
 Continuing authority of partners for winding up
 Right of partners to enforce winding up
 Liability to share personal profits
 Return of premium
 Rt where partnership contract is rescinded for
fraud
 Right to impose restrictions