Part III The Indian Partnership Act, 1932

Chapter 11
Rights, Duties, and Liabilities of Partners
 Learning Objectives

 Rights of Partners
 Duties of Partners
 Liabilities of Partners
 Reconstitution of Partnership Firm

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 Rights of Partners

Unless agreed otherwise, the Act confers the following rights upon the partners of a firm.
1. Right to take part in the conduct of business: Every partner has an inherent right to
take part in the conduct and management of the affairs of the business of the firm.
[Section 12 (a)]
2. Right to be consulted: Every partner has a right to be consulted and heard in all the matters
affecting the business of the firm.
3. Right of access to books: Every partner, whether active or dormant, has a right of access to
all the records, books, and accounts of the business and also to inspect and copy them.
[Section 12 (c)]
4. Right to share profits equally: Every partner, irrespective of the amount of capital
contribution or business expertise, is entitled to a share in the profits of the business equally.
[Section 13 (b)]
5. Right to claim interest on capital: Usually no interest is allowed on the capital contributed by
the partners. But where a partner is entitled through the partnership deed, such interest shall
be payable out of profits. If there are losses, the interest on capital will not be allowed.
[Section 13 (c)]

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 Rights of Partners
6. Right to interest on advances: Where a partner has made, for the purpose of the business, any payment
or advanced some amount as loan to the firm, he will be entitled to interest at a rate agreed upon, and
where no rate is stipulated, at 6 per cent per annum. [Section 13 (9d)]
7. Right to be indemnified: Every partner has a right to be indemnified by the firm in respect of payments
made or liabilities incurred by him . [Section 13 (e)]
8. Right to use partnership property: Every partner is, as a rule, a joint owner of the partnership property
and is entitled to have held and applied exclusively for the purposes of partnership business. [Section 15]
9. Right in emergency: A partner has the power in an emergency to do all such acts as are reasonably
necessary for protecting the firm from losses. [Section 21]
10. Right to prevent admission of a new partner: Every partner is entitled to prevent the admission of a new
partner into the firm without his/her consent. [Section 21]
11. Right to retire: Every partner has a right to retire by giving notice where the partnership is at will, or with
the consent of all the partners in case of a particular partnership. [Section 32 (1) (c)]
12. Right to share profits subsequent to retirement: Unless otherwise agreed, an outgoing partner is entitled
to share profits of the firm or claim interest @ 6 % pa on the amount of his share in the property of the
firm if the other partners continue the business of the firm without any final settlement of accounts with
the outgoing partner. This rule is also applicable in the case of death of a partner. [Section 37]
13. Right to dissolve the firm: A partner has the right to dissolve the partnership with the consent of all the
partners. But where the partnership is at will the firm may be dissolved by any partner giving notice in
writing to all other partners of his intention to dissolve the firm. [Section 40]

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 Duties of Partners
The duties of partners inter-se may broadly be classified into two heads.
1. Absolute duties and 2. Duties subject to agreement by partners.
Absolute duties : These duties are mandatory in nature and are binding on all the partners. These are imposed
by the law and cannot be varied by individual agreements on partnership. Following are the absolute or
mandatory duties of the partners.
1. Duty to carry on firm business to the greatest common advantage [Section 9] Any partnership is based on
the doctrine of mutuality. Hence, each partner must act in good faith and carry on the business of the firm
for mutual benefit and not for solely personal gain.
2. Duty to act in good faith [Section 9] An ideal partnership is based on mutual trust and confidence among the
partners. Every partner should act in good faith and should be just and faithful to other partners. He/she
should not deceive the co-partners by concealment of material facts.
3. Duty to render true accounts [Section 9] A partner is bound to keep and render true, fair, and correct
accounts of the firm to other partners. Each partner should explain all the accounts kept by him to other co-
partners and give true and correct picture of the same.
4. Duty to provide full information [Section 9] This duty is also based on the fundamental principle of utmost
good faith. As an agent of other partners, every partner is bound to communicate full information of all
things affecting the business of the firm to co-partners. Thus, if a partner is in the possession of material
facts related to the partnership affairs, he/she should not conceal that.
5. Duty to indemnify for loss caused by fraud [Section 10] Every partner is bound to make good or compensate
the loss suffered by the firm due to his/her fraud in the conduct of the business of the firm. The object of this
provision is to discourage partners to deal fraudulently in the conduct of the business of the firm.
6. Duty not to transfer ones rights and interests [Section 29] It is the duty of every partner not to assign or
transfer his/her rights and partnership interests to an outsider so as to make that person a partner in the
firm.

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 Duties of Partners
Duties subject to agreement by partners : Subject to agreement among the partners, the Act lays down the
following duties of partners Inter-se:
1. Duty to attend diligently [Section 12 (b)] Every partner is obligated to attend diligently to his/her
duties in the conduct of the business of the firm.
2. Duty to work without remuneration [Section 13 (a)] A partner is not entitled to receive
remuneration for taking part in the conduct of the business.
3. Duty to share losses [Section 13 (b)]. Unless otherwise agreed, every partner is bound to
contribute to the losses equally. An agreement to share profits implies an agreement to bear the
losses as well
4. Duty to hold and use property of the firm exclusively for the firm [Section 15] Subject to contrary
contract between the partners, every partner must hold and use the partnership property
exclusively for the purpose of the business of the firm.
5. Duty to account for personal profits [Section 16 (a)] Every partner must account for and pay back
to the firm any profits derived by him/her for himself/herself from any transaction of the firm, or
from use of the firms property or through business connections of the firm or firm name.
6. Duty to act within authority [Section 19 (1)] Every partner is bound to act within the scope of
his/her actual or apparent authority. If he/she exceeds that authority and other partners do not
ratify it, he/she shall compensate the co-partners for the loss suffered on account of such acts.

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 Liabilities of Partners

1. Liability of partners for acts of the firm .Every partner is liable, jointly with all the partners
and individually for all acts of the firm done while he/she was a partner. This is known as
liability of partners for the acts of the firm. Furthermore, the liability of all the partners is
unlimited. By virtue of joint and several or separate liabilities for every act of the firm, the
third party can sue each partner individually and also jointly with other partners. [Section 25]
Moreover, the act must have been undertaken in the ordinary course of the business of the
firm [Sections 19 (1) and 22].
2. Liability of the firm for wrongful acts of a partner. Where a partner, in the ordinary course of
business, commits a wrongful act and some loss or injury is caused to any third party, the firm
is liable for such an act. The wrongful act may be tort, fraud, or negligence. [Section 26]
Section 10, however, provides protection to the firm in this regard stating that every partner
shall indemnify the firm for any loss caused to it by his fraud in the conduct of the business of
the firm. This implies that such loss will be borne ultimately by the partner committing the
fraud and cannot be shared amongst all the partners. But in case loss is caused to third party
by tort (i.e., breach of duty) or due to negligence on the part of any partner, all the partners
shall be liable thereto.

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 Liabilities of Partners

3. Liability of the firm by misapplication by partners. Where a partner

acting within the scope of his apparent authority receives money or
property from a third party and misapplies it, or a firm in the course of its
business receives money or property from a third party, and that money
or property is misapplied by any of the partners while it is in the custody
of the firm, the partner or the firm, as the case may be, is liable to make
good the loss. [Section 27]
For example, A, B, and C are partners in a business of financing real estate.
X, a client of the firm, repays his loans of50,000 to A who does not
intimate his co-partners about the recovery of the loan and misuses the
money. In this case, X would be discharged of the debts on account of
payment made to A. It is up to the firm whether it initiates any suit against
A to recover the amount held by him.

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Reconstitution of Partnership Firm

Any change in the composition or relations of partners has the

effect of reconstitution of the partnership firm. Reconstitution
takes place in the following circumstances:
1. A new partner is admitted
2. A partner retires
3. A partner is expelled
4. A partner is declared insolvent
5. A partner dies
6. A partner transfers his share in the firm to another person.

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