1

CHANAKYA Batch
THE INDIAN PARTNERSHIP ACT, 1932 DPP

GENERAL NATURE OF PARTNERSHIP

1. Mr. XU and Mr. YU are partners in a partnership 5. “Sharing in the profits is not conclusive evidence in
firm. Mr. XU introduced MU (an employee) as his the creation of partnership”. Comment.
partner to ZU. MU remained silent. ZU, a trader
believing MU as partner supplied 50 Laptops to the 6. What do you mean by "Particular Partnership" under
firm on credit. After expiry of credit period, ZU did the Indian Partnership Act, 1932?
not get amount of Laptop sold to the partnership
firm. ZU filed a suit against XU and MU for the 7. Who is a nominal partner under the Indian
Partnership Act, 1932? What are his liabilities?
recovery of price. Does MU is liable for such
purpose?
8. Business carried on by all or any of them acting for
all." Discuss the statement under the Indian
2. Ms. Lucy while drafting partnership deed taken care Partnership Act, 1932.
of few important points. What are those points? She
wants to know the list of information which must be 9. What is the conclusive evidence of partnership? State
part of partnership deed drafted by her. Also, give the circumstances when partnership is not considered
list of information to be included in partnership deed? between two or more parties.

10. "Whether a group of persons is or is not a firm, or

3. Define partnership and name the essential elements whether a person is or not a partner in a firm." Explain
for the existence of a partnership as per the Indian the mode of determining existence of partnership as
Partnership Act, 1932. Explain any two such per the IndianPartnership Act, 1932?
elements in detail.
11. What do you mean by Goodwill as per the provisions
4. State whether the following are partnerships: of Indian Partnership Act, 1932?
(1) A and B jointly own a car which they used
12. State the differences between Partnership and Hindu
personally on Sundays and holidays and let it Undivided Family.
on hire as taxi on other days and equally divide
the earnings. 13. Explain the following kinds of partnership under the
(2) Two firms each having 12 partners combine by Indian Partnership Act, 1932:
an agreement into one firm. (1) Partnership at will
(3) A and B, co-owners, agree to conduct the (2) Particular partnership
business in common for profit.
(4) Some individuals form an association to which 14. X and Y are partners in a partnership firm. X
introduced A, a manager, as his partner to Z. A
each individual contributes Rs. 500 annually. remained silent. Z, a trader believing A as partner
The objective of the association is to produce supplied 100 T.V sets to the firm on credit. After
clothes and distribute the clothes free to the war expiry of credit period, Z did not get amount of T.V
widows. sets sold to the partnership firm. Z filed a suit against
(5) A and B, co-owners share between themselves X and A for the recovery of price. Advice Z whether
the rent derived from a piece of land. A and B he can recover the amount from X and A under the
Indian Partnership Act, 1932.
buy commodity X and agree to sell the
commodity with sharing the profits equally.
15. Explain the provisions of the Indian Partnership Act,
1932 relating to the creation of Partnership by holding
out.
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Hint and Solution

1. As per Section 28 of Indian Partnership Act, 1932, 6. Capital contribution of each partner.
Partnership by holding out is also known as
partnership by estoppel. Where a man holds himself 7. Profit Sharing ratio of the partners.
out as a partner, or allows others to do it, he is then 8. Admission and Retirement of a partner.
stopped from denying the character he has assumed 9. Rates of interest on Capital, Drawings and
and upon the faith of which creditors may be loans.
presumed to have acted. A person may himself, by 10. Provisions for settlement of accounts in the
his words or conduct have induced others to believe case of dissolution of the firm.
that he is a partner or he may have allowed others to
11. Provisions for Salaries or commissions,
represent him as a partner.The result in both the cases payable to the partners, if any.
is identical.
12. Provisions for expulsion of a partner in case
In the given case, MU (the Manager) is also liable of gross breach of duty or fraud.
for the price because he becomes a partner by
Note: Ms. Lucy may add or delete any provision
holding out as per Section 28 of Indian Partnership
according to the needs of the partnership firm.
Act, 1932.

3. Definition of Partnership: 'Partnership' is the

2. Ms. Lucy while drafting partnership deed must take relation between persons who have agreed to share
care of following important points: the profits of a business carried on by all or any of
• No particular formalities are required for an them acting for all. (Section 4 of the Indian
agreement of partnership. Partnership Act, 1932)

• Partnership deed may be in writing or formed The definition of the partnership contains the
verbally. The document in writing containing following five elements which must co- exist before
the various terms and conditions as to the a partnership can come into existence:
relationship of the partners to each other is 1. Association of two or more persons
called the ‘partnership deed’.
2. Agreement
• Partnership deed should be drafted with care
and be stamped according to the provisions 3. Business
of the Stamp Act, 1899. 4. Agreement to share Profits
• If partnership comprises immovable 5. Business carried on by all or any of them acting for
property, the instrument of partnership must all
be in writing, stamped and registered under ELEMENTS OF PARTNERSHIP
the Registration Act. The definition of the partnership contains the
List of information included in Partnership following five elements which must co- exist before
Deed while drafting Partnership Deed by a partnership can come into existence:
Ms. Lucy:
1. Association of two or more persons: Partnership
1. Name of the partnership firm. is an association of 2 or more persons. Again,only
persons recognized by law can enter into an
2. Names of all the partners. agreement of partnership. Therefore, a firm,
3. Nature and place of the business of the firm. sinceit is not a person recognized in the eyes of
law cannot be a partner. Again, a minor cannot
4. Date of commencement of partnership. be a partner in a firm, but with the consent of all
5. Duration of the partnership firm. the partners, may be admitted to the benefits of
partnership. The Partnership Act is silent about the
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maximum number of partners but Section 464 of of partnership is mutual agency rather than
the Companies Act, 2013 read with the relevant sharing of profits. If the element of mutual
Rules has now put a limit of 50 partners in any agency is absent, then there will be no partnership.
association / partnership firm.
2. Agreement: It may be observed that partnership 4. (i) No, this is not a case of partnership because the
must be the result of an agreement between two or sharing of profits or of gross returns accruing
more persons. There must be an agreement entered
from property holding joint or common interest
into by all the persons concerned. This element
in the property would not by itself make such
relates to voluntary contractual nature of
partnership. Thus, the nature of the partnership is person’s partners.
voluntary and contractual. An agreement from Alternatively, this part can also be answered as
which relationship of Partnership arises may be below:
express. It may also be implied from the act done
by partners and from a consistent course of Yes, this is a case of partnership, as the car
conduct being followed, showing mutual is used personally only on Sundays and
understanding between them. It may be oral or in holidays andused for most of the days as a Taxi.
writing. Hence, it is inferred that the main purpose of
3. Business: In this context, we will consider two owning the car is to let it for business purpose.
propositions. First, there must exist a business. For Also, there is an agreement for equally dividing
the purpose, the term 'business' includes every the earnings.
trade, occupation and profession. The existence of (ii) Yes, this is a case of partnership because there
business is essential. Secondly, the motive of the
is an agreement between two firms to combine
business is the "acquisition of gains" which leads
to the formation of partnership. Therefore, there intoone firm.
can be no partnership where there is no intention (iii) Yes, this is a case of partnership because A &
to carry on the business and to share the profit B, co-owners, have agreed to conduct abusiness
thereof. in common for profit.
4. Agreement to share profits: The sharing of (iv) No, this is not a case of partnership as no
profits is an essential feature of partnership.
charitable association can be floated in
There canbe no partnership where only one of the
partners is entitled to the whole of the profits of partnership. No, this is not a case of
the business. Partners must agree to share the partnership as they are co-owners and not the
profits in any manner they choose. But an partners. Further, thereexist no business.
agreement to share losses is not an essential (v) Yes, this is a case of partnership as there exist
element. It is open to one or more partners to agree the element of doing business and sharing of
to share all the losses. However, in the event of
profitsequally.
losses, unless agreed otherwise, these must be
borne in the profit-sharing ratio.
5. Business carried on by all or any of them acting 5. Sharing of profit is an essential element to constitute
for all: The business must be carried on by all the a partnership. But it is only a prima facie evidence
partners or by anyone or more of the partners and not conclusive evidence, in that regard. The
acting for all. This is the cardinal principle of sharing of profits or of gross returns accruing from
the partnership Law. In other words, there property by persons holding joint or common interest
should be a binding contract of mutual agency in the property would not by itself make such
between the partners. An act of one partner in the
person’s partners. Although the right to participate in
course of the business of the firm is in fact an act
of all partners. Each partner carrying on the profits is a strong test ofpartnership, and there may be
business is the principal as well as the agent for all cases where, upon a simple participation in profits,
the other partners. He is an agent in so far as he there is a partnership, yet whether the relation does or
can bind the other partners by his acts and he is a does not exist must depend upon the whole contract
principal to the extent that he is bound by the act between the parties.
of other partners. It may be noted that the true test
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Where there is an express agreement between partners the agent for all the other partners.He is an agent in
to share the profit of a business and the business is so far as he can bind the other partners by his acts and
being carried on by all or any of them acting for all, he is a principal to the extent that he is bound by the
act of other partners.
there will be no difficulty in the light of provisions of
It may be noted that the true test of partnership is
Section 4, in determining the existence or otherwise
mutual agency. If the element of mutual agency is
of partnership. absent, then there will be no partner ship.
But the task becomes difficult when either there is no In KD Kamath & Co., the Supreme Court has held
specific agreement or the agreement is such as does that the two essential conditions to be satisfied are
not specifically speak of partnership. In such a case that:
for testing the existence or otherwise of partnership (1) there should be an agreement to share the profits
relation, Section 6 has to be referred. as well as the losses of business; and
According to Section 6, regard must be had to the real (2) the business must be carried on by all or any of
them acting for all, within the meaning of the
relation between the parties as shown by all relevant
definition of ‘partnership’ under section 4.
facts taken together. The rule is easily stated and is
The fact that the exclusive power and control, by
clear but its application is difficult. Cumulative effect agreement of the parties, is vested in one partneror
of all relevant facts such as written or verbal the further circumstance that only one partner can
agreement, real intention and conduct of the parties, operate the bank accounts or borrow on behalf of the
other surrounding circumstances., are to be firm are not destructive of the theory of partnership
considered while deciding the relationship between provided the two essential conditions, mentioned
the parties and ascertaining the existence of earlier, are satisfied.
partnership.
9. Conclusive evidence of partnership: Existence of
Hence, the statement is true / correct that mere
Mutual Agency which is the cardinal principle of
sharing in the profits is not conclusive evidence partnership law is very much helpful in reaching a
conclusion with respect to determination of existence
6. Particular partnership: A partnership may be of partnership. Each partner carrying on the business
organized for the prosecution of a single adventure as is the principal as well as an agent of other partners.
well as for the conduct of a continuous business. So, the act of one partner done on behalf of firm,
Where a person becomes a partner with another binds all the partners. If the element of mutual
person in any particular adventure or undertaking, the agency relationship exists between the parties
partnership is called ‘particular partnership’. constituting a group formed with a view to earn
A partnership, constituted for a single adventure or profits by running a business, a partnership may be
undertaking is, subject to any agreement, dissolved deemed to exist.
by the completion of the adventure or undertaking. Circumstances when partnership is not
considered between two or more parties: Various
judicial pronouncements have laid to the following
7. Nominal Partner: A person who lends his name to
factors leading to no partnership between the parties:
the firm, without having any real interest in it, is
called a nominal partner. Liabilities: He is not (i) Parties have not retained any record of terms and
entitled to share the profits of the firm. Neither he conditions of partnership.
invests in the firm nor takes part in the conduct of the (ii) Partnership business has maintained no
business. He is, however liable to third parties for all accounts of its own, which would be open to
acts of the firm. inspection by both parties
(iii) No account of the partnership was opened with
8. Business carried on by all or any of them acting any bank
for all: The business must be carried on by all the (iv) No written intimation was conveyed to the
partners or by anyone or more of the partners acting Deputy Director of Procurement with respect to
for all. In other words, there should be a binding thenewly created partnership.
contract of mutual agency between the partners.
An act of one partner in the course of the business of
the firm is in fact an act of all partners.Each partner
carrying on the business is the principal as well as
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10. Mode of determining existence of partnership 12. Basis of Partnership Joint Hindu family
difference
(Section 6 of the Indian Partnership Act, 1932): In Mode of Partnership is created The right in the joint
determining whether a group of persons is or is not a creation necessarily by an family is created by
firm, or whether a person is or not a partnerin a firm, agreement. status means its
creation by birth in the
regard shall be had to the real relation between the family.
parties, as shown by all relevant facts taken together. Death of a Death of a partner The death of a member
For determining the existence of partnership, it member ordinarily leads to the in the Hindu undivided
dissolution of partnership. family does not give
must be proved. rise to dissolution of the
(1) There was an agreement between all the family business.
persons concerned Management All the partners are equally The right of
entitled to take part in the management of joint
(2) The agreement was to share the profits of a partnership business. family business
business and generally vests in the
Karta, the governing
(3) the business was carried on by all or any of male member or female
them acting for all. member of the family.1
Authority to Every partner can, by his The Karta or the
Agreement: Partnership is created by agreement and bind act, bind the firm. manager, has the
not by status (Section 5). The relation of partnership authority to contract for
arises from contract and not from status; and in the family business and
the other members in
particular, the members of a Hindu Undivided family the family.
carrying on a family business as such are not Liability In a partnership, the In a Hindu undivided
partners in such business. liability of a partner is family, only the
unlimited. liability of the Karta is
Sharing of Profit: Sharing of profit is an essential unlimited, and the other
element to constitute a partnership. But, it is only a coparcener are liable
only to the extent of
prima facie evidence and not conclusive evidence, in their share in the profits
that regard. The sharing of profits orof gross returns of the family business.
accruing from property by persons holding joint or Calling for A partner can bring a suit On the separation of the
common interest in the property would not by itself accounts on against the firm joint family, a member
make such persons partners. Although the right to closure for accounts, provided he is not entitled to ask for
also seeks the account of the family
participate in profits isa strong test of partnership, and dissolution of the firm. business
there may be cases where, upon a simple participation
in profits, there is a partnership, yet whether the Governing A partnership is governed A Joint Hindu Family
relation does or does not exist must depend upon the Law by the Indian Partnership business is governed by
Act, 1932. the Hindu Law.
whole contract between the parties.
Agency: Existence of Mutual Agency which is the
cardinal principle of partnership law, is very much Minor’s In a partnership, a minor In Hindu undivided
capacity cannot become a partner, family business, a
helpful in reaching a conclusion in this regard. Each though he can be admitted minor becomes a
partner carrying on the business is the principal as to the benefits of member of the ancestral
partnership, only with the business by the
well as an agent of other partners. So, the act of one consent of all the partners. incidence of birth. He
partner done on behalf of firm,binds all the partners. does not have to wait
If the elements of mutual agency relationship exist for attaining majority.
between the parties constituting a group formed with Continuity A firm subject to a contract A Joint Hindu family
a view to earn profits by running a business, a between the partners gets has the continuity till it
dissolved by death or is divided. The status of
partnership may be deemed to exist insolvency of a partner. Joint Hindu family is
not thereby affected by
the death of a member.
11. Goodwill: The term “Goodwill” has not been defined
under the Indian Partnership Act, 1932. Section 14 of Number of In case of Partnership Members of HUF who
Members number of members should carry on a business may
the Act lays down that goodwill of a business is to be not exceed 50. be unlimited in number.
regarded as a property of the firm.
Goodwill may be defined as the value of the Share in the In a partnership, each In a HUF, no
reputation of a business house in respect of profits business partner has a defined share coparceners has a
by virtue of an agreement definite share. His
expected in future over and above the normal level of between the partners. interest is a fluctuating
profits earned by undertaking belonging to the same one. It is capable of
class of business. being enlarged by deaths
in the family diminished
by births in the family.
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13. Partnership at will: According to Section 7 of the It is only the person to whom the representation has
Indian Partnership Act, 1932, partnershipat will is a been made and who has acted thereon thathas right to
partnership when: enforce liability arising out of ‘holding out’.
(1) no fixed period has been agreed upon for the You must also note that for the purpose of fixing
duration of the partnership; and liability on a person who has, by representation, led
(2) there is no provision made as to the another to act, it is not necessary to show that he was
determination of the partnership. actuated by a fraudulent intention.
These two conditions must be satisfied before a The rule given in Section 28 is also applicable to a
partnership can be regarded as a partnership at will. former partner who has retired from the firm without
But, where there is an agreement between the giving proper public notice of his retirement. In such
partners either for the duration of the partnership or cases, a person who, even subsequent to the
for the determination of the partnership, the retirement, give credit to the firm on the belief that he
partnership is not partnership at will. was a partner, will be entitled to hold him liable.
Where a partnership entered into for a fixed term is
continued after the expiry of such term, it is to be 15. Partnership by holding out is also known as
treated as having become a partnership at will. partnership by estoppel. Where a man holds himself
A partnership at will may be dissolved by any partner out as a partner, or allows others to do it, he is then
by giving notice in writing to all the other partners of stopped from denying thecharacter he has assumed
his intention to dissolve the same. and upon the faith of which creditors may be
Particular partnership: A partnership may be presumed to have acted.
organized for the prosecution of a singleadventure as A person may himself, by his words or conduct have
well as for the conduct of a continuous business. induced others to believe that he isa partner or he
Where a person becomes a partner with another may have allowed others to represent him as a
person in any particular adventure or undertaking the partner. The result in both the cases is identical.
partnership is called ‘particular partnership’. A Example: X and Y are partners in a partnership firm.
partnership, constituted for a single adventure or X introduced A, a manager, as hispartner to Z. A
undertaking is, subject to any agreement, dissolved remained silent. Z, a trader believing A as partner
by the completion of the adventure or undertaking. supplied 100 T.V sets to the firm on credit. After
expiry of credit period, Z did not get amount of T.V
14. In the given case, along with X, the Manager (A) is sets sold to the partnership firm. Z filed a suit against
also liable for the price because he becomes a partner X and A for the recovery of price. Here, in the given
by holding out (Section 28, Indian Partnership Act, case, A, the Manager is also liable for the price
1932). because he becomes a partner byholding out (Section
28, Indian Partnership Act, 1932).
Partner by holding out (Section 28): Partnership by
holding out is also known as partnership by estoppel. It is only the person to whom the representation has
Where a man holds himself out as a partner, or been made and who has acted thereon that has right
allows others to do it,he is then stopped from denying to enforce liability arising out of ‘holding out’.
the character he has assumed and upon the faith of
which creditors may be presumed to have acted.
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CHANAKYA Batch
RELATIONS OF PARTNERS DPP

16. State the modes by which a partner may transfer his 21. Mr. A (transferor) transfer his share in a partnership
interest in the firm in favour of another person under firm to Mr. B (transferee). Mr. B is not entitled for
the Indian Partnership Act, 1932. What are the rights few rights and privileges as Mr. A (transferor) is
of such a transferee? entitled therefor. Discuss in brief the points for which
Mr. B is not entitled during continuance of
17. Whether a minor may be admitted in the business of partnership?
a partnership firm? Explain the rights of a minor in
the partnership firm.
22. M, N and P were partners in a firm. The firm ordered
JR Limited to supply the furniture. P dies, and M and
18. M/s XYZ & Associates, a partnership firm with X, Y,
N continues the business in the firm's name. The firm
Z as senior partners were engaged in the business of
carpet manufacturing and exporting to foreign did not give any notice about P's death to the public
countries. On 25th August, 2018, they inducted Mr. or the persons dealing with the firm. The furn iture
G, an expert in the field of carpet manufacturing as was delivered to the firm after P's death, fact about
their partner. On 10th January 2020, Mr. G was his death was known to them at the time of delivery.
blamed for unauthorized activities and thus expelled Afterwards the firm became insolvent and failed to
from the partnership by united approval of rest of the pay the price of furniture to JR Limited.
partners. Examine whether action by the partners was
justified or not? What should have the factors to be Explain with reasons:
kept in mind prior expelling a partner from the firm (1) Whether P's private estate is liable for the price
by other partners according to the provisions of the of furniture purchased by the firm?
Indian Partnership Act, 1932?
(2) Whether does it make any difference if JR
19. A, B and C are partners in a firm. As per terms of the Limited supplied the furniture to the firm
partnership deed, A is entitled to 20 percent of the believing that all the three partners are alive?
partnership property and profits. A retires from the
firm and dies after 15 days. B and C continue business 23. Discuss the liability of a partner for the act of the firm
of the firm without settling accounts. Explain the and liability of firm for act of a partner to third parties
rights of A’s legal representatives against the firm as per Indian Partnership Act, 1932.
under the Indian Partnership Act, 1932?

24. Define Implied Authority. In the absence of any

20. Master X was introduced to the benefits of
usage or custom of trade to the contrary, the implied
partnership of M/s ABC & Co. with the consent of all
authority of a partner does not empower him to do
partners. After attaining majority, more than six
certain acts. State the acts which are beyond the
months elapsed and he failed to give a public notice
implied authority of a partner under the provisions of
as to whether he elected to become or not to become
the Indian Partnership Act, 1932?
a partner in the firm. Later on, Mr. L, a supplier of
material to M/s ABC & Co., filed a suit against M/s
ABC & Co. for recovery of the debt due. 25. Mr. M is one of the four partners in M/s XY
In the light of the Indian Partnership Act, 1932, Enterprises. He owes a sum of Rs. 6 crore to his friend
explain: Mr. Z which he is unable to pay on due time. So, he
(1) To what extent X will be liable if he failed to wants to sell his share in the firm to Mr. Z for settling
give public notice after attaining majority? the amount. In the light of the provisions of the Indian
(2) Can Mr. L recover his debt from X? Partnership Act, 1932, discuss each of the following:
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(1) Can Mr. M validly transfer his interest in the 29. What is the provision related to the effect of notice to
firm by way of sale? an acting partner of the firm as per the Indian
(2) What would be the rights of the transferee (Mr. Partnership Act, 1932?
Z) in case Mr. M wants to retire from the firm
after a period of 6 months from the date of 30. Discuss the provisions regarding personal profits
transfer? earned by a partner under the Indian Partnership Act,
1932?
26. Mr. A (transferor) transfer his share in a partnership
firm to Mr. B (transferee). Mr. B is not entitled for 31. “Though a minor cannot be a partner in a firm, he can
few rights and privileges as Mr. A (transferor) is nonetheless be admitted to the benefits of
entitled therefor. Discuss in brief the points for which partnership." Referring to the provisions of the Indian
Mr. B is not entitled during continuance of Partnership Act, 1932, state the rights which can be
partnership? enjoyed by a minor partner.

27. Sohan, Rohan and Jay were partners in a firm. The 32. State the liabilities of a minor partner both:
firm is dealer in office furniture. They have regular
(1) Before attaining majority and
dealings with M/s AB and Co. for the supply of
furniture for their business. On 30th June 2018, one (2) After attaining majority
of the partners, Mr. Jay died in a road accident. The
firm has ordered M/s AB and Co. to supply the 33. State the legal position of a minor partner after
furniture for their business on 25 May 2018, when Jay attaining majority:
was also alive. Now Sohan and Rohan continue the (1) When he opts to become a partner of the same
business in the firm’s name after Jay’s death. The firm.
firm did not give any notice about Jay’s death to the
(2) When he decides not to become a partner.
public or the persons dealing with the firm. M/s AB
and Co. delivered the furniture to the firm on 25 July
2018. The fact about Jay’s death was known to them 34. Mr. M, Mr. N and Mr. P were partners in a firm,
at the time of delivery of goods. Afterwards the firm which was dealing in refrigerators. On 1st October,
became insolvent and failed to pay the price of 2018, Mr. P retired from partnership, but failed to
furniture to M/s AB and Co. Now M/s AB and Co. give public notice of his retirement. After his
has filed a case against the firm for recovery of the retirement, Mr. M, Mr. N and Mr. P visited a trade
price of furniture. With reference to the provisions of fair and enquired about some refrigerators with latest
Indian Partnership Act, 1932, explain whether Jay’s techniques. Mr. X, who was exhibiting his
private estate is also liable for the price of furniture refrigerators with the new techniques was impressed
purchased by the firm? with the interactions of Mr. P and requested for the
visiting card of the firm. The visiting card also
included the name of Mr. P as a partner even though
28. X, Y and Z are partners in a Partnership Firm. They
he had already retired. Mr. X. supplied some
were carrying their business successfully for the past
refrigerators to the firm and could not recover his
several years. Spouses of X and Y fought in ladies
dues from the firm. Now, Mr. X wants to recover the
club on their personal issue and X's wife was hurt
dues not only from the firm, but also from Mr. P.
badly. X got angry on the incident and he convinced
Z to expel Y from their partnership firm. Y was Analyse the above case in terms of the provisions of
expelled from partnership without any notice from X the Indian Partnership Act, 1932 and decide whether
and Z. Considering the provisions of the Indian Mr. P is liable in this situation.
Partnership Act, 1932, state whether they can expel a
partner from the firm. What are the criteria for test of
good faith in such circumstances?
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35. When the continuing guarantee can be revoked under 42. Ram & Co., a firm consists of three partners A, B and
the Indian Partnership Act, 1932? C having one third share each in the firm. According
to A and B, the activities of C are not in the interest
36. Comment on 'the right to expel partner must be of the partnership and thus want to expel C from the
exercised in good faith' under the Indian Partnership firm. Advise A and B whether they can do so quoting
Act, 1932. the relevant provisions of the Indian Partnership Act,
1932.
37. P, Q, R and S are the partners in M/S PQRS & Co., a
partnership firm which deals in trading of Washing
Machines of various brands. Due to the conflict of 43. State the legal consequences of the following as per
views between partners, P & Q decided to leave the the provisions of the Indian Partnership Act, 1932:
partnership firm and started competitive business on (1) Retirement of a partner
31st July, 2019, in the name of M/S PQ & Co.
Meanwhile, R & S have continued using the property (2) Insolvency of a partner
in the name of M/S PQRS & Co. in which P & Q also
has a share.
Based on the above facts, explain in detail the rights 44. A, B and C are partners of a partnership firm carrying
of outgoing partners as per the Indian Partnership on the business of construction of apartments. B who
Act, 1932 and comment on the following: himself was a wholesale dealer of iron bars was
(1) Rights of P & Q to start a competitive business. entrusted with the work of selection of iron bars after
(2) Rights of P & Q regarding their share in property examining its quality. As a wholesaler, B is well
of M/S PQRS & Co.
aware of the market conditions. Current market price
of iron bar for construction is Rs. 350 per Kilogram.
38. Explain in detail the circumstances which lead to
B already had 1000 Kg of iron bars in stock which he
liability of firm for misapplication by partners as per
had purchased before price hike in the market for Rs.
provisions of the Indian Partnership Act, 1932.
200 per Kg. He supplied iron bars to the firm without
the firm realizing the purchase cost. Is B liable to pay
39. What do you mean by “implied authority” of the
the firm the extra money he made, or he doesn’t have
partners in a firm? Point out the extent of partner’s
to inform the firm as it is his own business and he has
implied authority in case of emergency, referring to
not taken any amount more than the current
the provisions of the Indian Partnership Act, 1932.
prevailing market price of Rs. 350? Assume there is
no contract between the partners regarding the above.
40. “Partner indeed virtually embraces the character of
both a principal and an agent”. Describe the said
statement keeping in view of the provisions of the 45. Mr. A (transferor) transfers his share in a partnership
Indian Partnership Act, 1932. firm to Mr. B (transferee). Mr. B felt that the book of
accounts was displaying only a small amount as profit
41. Moni and Tony were partners in the firm M/s MOTO in spite of a huge turnover. He wanted to inspect the
& Company. They admitted Sony as partner in the book of accounts of the firm arguing that it is his
firm and he is actively engaged in day-to-day
entitlement as a transferee. However, the other
activities of the firm. There is a tradition in the firm
that all active partners will get a monthly partners were of the opinion that Mr. B cannot
remuneration of Rs. 20,000 but no express agreement challenge the books of accounts. As an advisor, help
was there. After admission of Sony in the firm, Moni them solve the issue applying the necessary
and Tony were continuing getting salary from the provisions from the Indian Partnership Act, 1932.
firm but no salary was given to Sony from the firm.
Sony claimed his remuneration but denied by existing
partners by saying that there was no express
agreement for that. Whether under the Indian
Partnership Act, 1932, Sony can claim remuneration
from the firm?
 10

46. A, B and C are partners in a firm called ABC Firm. 48. X, Y and Z are partners in a Partnership Firm. They
A, with the intention of deceiving D, a supplier of were carrying their business successfully for the past
office stationery, buys certain stationery on behalf of several years. Due to expansion of business, they
the ABC Firm. The stationery is of use in the ordinary planned to hire another partner Mr A. Now the firm
course of the firm’s business. A does not give the has 4 partners X, Y, Z and A. The business was
stationery to the firm, instead brings it to his own use. continuing at normal pace. In one of formal business
The supplier D, who is unaware of the private use of meeting, it was observed that Mr. Y misbehaved with
stationery by A, claims the price from the firm. The Mrs. A (wife of Mr. A). Mr. Y was badly drunk and
firm refuses to pay for the price, on the ground that also spoke rudely with Mrs. A. Mrs. A felt very
the stationery was never received by it (firm). embarrassed and told her husband Mr. A about the
Referring to the provisions of the Indian Partnership entire incident. Mr. A got angry on the incident and
Act, 1932 decide: started arguing and fighting with Mr. Y in the
Whether the Firm’s contention shall be tenable? meeting place itself. Next day, in the office Mr. A
convinced X and Z that they should expel Y from
What would be your answer if a part of the stationery
their partnership firm. Y was expelled from
so purchased by A was delivered to the firm by him,
partnership without any notice from X, A and Z.
and the rest of the stationery was used by him for
private use, about which neither the firm nor the Considering the provisions of the Indian Partnership
supplier D was aware? Act, 1932, state whether they can expel a partner
from the firm. What are the criteria for test of good
faith in such circumstances?
47. A, B, and C are partners of a partnership firm ABC &
Co. The firm is a dealer in office furniture. A was in
charge of purchase and sale, B was in charge of 49. Mahesh, Suresh and Dinesh are partners in a trading
maintenance of accounts of the firm and C was in firm. Mahesh, without the knowledge or consent of
charge of handling all legal matters. Recently through Suresh and Dinesh borrows himself Rs. 50,000 from
an agreement among them, it was decided that A will Ramesh, a customer of the firm, in the name of the
be in charge of maintenance of accounts and B will firm. Mahesh, then buys some goods for his personal
be in charge of purchase and sale. Being ignorant use with that borrowed money. Can Mr. Ramesh hold
about such agreement, M, a supplier supplied some Mr. Suresh & Mr. Dinesh liable for the loan? Explain
furniture to A, who ultimately sold them to a third the relevant provisions of the Indian Partnership Act,
party. Referring to the provisions of the Partnership 1932.
Act, 1932, advise whether M can recover money from 50. In the absence of any usage or custom of trade to the
the firm. contrary, the implied authority of a partner does not
What will be your advice in case M was having empower him to do certain acts. State the acts which
knowledge about the agreement? are beyond the implied authority of a partner under
the provisions of the Indian Partnership Act, 1932?
 11

Hint and Solution

16. Section 29 of the Indian Partnership Act, 1932 nonetheless be admitted to the benefits of partnership
provides that a share in a partnership is transferable under Section 30 of the Indian Partnership Act, 1932.
like any other property, but as the partnership In other words, he can be validly given a share in the
relationship is based on mutual confidence, the partnership profits. When this has been done and it
assignee of a partner’s interest by sale, mortgage or can be done with the consent of all the partners then
otherwise cannot enjoy the same rights and privileges the rights and liabilities of such a partner will be
as the original partner. governed under Section 30 as follows:
The rights of such a transferee are as follows: Rights:
(1) During the continuance of partnership, such (i) A minor partner has a right to his agreed share of
transferee is not entitled the profits and of the firm.
(a) to interfere with the conduct of the business, (ii) He can have access to, inspect and copy the
(b) to require accounts, or accounts of the firm.
(iii) He can sue the partners for accounts or for
(c) to inspect books of the firm. payment of his share but only when severing his
He is only entitled to receive the share of the profits connection with the firm, and not otherwise.
of the transferring partner and he is bound to accept (iv) On attaining majority, he may within 6 months
the profits as agreed to by the partners, i.e., he cannot elect to become a partner or not to become a
challenge the accounts. partner. If he elects to become a partner, then he
(2) On the dissolution of the firm or on the is entitled to the share to which he was entitled as
retirement of the transferring partner, the a minor. If he does not, then his share is not liable
transferee will be entitled, against the remaining for any acts of the firm after the date of the public
partners: notice served to that effect.
(a) to receive the share of the assets of the firm to
which the transferring partner was entitled, and 18. Expulsion of a Partner (Section 33 of the Indian
(b) for the purpose of ascertaining the share, Partnership Act, 1932):
he is entitled to an account as from the date of • A partner may not be expelled from a firm by a
the dissolution. majority of partners except in exercise, in good
faith, of powers conferred by contract between the
By virtue of Section 31, no person can be introduced
partners.
as a partner in a firm without the consent of all the
• The test of good faith as required under Section
partners. A partner cannot by transferring his own
interest, make anybody else a partner in his place, 33(1) includes three things:
unless the other partners agree to accept that person • The expulsion must be in the interest of the
as a partner. At the same time, a partner is not partnership.
debarred from transferring his interest. A partner’s • The partner to be expelled is served with a notice.
interest in the partnership can be regarded as an • He is given an opportunity of being heard.
existing interest and tangible property which can be • If a partner is otherwise expelled, the expulsion is
assigned. null and void.
• Action by the partners of M/s XYZ & Associates, a
partnership firm to expel Mr. G from the
17. A minor cannot be bound by a contract because a partnership was justified as he was expelled by
minor’s contract is void and not merely voidable. united approval of the partners exercised in good
Therefore, a minor cannot become a partner in a firm faith to protect the interest of the partnership against
because partnership is founded on a contract. Though the unauthorized activities charged against Mr. G.
a minor cannot be a partner in a firm, he can
 12

A proper notice and opportunity of being heard has If the minor becomes a partner by his failure to give
to be given to Mr. G. the public notice within specified time, his rights and
• The following are the factors to be kept in mind liabilities as given in Section 30(7) are as follows:
prior expelling a partner from the firm by other He becomes personally liable to third parties for all
partners: acts of the firm done since he was admitted to the
• the power of expulsion must have existed in a benefits of partnership.
contract between the partners; His share in the property and the profits of the firm
• the power has been exercised by a majority of the remains the same to which he was entitled as a minor.
partners; and it has been exercised in good faith. In the instant case, since, X has failed to give a public
notice, he shall become a partner in the M/s ABC &
19. Section 37 of the Indian Partnership Act, 1932 Co. and becomes personally liable to Mr. L, a third
provides that where a partner dies or otherwise ceases party.
to be a partner and there is no final settlement of In the light of the provisions of Section 30(7) read
account between the legal representatives of the with Section 30(5) of the Indian Partnership Act,
deceased partner or the firms with the property of the 1932, since X has failed to give public notice that he
firm, then, in the absence of a contract to the contrary, has not elected to not to become a partner within six
the legal representatives of the deceased partner or months, he will be deemed to be a partner after the
the retired partner are entitled to claim either. period of the above six months and therefore, Mr. L
Such shares of the profits earned after the death or can recover his debt from him also in the same way
retirement of the partner which is attributable to the as he can recover from any other partner.
use of his share in the property of the firm; or
Interest at the rate of 6 per cent annum on the amount 21. As per Section 29 of Indian Partnership Act, 1932, a
transfer by a partner of his interest in the firm, either
of his share in the property.
absolute or by mortgage, or by the creation by him of
Based on the aforesaid provisions of Section 37 of the a charge on such interest, does not entitle the
Indian Partnership Act, 1932 in the given problem, transferee, during the continuance of the firm, to
A’s Legal representatives shall be entitled, at their interfere in the conduct of business, or to require
option to: accounts, or to inspect the books of the firm, but
entitles the transferee only to receive the share of
the 20% shares of profits (as per the partnership profits of the transferring partner, and the transferee
deed); or shall accept the account of profits agreed to by the
interest at the rate of 6 per cent per annum on the partners.
amount of A’s share in the property. In the given case during the continuance of
partnership, such transferee Mr. B is not entitled:
20. As per the provisions of Section 30(5) of the Indian • to interfere with the conduct of the business.
• to require accounts.
Partnership Act, 1932, at any time within six months
• to inspect books of the firm.
of his attaining majority, or of his obtaining
However, Mr. B is only entitled to receive the share
knowledge that he had been admitted to the benefits of the profits of the transferring partner and he is
of partnership, whichever date is later, such person bound to accept the profits as agreed to by the
may give public notice that he has elected to become partners, i.e. he cannot challenge the accounts.
or that he has elected not to become a partner in the
firm, and such notice shall determine his position as 22. According to Section 35 of the Indian Partnership
regards the firm. Act, 1932, where under a contract between the
However, if he fails to give such notice, he shall partners the firm is not dissolved by the death of a
partner, the estate of a deceased partner is not liable
become a partner in the firm on the expiry of the said
for any act of the firm done after his death.
six months.
Further, 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
 13

notice either to the public or the persons having partners while it is in the custody of the firm, the firm
dealings with the firm. is liable to make good the loss.
In the given question, JR Limited has supplied
furniture to the partnership firm, after P’s death. The 24. According to Section 19 of the Indian Partnership
firm did not give notice about P’s death to public or Act, 1932, subject to the provisions of Section 22, the
people dealing with the firm. Afterwards, the firm act of a partner which is done to carry on, in the usual
became insolvent and could not pay JR Limited. way, business of the kind carried on by the firm, binds
In the light of the facts of the case and provisions of the firm. The authority of a partner to bind the firm
law: conferred by this section is called his “implied
Since the delivery of furniture was made after P’s authority”.
death, his estate would not be liable for the debt of In the absence of any usage or custom of trade to the
the firm. A suit for goods sold and delivered would contrary, the implied authority of a partner does not
not lie against the representatives of the deceased empower him to-
partner. This is because there was no debt due in • submit a dispute relating to the business of the firm
respect of the goods in P’s lifetime. to arbitration;
It will not make any difference even if JR Limited • open a banking account on behalf of the firm in his
supplied furniture to the firm believing that all the own name;
three partners are alive, as it is not necessary to give • compromise or relinquish any claim or portion of a
any notice either to the public or the persons having claim by the firm;
dealings with the firm, so the estate of the deceased • withdraw a suit or proceedings filed on behalf of the
partner may be absolved from liability for the future firm;
obligations of the firm. • admit any liability in a suit or proceedings against
the firm;
23. Liability of a partner for acts of the firm (Section • acquire immovable property on behalf of the firm;
25 of the Indian Partnership Act, 1932): Every • transfer immovable property belonging to the firm;
partner is liable, jointly with all the other partners and and
also severally, for all acts of the firm done while he is • enter into partnership on behalf of the firm.
a partner. The partners are jointly and severally
responsible to third parties for all acts which come
25. A transfer by a partner of his interest in the firm,
under the scope of their express or implied authority.
either absolute or by mortgage, or by the creation by
This is because that all the acts done within the scope
him of a charge on such interest, does not entitle the
of authority are the acts done towards the business of
transferee, during the continuance of the firm, to
the firm.
interfere in the conduct of business, or to require
The expression ‘act of firm’ connotes any act or accounts, or to inspect the books of the firm, but
omission by all the partners or by any partner or agent entitles the transferee only to receive the share of
of the firm, which gives rise to a right enforceable by profits of the transferring partner, and the transferee
or against the firm. Again in order to bring a case shall accept the account of profits agreed to by the
under Section 25, it is necessary that the act of the partners.
firm, in respect of which liability is brought to be
If the firm is dissolved or if the transferring partner
enforced against a party, must have been done while
ceases to be a partner, the transferee is entitled as
he was a partner.
against the remaining partners to receive the share of
Liability of the firm for wrongful acts of a partner and the assets of the firm to which the transferring partner
for misapplication by partners (Sections 26 & 27 of is entitled, and, for the purpose of ascertaining that
the Indian Partnership Act, 1932): Where, - share, to an account as from the date of the
by the wrongful act or omission of a partner in the dissolution.
ordinary course of the business of a firm, or with the In the light of facts of the question and provision of
authority of his partners, loss or injury is caused to law:
any third party, or any penalty is incurred, the firm is
Yes, Mr. M can validly transfer his interest in the firm
liable therefor to the same extent as the partner.
by way of sale.
A partner acting within his apparent authority
On the retirement of the transferring partner (Mr. M),
receives money or property from a third party and
the transferee (Mr. Z) will be entitled, against the
misapplies it, or a firm in the course of its business
remaining partners:
receives money or property from a third party, and
the money or property is misapplied by any of the
 14

to receive the share of the assets of the firm to which the deceased partner may be absolved from liability
the transferring partner was entitled, and for the future obligations of the firm.
for the purpose of ascertaining the share, he is entitled
to an account as from the date of the dissolution. 28. A partner may not be expelled from a firm by a
So, in this case on Mr. M’s retirement, Mr. Z would majority of partners except in exercise, in good faith,
be entitled to receive the value of Mr. M’s share to of powers conferred by contract between the partners.
the extent of Rs. 6 crore in the firm’s assets. It is, thus, essential that:
• the power of expulsion must have existed in a
26. As per Section 29 of Indian Partnership Act, 1932, a contract between the partners;
transfer by a partner of his interest in the firm, either • the power has been exercised by a majority of the
absolute or by mortgage, or by the creation by him of partners; and
a charge on such interest, does not entitle the • it has been exercised in good faith.
transferee, during the continuance of the firm, to If all these conditions are not present, the expulsion
interfere in the conduct of business, or to require is not deemed to be in bonafide interest of the
accounts, or to inspect the books of the firm, but business of the firm
entitles the transferee only to receive the share of • The test of good faith as required under Section
profits of the transferring partner, and the transferee 33(1) includes three things:
shall accept the account of profits agreed to by the
• The expulsion must be in the interest of the
partners.
partnership.
In the given case during the continuance of • The partner to be expelled is served with a notice.
partnership, such transferee Mr. B is not entitled:
He is given an opportunity of being heard.
• to interfere with the conduct of the business. If a partner is otherwise expelled, the expulsion is null
and void.
• to require accounts.
Thus, according to the test of good faith as required
• to inspect books of the firm. under Section 33(1), expulsion of Partner Y is not
valid.
However, Mr. B is only entitled to receive the share
of the profits of the transferring partner and he is 29. Effect of notice to an acting partner of the firm
bound to accept the profits as agreed to by the According to Section 24 of the Indian Partnership
partners, i.e. he cannot challenge the accounts. Act, 1932, notice to a partner who habitually acts in
the business of the firm of any matter relating to the
27. According to Section 35 of the Indian Partnership affairs of the firm operates as notice to the firm,
Act, 1932, where under a contract between the except in the case of a fraud on the firm committed
partners the firm is not dissolved by the death of a by or with the consent of that partner.
partner, the estate of a deceased partner is not liable Thus, the notice to one is equivalent to the notice to
for any act of the firm done after his death. the rest of the partners of the firm, just as a notice to
Further, in order that the estate of the deceased an agent is notice to his principal. This notice must be
partner may be absolved from liability for the future actual and not constructive. It must further relate to
obligations of the firm, it is not necessary to give any the firm’s business. Only then it would constitute a
notice either to the public or the persons having notice to the firm.
dealings with the firm.
In the light of the facts of the case and provisions of 30. Personal Profit earned by Partners (Section 16 of the
law, since the delivery of furniture was made after Indian Partnership Act, 1932)
Jay’s death, his estate would not be liable for the debt According to section 16, subject to contract between
of the firm. A suit for goods sold and delivered would the partners:
not lie against the representatives of the deceased
If a partner derives any profit for himself from any
partner.
transaction of the firm, or from the use of the property
This is because there was no debt due in respect of or business connection of the firm or the firm name,
the goods in Jay’s lifetime. He was already dead he shall account for that profit and pay it to the firm;
when the delivery of goods was made to the firm and
If a partner carries on any business of the same nature
also it is not necessary to give any notice either to the
and competing with that of the firm, he shall account
public or the persons having dealings with the firm
on a death of a partner (Section 35). So, the estate of
 15

for and pay to the firm all profits made by him in that His rights and liabilities continue to be those of a
business. minor up to the date of giving public notice.
His share shall not be liable for any acts of the firm
31. Rights which can be enjoyed by a minor partner: done after the date of the notice.
A minor partner has a right to his agreed share of the He shall be entitled to sue the partners for his share
profits and of the firm. of the property and profits. It may be noted that such
He can have access to, inspect and copy the accounts minor shall give notice to the Registrar that he has or
of the firm. has not become a partner.
He can sue the partners for accounts or for payment
of his share but only when severing his connection 34. A retiring partner continues to be liable to third party
with the firm, and not otherwise. for acts of the firm after his retirement until public
On attaining majority, he may within 6 months elect notice of his retirement has been given either by
to become a partner or not to become a partner. If he himself or by any other partner. But the retired
elects to become a partner, then he is entitled to the partner will not be liable to any third party if the latter
share to which he was entitled as a minor. If he does deals with the firm without knowing that the former
not, then his share is not liable for any acts of the firm was partner.
after the date of the public notice served to that effect. Also, 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
32. Liabilities of a minor partner before attaining
partner without giving a public notice to this effect.
majority:
Also, as per section 28 of the Indian Partnership Act,
The liability of the minor is confined only to the
1932, where a man holds himself out as a partner, or
extent of his share in the profits and the property of
allows others to do it, he is then stopped from denying
the firm.
the character he has assumed and upon the faith of
Minor has no personal liability for the debts of the which creditors may be presumed to have acted.
firm incurred during his minority.
In the light of the provisions of the Act and facts of
Minor cannot be declared insolvent, but if the firm is the case, Mr. P is also liable to Mr. X.
declared insolvent his share in the firm vests in the
Official Receiver/ Assignee.
35. Revocation of continuing guarantee (Section 38 of
Liabilities of a minor partner after attaining majority:
the Indian Partnership Act, 1932)
Within 6 months of his attaining majority or on his
According to section 38, a continuing guarantee
obtaining knowledge that he had been admitted to the
given to a firm or to third party in respect of the
benefits of partnership, whichever date is later, the
transaction of a firm is, in the absence of an
minor partner has to decide whether he shall remain
agreement to the contrary, revoked as to future
a partner or leave the firm.
transactions from the date of any change in the
Where he has elected not to become partner he may constitution of the firm. Such change may occur by
give public notice that he has elected not to become the death, or retirement of a partner, or by
partner and such notice shall determine his position introduction of a new partner.
as regards the firm. If he fails to give such notice, he
shall become a partner in the firm on the expiry of the
said six months 36. A partner may not be expelled from a firm by a
majority of partners except in exercise, in good faith,
of powers conferred by contract between the partners.
33. When he becomes partner: If the minor becomes a It is, thus, essential that:
partner on his own willingness or by his failure to
the power of expulsion must have existed in a
give the public notice within specified time, his rights
contract between the partners;
and liabilities as given in Section 30(7) of the Indian
Partnership Act, 1932, are as follows: the power has been exercised by a majority of the
partners; and
He becomes personally liable to third parties for all
acts of the firm done since he was admitted to the it has been exercised in good faith.
benefits of partnership. If all these conditions are not present, the expulsion
His share in the property and the profits of the firm is not deemed to be in bona fide interest of the
remains the same to which he was entitled as a minor business of the firm.
When he elects not to become a partner:
 16

37. Rights of outgoing partner to carry on competing It may be observed that the workings of the two
business (Section 36 of the Indian Partnership Act, clauses of Section 27 is designed to bring out clearly
1932) an important point of distinction between the two
An outgoing partner may carry on business categories of cases of misapplication of money by
competing with that of the firm and he may advertise partners.
such business, but subject to contract to the contrary, Clause (a) covers the case where a partner acts within
he may not,- his authority and due to his authority as partner, he
• use the firm name, receives money or property belonging to a third party
• represent himself as carrying on the business of the and misapplies that money or property. For this
firm or provision to the attracted, it is not necessary that the
• solicit the custom of persons who were dealing with money should have actually come into the custody of
the firm before he ceased to be a partner. the firm.
Although this provision has imposed some restrictions On the other hand, the provision of clause (b) would
on an outgoing partner, it effectively permits him to be attracted when such money or
carry on a business competing with that of the firm. property has come into the custody of the firm and it
However, the partner may agree with his partners that is misapplied by any of the partners.
on his ceasing to be so, he will not carry on a business The firm would be liable in both the cases
similar to that of the firm within a specified period or
within specified local limits. Such an agreement will not 39. Implied Authority of Partner as Agent of the Firm
be in restraint of trade if the restraint is reasonable (Section 19): Subject to the provisions of section 22,
[Section 36 (2). the act of a partner which is done to carry on, in the
From the above, we can infer that P & Q can start usual way, business of the kind carried on by the firm,
competitive business in the name of M/S PQ & Co after binds the firm.
following above conditions in the absence of any The authority of a partner to bind the firm conferred
agreement. by this section is called his “implied authority”.
Right of outgoing partner in certain cases to share In the absence of any usage or custom of trade to the
subsequent profits (Section 37 of the Indian Partnership contrary, the implied authority of a partner does not
Act, 1932) empower him to-
According to Section 37, where any member of a firm Submit a dispute relating to the business of the firm
has died or otherwise ceasedto be partner, and the to arbitration;
surviving or continuing partners carry on the business
open a banking account on behalf of the firm in his
of the firm with the property of the firm without any
own name;
final settlement of accounts as between them and the
outgoing partner or his estate, then, in the absence of a compromise or relinquish any claim or portion of a
contract to the contrary, the outgoing partner or his claim by the firm;
estate is entitled at the option of himself or his withdraw a suit or proceedings filed on behalf of the
representatives to such share of the profits made since firm;
he ceased to be a partner as may be attributable to the admit any liability in a suit or proceedings against the
use of his share of the property of the firmor to interest firm;
at the rate of six per cent per annum on the amount of acquire immovable property on behalf of the firm;
his share in the property of the firm. transfer immovable property belonging to the firm;
In the instant case, P & Q can share in property of M/s and
PQRS & Co. keeping in view of the above provisions. enter into partnership on behalf of the firm.
Mode Of Doing Act To Bind Firm (Section 22): In
38. Where- order to bind a firm, an act or instrument done or
a partner acting within his apparent authority receives executed by a partner or other person on behalf of the
money or property from a third party and misapplies firm shall be done or executed in the firm name, or in
it, or any other manner expressing or implying an intention
a firm in the course of its business receives money or to bind the firm.
property from a third party, and the money or
property is misapplied by any of the partners while it
is in the custody of the firm, the firm is liable to make
good the loss.
 17

40. “Partner indeed virtually embraces the character the power of expulsion must have existed in a
of both a principal and an agent”: Subject to the contract between the partners;
provisions of section 18 of the Indian Partnership the power has been exercised by a majority of the
Act, 1932, a partner is the agent of the firm for the partners; and
purposes of the business of the firm. It has been exercised in good faith.
A partnership is the relationship between the partners The test of good faith includes:
who have agreed to share the profits of the business
• that the expulsion must be in the interest of the
carried on by all or any of them acting for all (Section
partnership;
4). This definition suggests that any of the partners
can be the agent of the others. • that the partner to be expelled is served with a
notice; and
Section 18 clarifies this position by providing that,
• that the partner has been given an opportunity of
subject to the provisions of the Act, a partner is the
being heard.
agent of the firm for the purpose of the business of
the firm. The partner indeed virtually embraces Thus, in the given case A and B the majority partners
the character of both a principal and an agent. So can expel the partner only if the above conditions are
far as he acts for himself and in his own interest in the satisfied and procedure as stated above has been
common concern of the partnership, he may properly followed.
be deemed as a principal and so far as he acts for his
partners, he may properly be deemed as an agent. 43. RETIREMENT OF A PARTNER (SECTION 32):
The principal distinction between him and a mere A partner may retire:
agent is that he has a community of interest with other with the consent of all the other partners;
partners in the whole property and business and in accordance with an express agreement by the
liabilities of partnership, whereas an agent as such partners; or
has no interest in either. where the partnership is at will, by giving notice in
The rule that a partner is the agent of the firm for the writing to all the other partners of his intention to
purpose of the business of the firm cannot be applied retire.
to all transactions and dealings between the partners
A retiring partner may be discharged from any
themselves. It is applicable only to the act done by
liability to any third party for acts of the firm done
partners for the purpose of the business of the firm.
before his retirement by an agreement made by him
with such third party and the partners of the
41. By virtue of provisions of Section 13(a) of the Indian reconstituted firm, and such agreement may be
Partnership Act, 1932 a partner is not entitled to implied by a course of dealing between the third party
receive remuneration for taking part in the conduct of and the reconstituted firm after he had knowledge of
the business. But this rule can always be varied by an the retirement.
express agreement, or by a course of dealings, in Notwithstanding the retirement of a partner from a
which event the partner will be entitled to firm, he and the partners continue to be liable as
remuneration. Thus, a partner can claim remuneration partners to third parties for any act done by any of
even in the absence of a contract, when such them which would have been an act of the firm if
remuneration is payable under the continued usage of done before the retirement, until public notice is
the firm. In other words, where it is customary to pay given of the retirement:
remuneration to a partner for conducting the business
Provided that a retired partner is not liable to any third
of the firm, he can claim it even in the absence of a
party who deals with the firm without knowing that
contract for the payment of the same.
he was a partner.
In the given problem, existing partners are getting
Notices under sub-section (3) may be given by the
regularly a monthly remuneration from firm
retired partner or by any partner of the reconstituted
customarily being working partners of the firm. As
firm.
Sony also admitted as working partner of the firm, he
is entitled to get remuneration like other partners. Insolvency of a partner (Section 34)
The insolvent partner cannot be continued as a
partner.
42. It is not possible for the majority of partners to expel
a partner from the firm without satisfying the He will be ceased to be a partner from the very date
conditions as laid down in Section 33 of the Indian on which the order of adjudication is made.
Partnership Act, 1932. The essential conditions
before expulsion can be done are:
 18

The estate of the insolvent partner is not liable for the Authority’ [Sub-Section (1) of section 19].
acts of the firm done after the date of order of Furthermore, every partner is in contemplation of law
adjudication. the general and accredited agent of the partnership
The firm is also not liable for any act of the insolvent and may consequently bind all the other partners by
partner after the date of the order of adjudication, his acts in all matters which are within the scope and
Ordinarily but not invariably, the insolvency of a object of the partnership. Hence, if the partnership is
partner results in dissolution of a firm; but the of a general commercial nature, he may buy goods on
partners are competent to agree among themselves account of the partnership.
that the adjudication of a partner as an insolvent will Considering the above provisions and explanation,
not give rise to dissolution of the firm the questions as asked in the problem may be
answered as under:
44. According to section 16 of the Indian Partnership The firm’s contention is not tenable, for the reason
Act, 1932, subject to contract between partners that the partner, in the usual course of the business on
behalf of the firm has an implied authority to bind the
if a partner derives any profit for himself from any
firm. The firm is, therefore, liable for the price of the
transaction of the firm, or from the use of the property
goods.
or business connection of the firm or the firm name,
he shall account for that profit and pay it to the firm; In the second case also, the answer would be the same
as above, i.e. the implied authority of the partner
if a partner carries on any business of the same nature
binds the firm.
as and competing with that ofthe firm, he shall
account for and pay to the firm all profits made by In both the cases, however, the firm ABC can take
him in that business. action against A, the partner but it has to pay the price
of stationery to the supplier D.

In the given scenario, Mr. B had sold iron bar to the 47. According to Section 20 of the Indian Partnership
firm at the current prevailing market rate of Rs. 350 Act, 1932, the partners in a firm may, by contract
per Kg though he had stock with him which he bought between the partners, extend or restrict implied
for Rs. 200 per Kg. Hence, he made an extra profit of authority of any partners.
Rs. 150 per Kg. This is arising purely out of
Notwithstanding any such restriction, any act done by
transactions with the firm. Hence, Mr. B is
a partner on behalf of the firm which falls within his
accountable to the firm for the extra profit earned
implied authority binds the firm, unless the person
thereby with whom he is dealing knows of the restriction or
does not know or believe that partner to be a partner.
45. As per Section 29 of the Indian Partnership Act, The implied authority of a partner may be extended
1932, during the continuance of the business, a or restricted by contract between the partners. Under
transferee is not entitled the following conditions, the restrictions imposed on
• To interfere with the conduct of the business the implied authority of a partner by agreement shall
• To require the accounts be effective against a third party:
• To inspect the books of the firm He is only entitled The third party knows above the restrictions, and
to his share of profit. The third party does not know that he is dealing with
Keeping the above points, in the given case, since the a partner in a firm.
partnership business is in continuance, Mr. B is Now, referring to the case given in the question, M
bound to accept the profits as agreed to by the supplied furniture to A, who ultimately sold them to
partners. He cannot challenge the accounts. He is a third party and M was also ignorant about the
only entitled to receive the share of profits of Mr. A agreement entered into by the partners about the
(transferring partner). change in their role. M also is not aware that he is
dealing with a partner in a firm. Therefore, M on the
46. The problem in the question is based on the ‘Implied basis of knowledge of implied authority of A, can
Authority’ of a partner provided in Section 19 of the recover money from the firm.
Indian Partnership Act, 1932. The section provides But in the second situation, if M was having
that subject to the provisions of Section 22 of the Act, knowledge about the agreement, he cannot recover
the act of a partner, which is done to carry on, in the money from the firm.
usual way, business of the kind carried on by the firm,
binds the firm. The authority of a partner to bind the
firm conferred by this section is called his ‘Implied
 19

48. According to Section 33 of Indian Partnership Act, manner. Mahesh has a right to borrow the money of
1932, a partner may not be expelled from a firm by a Rs. 50,000/- from Ramesh on behalf of his firm in the
majority of partners except in exercise, in good faith, usual manner. Since, Ramesh has no knowledge that
of powers conferred by contract between the partners. the amount was borrowed by Mahesh without the
It is, thus, essential that: consent of the other two partners, Mr. Suresh and Mr.
the power of expulsion must have existed in a Dinesh, he can hold both of them (Suresh and Dinesh)
contract between the partners; liable for the re-payment of the loan.
the power has been exercised by a majority of the
partners; and 50. Implied authority of partner as agent of the firm
it has been exercised in good faith. (Section 19):
If all these conditions are not present, the expulsion Subject to the provisions of section 22, the act of a
is not deemed to be in bonafide interest of the partner which is done to carry on, in the usual way,
business of the firm.
business of the kind carried on by the firm, binds the
The test of good faith as required under Section 33(1)
firm. The authority of a partner to bind the firm
includes three things:
conferred by this section is called his “implied
The expulsion must be in the interest of the
partnership. authority”
The partner to be expelled is served with a notice. In the absence of any usage or custom of trade to the
He is given an opportunity of being heard. contrary, the implied authority of a partner does not
If a partner is otherwise expelled, the expulsion is null empower him to-
and void. (a) Submit a dispute relating to the business of the
According to the test of good faith as required under firm to arbitration;
Section 33(1), expulsion of Partner Y is not valid as (b) open a banking account on behalf of the firm
he was not served any notice and also he was not in his own name;
given an opportunity of being heard. Also the matter
(c) compromise or relinquish any claim or portion
of fight between A and Y was on personal reasons,
hence not satisfying the test of good faith in the of a claim by the firm;
interest of partnership. Since (d) withdraw a suit or proceedings filed on behalf
of the firm;
49. Implied authority of a partner (e) admit any liability in a suit or proceedings
Yes, as per sections 19 and 22 of the Indian against the firm;
Partnership Act, 1932 unless otherwise provided in (f) acquire immovable property on behalf of the
the partnership deed, every partner has an implied firm;
authority to bind every other partner for acts done in (g) transfer immovable property belonging to the
the name of the firm, provided the same falls within firm; and
the ordinary course of business and is done in a usual
(h) enter into partnership on behalf of the firm.
 20

CHANAKYA Batch
Registration and Dissolution of a Firm DPP

51. What is the procedure of registration of a partnership of partnership, the firm continued its operations with
firm under the Indian Partnership Act, 1932? Mr. A and Mr. B as partners. The accounts of the firm
were settled and the amount due to the legal heirs of
Mr. C was also determined on 10th October, 2018.
52. When does dissolution of a partnership firm take
But the same was not paid to the legal heirs of Mr. C.
place under the provisions of the Indian Partnership On 16th October, 2018, Mr. X, a supplier supplied
Act, 1932? Explain. furniture worth Rs. 20,00,000 to M/s ABC & Co. M/s
ABC & Co. could not repay the amount due to heavy
53. “Indian Partnership Act does not make the losses. Mr. X wants to recover the amount not only
registration of firms compulsory nor does it impose from M/s ABC & Co., but also from the legal heirs of
any penalty for non-registration.” In light of the given Mr. C. Analyses the above situation in terms of the
statement, discuss the consequences of non- provisions of the Indian Partnership Act, 1932 and
registration of the partnership firms In India? decide whether the legal heirs of Mr. C can also be
Or held liable for the dues towards Mr. X.
“Indian Partnership Act does not make the
registration of firms compulsory nor does it impose 57. Ram, Mohan and Gopal were partners in a firm.
any penalty for non-registration." Explain. Discuss During the course of partnership, the firm ordered
the various disabilities or disadvantages that a non- Sunrise Ltd. to supply a machine to the firm. Before
registered partnership firm can face in brief? the machine was delivered, Ram expired. The
machine, however, was later delivered to the firm.
Thereafter, the remaining partners became insolvent
54. Subject to agreement by partners, state the rules that and the firm failed to pay the price of machine to
should be observed by the partners in settling the Sunrise Ltd.
accounts of the firm after dissolution under the Explain with reasons:
provisions of the Indian Partnership Act, 1932.
(1) Whether Ram’s private estate is liable for the
price of the machine purchased by the firm?
55. Distinguish between dissolution of firm and (2) Against whom can the creditor obtain a decree
dissolution of partnership. for the recovery of the price?
Or
"Dissolution of a firm is different from dissolution of 58. State the grounds on which Court may dissolve a
Partnership". Discuss partnership firm in case any partner files a suit for the
same.
Or
56. Mr. A. Mr. B and Mr. C were partners in a partnership
What are the various grounds under the Indian
firm M/s ABC & Co., which is engaged in the
Partnership Act, 1932, on which the Court may, at the
business of trading of branded furniture. The name of
suit of the partner, dissolve a firm?
the partners was clearly written along with the firm
name in front of the head office of the firm as well as
on letter-head of the firm. On 1st October, 2018, Mr. 59. Referring to the Provisions of the Indian Partnership
C passed away. His name was neither removed from Act, 1932, answer the following:
the list of partners as stated in front of the head office (1) What are the consequences of Non-Registration
nor from the letter-heads of the firm. As per the terms of Partnership firm?
 21

(2) What are the rights which won't be affected by price. State under the provisions of the Indian
Non-Registration of Partnership firm? Partnership Act, 1932;
60. A & Co. is registered as a partnership firm in 2015 (1) Whether M/s LMN & Company can file the suit
with A, B and C partners. In 2016, A dies. In 2017, B against M/s XYZ & Company?
and C sue X in the name and on behalf of A & Co., (2) What would be your answer, in case M/s XYZ
without fresh registration. Decide whether the suit is & Company is a registered firm while M/s LMN
maintainable. Whether your answer would be same if & Company is an unregistered firm?
in 2017 B and C had taken a new partner D and then
(3) What would be your answer, in case M/s XYZ
filed a suit against X without fresh registration?
& Company is an unregistered firm while M/s
LMN & Company is a registered firm?
61. P, X, Y and Z are partners in a registered firm A &
Co. X died and P retired. Y and Z filed a suit against
63. MN partnership firm has two different lines of
W in the name and on behalf of firm without
manufacturing business. One line of business is the
notifying to the Registrar of firms about the changes
manufacturing of Ajinomoto, a popular seasoning &
in the constitution of the firm. Is the suit
taste enhancer for food. Another line of business is
maintainable?
the manufacture of paper plates & cups. One fine day,
a law is passed by the Government banning
62. M/s XYZ & Company is a partnership firm. The firm Ajinomoto’ use in food and to stop its manufacturing
is an unregistered firm. The firm has purchased some making it an unlawful business because it is injurious
iron rods from another partnership firm M/s LMN & to health. Should the firm compulsorily dissolve
Company which is also an unregistered firm. M/s under the Indian Partnership Act, 1932? How will its
XYZ & Company could not pay the price within the other line of business (paper plates & cups) be
time as decided. M/s LMN & Company has filed the affected?
suit against M/s XYZ & Company for recovery of
 22

Hint and Solution

51. (SECTION 58): (1) The registration of a firm may be Dissolution of a Firm may take place (Section 39 - 44)
affected at any time by sending by post or delivering as a result of any agreement between all the partners
to the Registrar of the area in which any place of
(i.e., dissolution by agreement);
business of the firm is situated or proposed to be
situated, a statement in the prescribed form and by the adjudication of all the partners, or of all the
accompanied by the prescribed fee, stating- partners but one, as insolvent (i.e., compulsory
dissolution);
(a) The firm’s name
(b) The place or principal place of business of the by the business of the Firm becoming unlawful (i.e.,
firm, compulsory dissolution);

(c The names of any other places where the firm subject to agreement between the parties, on the
carries on business, happening of certain contingencies, such as:
(d) the date when each partner joined the firm, effluence of time; (ii) completion of the venture for
(e) the names in full and permanent addresses of the which it was entered into; (iii) death of a partner; (iv)
partners, and insolvency of a partner.

(f) the duration of the firm. by a partner giving notice of his intention to dissolve
the firm, in case of partnership at will and the firm
The statement shall be signed by all the partners, or
being dissolved as from the date mentioned in the
by their agents specially authorised in this behalf.
notice, or if no date is mentioned, as from the date of
Each person signing the statement shall also verify it the communication of the notice; and
in the manner prescribed.
by intervention of court in case of: (i) a partner
A firm name shall not contain any of the following
becoming the unsound mind; (ii) permanent
words, namely:-
incapacity of a partner to perform his duties as such;
Note: ‘Crown’, Emperor’, ‘Empress’, ‘Empire’, (iii) Misconduct of a partner affecting the business;
‘Imperial’, ‘King’, ‘Queen’, ‘Royal’, or words (iv) willful or persistent breach of agreement by a
expressing or implying the sanction, approval or partner; (v) transfer or sale of the whole interest of a
patronage of Government except when the State partner; (vi) improbability of the business being
Government signifies its consent to the use of such carried on save at a loss;
words as part of the firm-name by order in writing.
the court being satisfied on other equitable grounds
that the firm should be dissolved.
52. Dissolution of Firm: The Dissolution of Firm means
the discontinuation of the jural relation existing
between all the partners of the Firm. But when only 53. Under the English Law, the registration of firms is
one of the partners retires or becomes in capacitated compulsory. Therefore, there is a penalty for non-
from acting as a partner due to death, insolvency or registration of firms. But the Indian Partnership Act
insanity, the partnership, i.e., the relationship does not make the registration of firms compulsory
between such a partner and other is dissolved, but the nor does it impose any penalty for non-registration.
rest may decide to continue. In such cases, there is in However, under Section 69, non-registration of
practice, no dissolution of the firm. The particular partnership gives rise to a number of disabilities
partner goes out, but the remaining partners carry on which we shall presently discuss. Although
the business of the Firm. In the case of dissolution of registration of firms is not compulsory, yet the
the firm, on the other hand, the whole firm is consequences or disabilities of non-registration have
dissolved. The partnership terminates as between a persuasive pressure for their registration. These
each and every partner of the firm. disabilities briefly are as follows:
 23

No suit in a civil court by firm or other co-partners in paying to each partner rateably what is due to him
against third party: The firm or any other person on on account of capital; and the residue, if any, shall be
its behalf cannot bring an action against the third divided among the partners in the proportions in
party for breach of contract entered into by the firm, which they were entitled to share profits.
unless the firm is registered and the persons suing are
or have been shown in the register of firms as partners 55.
in the firm. In other words, a registered firm can only
file a suit against a third party and the persons suing
S. Basis of Dissolution of Dissolution of
have been in the register of firms as partners in the
No. Difference Firm Partnership
firm.
No relief to partners for set-off of claim: If an
1. Continuati It involves It does not affect
action is brought against the firm by a third party,
on of discontinuation continuation of
then neither the firm nor the partner can claim any
business of business in business. It
set-off, if the suit be valued for more than Rs. 100 or
partnership. involves only
pursue other proceedings to enforce the rights arising
reconstitution of
from any contract.
the firm.
Aggrieved partner cannot bring legal action against
other partner or the firm: A partner of an unregistered
firm (or any other person on his behalf) is precluded 2. Winding It involves It involves only
from bringing legal action against the firm or any up winding up of reconstitution
person alleged to be or to have been a partner in the the firm and and requires only
firm. But such a person may sue for dissolution of the requires revaluation of
firm or for accounts and realization of his share in the realization of assets and
firm’s property where the firm is dissolved. assets and liabilities of the
settlement of firm.
Third party can sue the firm: In case of an
liabilities.
unregistered firm, an action can be brought against
the firm by a third party.
3. Order of A firm may be Dissolution of
court dissolved by partnership is not
54. Mode of Settlement of partnership accounts: As
the order of the ordered by the
per Section 48 of the Indian Partnership Act, 1932, in
court. court.
settling the accounts of a firm after dissolution, the
following rules shall, subject to agreement by the
partners, be observed:- 4. Scope It necessarily It may or may
Losses, including deficiencies of capital, shall be paid involves not involve
first out of profits, next out of capital, and, lastly, if dissolution of dissolution of
necessary, by the partners individually in the partnership. firm.
proportions in which they were entitled to share
profits; 5. Final It involves It does not
The assets of the firm, including any sums closure of final closure of involve final
contributed by the partners to make up deficiencies of books books of the closure of the
capital, must be applied in the following manner and firm. books of the
order: firm.
in paying the debts of the firm to third parties;
in paying to each partner rateably what is due to him
from capital;
 24

56. Generally, the effect of the death of a partner is the 58. Dissolution by the Court (Section 44 of the Indian
dissolution of the partnership, but the rule in regard Partnership Act, 1932)
to the dissolution of the partnership, by death of Court may, at the suit of the partner, dissolve a firm
partner, is subject to a contract between the parties on any of the following ground:
and the partners are competent to agree that the death Insanity/unsound mind: Where a partner (not a
of one will not have the effect of dissolving the sleeping partner) has become of unsound mind, the
partnership as regards the surviving partners unless court may dissolve the firm on a suit of the other
the firm consists of only two partners. In order that partners or by the next friend of the insane partner.
the estate of the deceased partner may be absolved Temporary sickness is no ground for dissolution of
from liability for the future obligations of the firm, it firm.
is not necessary to give any notice either to the public
Permanent incapacity: When a partner, other than
or the persons having dealings with the firm.
the partner suing, has become in any way
In the light of the provisions of the Act and the facts permanently incapable of performing his duties as
of the question, Mr. X (creditor) can have only a partner, then the court may dissolve the firm. Such
personal decree against the surviving partners (Mr. A permanent incapacity may result from physical
and Mr. B) and a decree against the partnership assets disability or illness etc.
in the hands of those partners. A suit for goods sold Misconduct: Where a partner, other than the partner
and delivered would not lie against the suing, is guilty of conduct which is likely to affect
representatives of the deceased partner. Hence, the prejudicially the carrying on of business, the court
legal heirs of Mr. C cannot be held liable for the dues may order for dissolution of the firm, by giving
towards Mr. X. regard to the nature of business. It is not necessary
that misconduct must relate to the conduct of the
57. Partnership Liability: The problem in question is business.
based on the provisions of the Indian Partnership Act, The important point is the adverse effect of
1932 contained in Section 35. The Section provides misconduct on the business. In each case nature of
that where under a contract between the partners the business will decide whether an act is misconduct or
firm is not dissolved by the death of a partner, the not.
estate of a deceased partner is not liable for any act of Persistent breach of agreement: Where a partner
the firm done after his death. Therefore, considering other than the partner suing, willfully or persistently
the above provisions, the problem may be answered commits breach of agreements relating to the
as follows: management of the affairs of the firm or the conduct
Ram’s estate in this case will not be liable for the of its business, or otherwise so conduct himself in
price of the Machinery purchased. This is because matters relating to the business that it is not
there was not debt due in respect of the goods in reasonably practicable for other partners to carry on
Ram’s life time. the business in partnership with him, then the court
may dissolve the firm at the instance of any of the
The creditors in this case can have only a personal
partners. Following comes in to category of breach of
decree against the surviving partners and decree
contract:
against the partnership assets in the hands of those
partners. However, since the surviving partners are • Embezzlement,
already insolvent, no suit for recovery of the debt • Keeping erroneous accounts
would lie against them. A suit for goods sold and • Holding more cash than allowed
delivered would not lie against the representative of • Refusal to show accounts despite repeated
the deceased partner request etc.
Example If one of the partners keeps erroneous
accounts and omits to enter receipts or if there is
continued quarrels between the partners or there is
such a state of things that destroys the mutual
 25

confidence of partners, the court may order for firm or any person alleged to be or to have been a
dissolution of the firm. partner in the firm.
Transfer of interest: Where a partner other than the Third-party can sue the firm: In case of an
partner suing, has transferred the whole of his interest unregistered firm, an action can be brought against
in the firm to a third party or has allowed his share to the firm by a third party.
be charged or sold by the court, in the recovery of Non-registration of a firm does not, however, affect
arrears of land revenue due by the partner, the court the following rights:
may dissolve the firm at the instance of any other The right of third parties to sue the firm or any
partner. partner.
Continuous/Perpetual losses: Where the business of The right of partners to sue for the dissolution of the
the firm cannot be carried on except at a loss in future firm or for the settlement of the accounts of a
also, the court may order for its dissolution. dissolved firm, or for realization of the property of a
Just and equitable grounds: Where the court dissolved firm.
considers any other ground to be just and equitable The power of an Official Assignees, Receiver of
for the dissolution of the firm, it may dissolve a firm. Court to release the property of the insolvent partner
The following are the cases for the just and equitable and to bring an action.
grounds-
The right to sue or claim a set-off if the value of suit
Deadlock in the management. does not exceed Rs. 100 in value.
Where the partners are not in talking terms between
them.
60. As regards the question whether in the case of a
Loss of substratum. registered firm (whose business was carried on after
Gambling by a partner on a stock exchange. its dissolution by death of one of the partners), a suit
can be filed by the remaining partners in respect of
59. Consequences of Non-registration of partnership any subsequent dealings or transactions without
firm: notifying to the Registrar of Firms, the changes in the
Under Section 69 of the Indian Partnership Act, 1932 constitution of the firm, it was decided that the
non-registration of partnership gives rise to a number remaining partners should sue in respect of such
of disabilities. Though registration of firms is not subsequent dealings or transactions even though the
compulsory, yet the consequences or disabilities of firm was not registered again after such dissolution
non-registration have a persuasive pressure for their and no notice of the partner was given to the
registration. Following are the consequences: Registrar.
No suit in a civil court by firm or other co-partners The test applied in these cases was whether the
against third party: The firm or any other person on plaintiff satisfied the only two requirements of
its behalf cannot bring an action against the third Section 69 (2) of the Act namely,
party for breach of contract entered into by the firm. the suit must be instituted by or on behalf of the firm
No relief to partners for set-off of claim: If an which had been registered;
action is brought against the firm by a third party, the person suing had been shown as partner in the
then neither the firm nor the partner can claim any register of firms. In view of this position of law, the
set-off, if the suit be valued for more than Rs. 100 or suit is in the case by B and C against X in the name
pursue other proceedings to enforce the rights arising and on behalf of A & Co. is maintainable.
from any contract. Now, in 2017, B and C had taken a new partner, D,
Aggrieved partner cannot bring legal action and then filed a suit against X without fresh
against other partner or the firm: A partner of an registration. Where a new partner is introduced, the
unregistered firm (or any other person on his behalf) fact is to be notified to Registrar who shall make a
is precluded from bringing legal action against the record of the notice in the entry relating to the firm in
the Register of firms. Therefore, the firm cannot sue
as D’s (new partner’s) name has not been entered in
 26

the register of firms. It was pointed out that in the third party to file suit against the unregistered firm or
second requirement, the phrase “person suing” means its partners.
persons in the sense of individuals whose names On the basis of above, M/s LMN & Company cannot
appear in the register as partners and who must be all file the suit against M/s XYZ & Company as M/s
partners in the firm at the date of the suit. LMN & Company is an unregistered firm.
In case M/s XYZ & Company is a registered firm
61. As regards the question whether in the case of a while M/s LMN & Company is an unregistered firm,
registered firm (whose business was carried on after the answer would remain same as in point a) above.
its dissolution by death of one of the partners), a suit In case M/s LMN & Company is a registered firm, it
can be filed by the remaining partners in respect of can file the suit against M/s XYZ & Company.
any subsequent dealings or transactions without
notifying to the Registrar of Firms, the changes in the
63. According to Section 41 of the Indian Partnership
constitution of the firm, it was decided that the
Act, 1932, a firm is compulsorily dissolved;
remaining partners should sue in respect of such
by the adjudication of all the partners or of all the
subsequent dealings or transactions even though the
partners but one as insolvent, or
firm was not registered again after such dissolution
and no notice of the partner was given to the by the happening of any event which makes it
Registrar. unlawful for the business of the firm to be carried on
or for the partners to carry it on in partnership.
The test applied in these cases was whether the
plaintiff satisfied the only two requirements of However, where more than one separate adventure or
Section 69 (2) of the Act namely, undertaking is carried on by the firm, the illegality of
one or more shall not of itself cause the dissolution of
the suit must be instituted by or on behalf of the firm
the firm in respect of its lawful adventures and
which had been registered;
undertakings.
the person suing had been shown as partner in the
Here, MN has to compulsorily dissolve due to
register of firms. In view of this position of law, the
happening of law which bans the usage of ajino moto.
suit is in the case is maintainable.
Else the business of the firm shall be treated as
unlawful.
62. According to provisions of Section 69 of the Indian
However, the illegality of ajino moto business will in
Partnership Act, 1932 an unregistered firm cannot file
no way affect the legality or dissolution of the other
a suit against a third party to enforce any right arising
line of business (paper plates & cups). MN can
from contract, e.g., for the recovery of the price of
continue with paper plates and cup manufacture.
goods supplied. But this section does not prohibit a

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