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The partnership Act 1932
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Page 1
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 State the differences between Partnership and Hindu Undivided Family.
(RTP May’ 18/ MT Nov’ 19))

Partnership Hindu Undivided Family

Partnership is created necessarily The right in the joint family is
by an agreement. created by status means its
creation by birth in the family.
Death of a partner ordinarily leads The death of a member in the
to the dissolution of partnership. Hindu undivided family does not
give rise to dissolution of the
family business.
All the partners are equally The right of management of joint
entitled to take part in the family business generally vests in
partnership business. the Karta, the governing male or
female member of the family.
Every partner can, by his act, bind The Karta or the manager has the
the firm. authority to contract for the
family business and the other
members in the family.
In a partnership, the liability of a In a Hindu undivided family, only
partner is unlimited. the liability of the Karta is
unlimited, and the other
copartners are liable only to the
extent of their share in the profits
of the family business.

Page 2
Partnership Hindu Undivided Family
A partner can bring a suit against On the separation of the joint
the firm for accounts, provided he family, a member is not entitled
also seeks the dissolution of the to ask for account of the family
firm. business.
A partnership is governed by the A Joint Hindu Family business is
Indian Partnership Act, 1932. governed by the Hindu Law.
In a partnership, a minor cannot In Hindu undivided family
become a partner, though he can business, a minor becomes a
be admitted to the benefits of member of the ancestral business
partnership, only with the consent by the incidence of birth. He does
of all the partners. not have to wait for attaining
majority.
A firm subject to a contract A Joint Hindu family has the
between the partners gets continuity till it is divided. The
dissolved by death or insolvency status of Joint Hindu family is not
of a partner. thereby affected by the death of a
member.
In case of Partnership number of Members of HUF who carry on a
members should not exceed 50 business may be unlimited in
number.

Page 3
 P
“ artner indeed virtually embraces the character of both a principal and an agent”.
Describe the said statement keeping in view of the provisions of the Indian
Partnership Act, 1932. (RTP May’ 20)

Subject to the provisions of section 18 of the Indian Partnership Act, 1932, a

partner is the agent of the firm for the purposes of the business of the firm. As per section 4,
partnership is the relationship between the partners who have agreed to share the profits of
the business carried on by all or any of them acting for all. The definition clearly suggests
that any of the partners can be the agent of the others.
So far as a partner acts for himself and in his own interest in the common concern of the
partnership, he may properly be deemed as a principal and so far as he acts for his partners,
he may properly be deemed as an agent. The partner indeed virtually embraces the character
of both a principal and an agent.
The principal distinction between him and a mere agent is that he has a community of interest
with other partners in the whole property and business and liabilities of partnership, whereas
an agent as such has no interest in either.
The rule that a partner is the agent of the firm for the purpose of the business of the firm
cannot be applied to all transactions and dealings between the partners themselves. It is
applicable only to the act done by partners for the purpose of the business of the firm.

Page 4
 What is the conclusive evidence of partnership? State the circumstances when
partnership is not considered between two or more parties. (May’ 18/ MT Nov’
19)

The cardinal principle of partner, mutual agency is the conclusive evidence of

partner. Existence of this principle helps to decide whether two or more persons are partners
or not. Each partner carrying on the business is the principal as well as an agent of other
partners. So, the act of one partner done on behalf of firm, binds all the partners. If the
element of mutual agency relationship exists between the parties constituting a group formed
with a view to earn profits by running a business, a partnership is deemed to exist.

Circumstances when partnership is not considered between two or more parties:

Various judicial pronouncements have laid to the following factors leading to no partnership
between the parties:
i. Parties have not retained any record of terms and conditions of partnership.
ii. Partnership business has maintained no accounts of its own, which would be open to
inspection by both parties.
iii. No account of the partnership was opened with any bank
iv. No written intimation was conveyed to the Deputy Director of Procurement with
respect to the newly created partnership.

Page 5
 "Business carried on by all or any of them acting for all." Discuss the statement
under the Indian Partnership Act, 1932.(Jan’ 21)

The business must be carried on by all the partners or by anyone or more of the
partners acting for all. In other words, there should be a binding 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 the
agent for all the other partners. He is an agent in so far as he can bind the other partners by
his acts and he is a principal to the extent that he is bound by the act of other partners. The
true test of partnership is mutual agency. If the element of mutual agency is absent, then there
will be no partnership.

In KD Kamath & Co., the Supreme Court has held that the two essential conditions to be
satisfied are that:

i. there should be an agreement to share the profits as well as the losses of business; and
ii. the business must be carried on by all or any of them acting for all, within the meaning
of the definition of ‘partnership’ under section 4. The fact that the exclusive power
and control, by agreement of the parties, is vested in one partner or the further
circumstance that only one partner can operate the bank accounts or borrow on behalf
of the firm are not destructive of the theory of partnership provided the two essential
conditions, mentioned earlier, are satisfied.

Page 6
 Explain the following kinds of partnership under the Indian Partnership Act, 1932:
i. Partnership at will (RTP May’ 20)/ (Nov’ 20)
ii. Particular partnership (RTP May’ 20)/ (Jan 21)

Partnership at will: According to Section 7 of the Indian Partnership Act, 1932,

partnership at will is a partnership when:
i. no fixed period has been agreed upon for the duration of the partnership; and
ii. there is no provision made as to the determination of the partnership.
These two conditions must be satisfied before a partnership can be regarded as a partnership
at will.
A partnership at will may be dissolved by any partner by giving notice in writing to all the
other partners of his intention to dissolve the same.

Particular partnership: A partnership may be organized for the prosecution of a single

adventure as well as for the conduct of a continuous business. Where a person becomes a
partner with another person in any particular adventure or undertaking the partnership is
called ‘particular partnership’. A partnership, constituted for a single adventure or
undertaking is, subject to any agreement, dissolved by the completion of the adventure or
undertaking.

Page 7
 X and Y are partners in a partnership firm. X introduced A, a manager, as his
partner to Z. A remained silent. Z, a trader believing A as partner supplied 100 T.V
sets to the firm on credit. After expiry of credit period, Z did not get amount of
T.V sets sold to the partnership firm. Z filed a suit against X and A for the
recovery of price. Advice Z whether he can recover the amount from X and A
under the Indian Partnership Act, 1932. (RTP Nov’ 19)

As per the provisions of the Partnership Act, 1932 if a partner of the firm
represents another as a partner to third party even though he is not a partner and such person
does not deny it, then he is a partner by estoppels or holding out. If the third party contracts
with the firm believing that the person represented is a partner then such partner by estoppels
shall be liable for the contract and his liability shall be severe.
In the above case X and Y are partners of the firm. X introduced A, manager, as a partner to
Z and A remained silent. Z sold 100 TV sets to the firm on credit and the firm did not pay. As
A is a partner by estoppel he shall also be laible for the contract and his liability shall be sever
i.e., extend to the whole contract.
Thus Z can recover the money from X and A.

Page 8
 Who is a nominal partner under the Indian Partnership Act, 1932? What are his
liabilities?(Jan’ 21)

A person who lends his name to the firm, without having any real interest in it, is
called a nominal partner.

Liabilities: He is not entitled to share the profits of the firm, neither he invests in the firm nor
takes part in the conduct of the business. He is, however liable to third parties for all acts of the
firm.

Page 9
 State the legal position of a minor partner after attaining majority:
i. When he opts to become a partner of the same firm.
ii. When he decide not to become a partner.

A minor cannot become a partner of the firm however he can be admitted to the
benefits of the firm. On attaining majority the minor shall within 6 months from the day he
attains majority or the day he comes to know he was a beneficiary whichever is later he must
give a notice to the registrar and a public notice of whether he wants to become a partner or
not. If he fails to give notice he shall automatically become the partner of the firm.
i. If the minor becomes a partner on his own willingness or by his failure to give the
public notice within specified time, his rights and liabilities as given in Section 30 of
the Indian Partnership Act, 1932, are as follows:
a) He becomes personally liable to third parties for all acts of the firm done since
he was admitted to the benefits of partnership.
b) His share in the property and the profits of the firm remains the same to which
he was entitled as a minor.
ii. When the minor elects not to become a partner:
a) His rights and liabilities continue to be those of a minor up to the date of giving
public notice.
b) His share shall not be liable for any acts of the firm done after the date of the
notice.
c) He shall be entitled to sue the partners for his share of the property and profits.
It may be noted that such minor shall give notice to the Registrar that he has or
has not become a partner.

Page 10
 T
“ hough a minor cannot be a partner in a firm, he can nonetheless be admitted
to the benefits of partnership.”
i. Referring to the provisions of the Indian Partnership Act, 1932, state the
rights which can be enjoyed by a minor partner.
ii. State the liabilities of a minor partner both:
a) Before attaining majority and
b) After attaining majority. (MT Mar’ 19)/ (Nov’ 18)/ (MT May’ 20)/
(MT)

U/s 30 of the Partnership Act, 1932 a minor can become a beneficiary of the firm.
i. A minor when admitted to the benefits of the firm shall have the following rights:
a) A minor partner has a right to his agreed share of the profits and of the firm.
b) He can have access to, inspect and copy the accounts of the firm.
c) He can sue the partners for accounts or for payment of his share but only when
severing his connection with the firm, and not otherwise.
d) On attaining majority, he may within 6 months elect to become a partner or not
to become a partner. If he elects to become a partner, then he is entitled to the
share to which he was entitled as a minor. If he does not, then his share is not
liable for any acts of the firm after the date of the public notice served to that
effect.

ii. a) Liabilities of a minor partner before attaining majority:

i. The liability of the minor is confined only to the extent of his share in the
profits and the property of the firm.
ii. Minor has no personal liability for the debts of the firm incurred during his
minority.
iii. Minor cannot be declared insolvent, but if the firm is declared insolvent his
share in the firm vests in the Official Receiver/Assignee.

b) Liabilities of a minor partner after attaining majority: Within 6 months of his

attaining majority or on his obtaining knowledge that he had been admitted to the
benefits of partnership, whichever date is later, the minor partner has to decide
whether he shall remain a partner or leave the firm.
Where he has elected not to become partner he may give public notice that he has
elected not to become partner and such notice shall determine his position 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.

Page 11
 Master X was introduced to the benefits of partnership of M/s ABC & Co. with
the consent of all partners. After attaining majority, more than six months elapsed
and he failed to give a public notice as to whether he elected to become or not to
become 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. In the
light of the Indian Partnership Act, 1932, explain:
i. To what extent X will be liable if he failed to give public notice after
attaining majority?
ii. Can Mr. L recover his debt from X? (Nov’ 19)

As per the provisions of Section 30of the Indian Partnership Act, 1932, a minor
can be admitted to the benefits of the firm. At any time within six months of his attaining
majority, or of his obtaining knowledge that he had been admitted to the benefits of
partnership, whichever date is later, such person may give public notice that he has elected to
become or that he has elected not to become a partner in the firm, and such notice shall
determine his position 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.
If the minor becomes a partner by his failure to give the public notice within specified time,
his rights and liabilities as given in Section 30(7) are as follows:
a) He becomes personally liable to third parties for all acts of the firm done since he was
admitted to the benefits of partnership.
b) His share in the property and the profits of the firm remains the same to which he was
entitled as a minor.
In the above case X was introduced to the benefits of partnership of M/s ABC & Co. After
attaining majority he failed to give notice. Since X has failed to give a public notice, he shall
become a partner in the firm. Mr. L, a supplier filed a case againstbthe firm for recovery of
debt.
Thus
i. X will be personally liable to Mr. L.
ii. Mr. L can recover his debt from X in the same way as he can recover from any other
partner.

Page 12
 What do you mean by Goodwill as per the provisions of Indian Partnership
Act,1932? (Nov’ 19)

The term “Goodwill” has not been defined under the Indian Partnership Act, 1932.
Section 14 of the Act states that the goodwill of a business shall be regarded as a property of
the firm. Goodwill may be defined as the value of the reputation of a business house in respect
of profits expected in future over and above the normal level of profits earned by undertaking
belonging to the same class of business.

Page 13
 Discuss the provisions regarding personal profits earned by a partner under the
Indian Partnership Act, 1932? (Nov’ 19)

According to section 16, subject to contract between the partners:

a) If a partner derives any profit for himself from any transaction of the firm, or from the
use of the property or business connection of the firm or the firm name, he shall
account for that profit and pay it to the firm.
b) If a partner carries on any business of the same nature and competing with that of the
firm, he shall account for and pay to the firm all profits made by him in that business.

Page 14
 "W hether a group of persons is or is not a firm, or whether a person is or not a
partner in a firm." Explain the mode of determining existence of partnership as
per the Indian Partnership Act, 1932? (Nov’ 19)

In determining whether a group of persons is or is not a firm, or whether a person

is or not a partner in a firm, regard shall be had to the real relation between the parties, as
shown by all relevant facts taken together.
For determining the existence of partnership, it must be proved.
i. There was an agreement between all the persons concerned
ii. The agreement was to share the profits of a business and
iii. The business was carried on by all or any of them acting for all.
Partnership is created by agreement and not by status. The relation of partnership arises
from contract and not from status; and in particular, the members of a Hindu Undivided
family carrying on a family business as such are not partners in such business.
Sharing of profit is an essential element to constitute a partnership. But, it is only a prima
facie evidence and not conclusive evidence, in that regard. The sharing of profits or of gross
returns accruing from property by persons holding joint or common interest in the property
would not by itself make such persons partners. Although the right to participate in profits is
a strong test of partnership, and there may be cases where, upon a simple participation in
profits, there is a partnership, yet whether the relation does or does not exist must depend
upon the whole contract between the parties.
Existence of Mutual Agency which is the cardinal principle of partnership is conclusion
evidence of existence of partnership. Each partner carrying on the business is the principal as
well as an agent of other partners. So, the act of one partner done on behalf of firm, binds all
the partners. If the elements of mutual agency relationship exist between the parties
constituting a group formed with a view to earn profits by running a business, a partnership is
deemed to exist.

Page 15
 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
maintenance of accounts of the firm and C was in charge of handling all legal
matters. Recently through an agreement among them, it was decided that A will
be in charge of maintenance of accounts and B will be in charge of purchase and
sale. Being ignorant about such agreement, M, a supplier supplied some
furniture to A, who ultimately sold them to a third party. Referring to the
provisions of the Partnership Act, 1932, advise whether M can recover money
from the firm.
What will be your advice in case M was having knowledge about the
agreement? (MT Aug’ 18)/ (MT Mar’ 19)/ (MT May’ 20)/ (MT)

According to Section 20 of the Indian Partnership Act, 1932, the partners in a firm
may, by contract between the partners, extend or restrict implied authority of any partners.
Any act done by a partner on behalf of the firm which falls within his implied authority binds
the firm, unless the person with whom he is dealing knows of the restriction or does not
know or believe that partner to be a partner.
The implied authority of a partner may be extended or restricted by contract between the
partners. Under the following conditions, the restrictions imposed on the implied authority of
a partner by agreement shall be effective against a third party:
1. The third party knows above the restrictions, and
2. The third party does not know that he is dealing with a partner in a firm.

In the above case A, B and C are partners of the firm which deals in office furniture. A was
in charge of purchase and sale, B in charge of maintenance and C in charge of handling legal
matters. They agreed that henceforth A will be in charge of maintenance and B would be in
charge of sales and purchase. M a supplier of furniture who was not aware of this agreement
supplied some furniture to A who sold it to a third party. As M was not aware of the change
in authority he shall not be bound by such agreement.

Thus M can recover the money from the firm.

On the other hand if M was aware of the change in the authority of the partners he shall also
be bound by the terms of the agreement and cannot recover the money from the firm.

Page 16
 In the absence of any usage or custom of trade to the contrary, the implied
authority of a partner does not empower him to do certain acts. State the acts which
are beyond the implied authority of a partner under the provisions of the Indian
Partnership Act, 1932? (MT Aug’ 18)

As per section 19 of the Indian Partnership Act, 1932 any act done by the partner
as an agent if done in the usual course of the business shall bind the firm. The authority of a
partner to bind the firm is called his “implied authority”
In the absence of any usage or custom of trade to the contrary, the implied authority of a
partner does not empower him to-
i. Submit a dispute relating to the business of the firm to arbitration;
ii. Open a banking account on behalf of the firm in his own name;
iii. Compromise or relinquish any claim or portion of a claim by the firm;
iv. Withdraw a suit or proceedings filed on behalf of the firm;
v. Admit any liability in a suit or proceedings filed on behalf of the firm;
vi. Acquire immovable property on behalf of the firm;
vii. Transfer immovable property belonging to the firm; and
viii. Enter into partnership on behalf of the firm.

Page 17
 Explain in detail the circumstances which lead to liability of firm for
misapplication by partners as per provisions of the Indian Partnership Act, 1932.
(Nov’ 20)/ (RTP May’ 21)

As per section 27 of Indian Partnership Act, 1932,where-

a) a partner acting within his apparent authority receives money or property from a third
party and misapplies it, or
b) a firm in the course of its business receives money or 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.
Clause (a) covers the case where a partner acts within his authority and due to his authority as
a partner, he receives money or property belonging to a third party and misapplies that money
or property. For this provision to be attracted, it is not necessary that the money should have
actually come into the custody of the firm. On the other hand, the provision of clause (b)
would be attracted when such money or property has come into the custody of the firm and it
is misapplied by any of the partners. The firm would be liable in both the cases.

Page 18
 A, B and C are partners in a firm called ABC Firm. A, with the intention of
deceiving D, a supplier of office stationery, buys certain stationery on behalf of
the ABC Firm. The stationery is of use in the ordinary course of the firm’s
business. A does no t give the stationery to the firm, instead brings it to his own
use. The supplier D, who is unaware of the private use of stationery by A,
claims the price from the firm. The firm refuses to pay for the price, on the
ground that the stationery was never received by it (firm). Referring to the
provisions of the Indian Partnership Act, 1932 decide:
i. Whether the Firm’s contention shall be tenable?
ii. What would be your answer if a part of the stationery so purchased by A
was delivered to the firm by him, and the rest of the stationery was used
by him for private use, about which neither the firm nor the supplier D
was aware? (MT Oct’ 18)

As per section 19 of the Indian Partnership Act, 1932 the implied authority of the
partner binds the firm for any act done by him in the usual course of the business. In the eyes
of law every partner id the general and accredited agent of the partnership and may
consequently bind all the other partners by his acts in all matters which are within the scope
and object of the partnership. Hence, if the partnership is of a general commercial nature, he
may buy goods on account of the partnership. If the partner does any act in the name of the
firm and in the ordinary course of the business the firm shall be liable even if the firm had not
enjoyed the benefit of such contract. However the frm can recover it from the partner who
had contracted in the firm’s name.
In the above case A, B and C are partners of a firm. A with an intent to deceive D contracts
with D to purchase stationery in the name of the firm. This order to purchase was in the usual
course of the business for the firm. A uses the stationer for his personal use. D claims the
money from the firm and the firm refuses to pay on the grounds that the stationery was never
used by the firm. As the act of A was done in the usual course of the business it shall be
binding on the firm even thought the goods were never used by the firm.
i. The firm’s contention is not tenabl e, for the reason that the partner, in the usual course
of the business on behalf of the firm has an implied authority to bind the firm. The
firm is, therefore, liable for the price of the goods.
ii. In the second case also, the answer would be the same as above, i.e. the implied
authority of the partner binds the firm.
In both the cases, however, the firm ABC can take action against A, the partner but it has to
pay the price of stationery to the supplier D.

Page 19
 What do you mean by “implied authority” of the partners in a firm? Point out
the extent of partner’s implied authority in case of emergency, referring to the
provisions of the Indian Partnership Act, 1932. (RTP May’ 19)

As per section 19 of the Indian Partnership Act,1932 the act of a partner which is
done to carry on, in the 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 authority”. In the absence of any usage or custom of trade to the contrary, the
implied authority of a partner does not empower him to-
a) Submit a dispute relating to the business of the firm to arbitration;
b) open a banking account on behalf of the firm in his own name;
c) compromise or relinquish any claim or portion of a claim by the firm;
d) withdraw a suit or proceedings filed on behalf of the firm;
e) admit any liability in a suit or proceedings against the firm;
f) acquire immovable property on behalf of the firm;
g) transfer immovable property belonging to the firm; and
h) enter into partnership on behalf of the firm.

As per section 21 a partner has an authority, in an emergency, to do all such acts for the
purpose of protecting the firm from loss as would be done by a person of ordinary prudence,
in his own case, acting under similar conditions, and such acts shall bind the firm.

Page 20
 Mahesh, Suresh and Dinesh are partners in a trading firm. Mahesh, without the
knowledge or consent of Suresh and Dinesh borrows himself Rs. 50,000 from
Ramesh, a customer of the firm, in the name of the firm. Mahesh, then buys some
goods for his personal use with that borrowed money. Can Mr. Ramesh hold Mr.
Suresh & Mr. Dinesh liable for the loan? Explain the relevant provisions of the
Indian Partnership Act,1932. (MT Nov’ 19)

As per the provisions of the Indian Partnership Act,1932 unless otherwise

provided in the partnership deed, every partner has an implied authority to bind every other
partner for acts done in the name of the firm, provided the same falls within the ordinary
course of business and is done in a usual manner.
In the above case Mahesh, Suresha dn Dinesh are partners of a firm. Mahesh without the
consent of others borrows 50,000 from Ramesh on behalf of the firm. As the act is donwe in
the usual course of the firm, it is binding on the firm.
So Ramesh can also hold Suresh and Dinesh liable even though the loan was taken without
their consent.

Page 21
 What is the provision related to the effect of notice to an acting partner of the
firm as per the Indian Partnership Act, 1932? (Nov’ 19)

According to Section 24 of the Indian Partnership Act, 1932, notice to a partner

who habitually acts in the business of the firm of any matter relating to the affairs of the firm
operates as notice to the firm, except in the case of a fraud on the firm committed by or with
the consent of that partner.
Thus, the notice to one is equivalent to the notice to the rest of the partners of the firm, just as
a notice to an agent is notice tqo his principal. This notice must be actual and not constructive.

Page 22
 Whether a minor may be admitted in the business of a partnership firm? Explain
the rights of a minor in the partnership firm. (RTP May’ 18)/ (MT Oct’ 18)

A minor is incompetent to contract and any contract with a minor is

void-ab-initio. It was also held in the case of Mohiri Bibi V Dharmodas Ghosh that a minor
shall not have any contractual capacity and hence a contract with a minor shall be void. Any
agreement between two or more persons to enter into a partnership is a contract and a minor
cannot enter into a contract. Thus a minor cannot be admitted in the business of partnership
firm because the partnership is formed on a contract.
However section 30 of the Partnership Act, 1932 states that a minor cannot be a partner of the
firm however he can be admitted to the benefits of the firm with the consent of the other
partners.

Rights of the minor in the firm: A minor when he is admitted to the benefits of the firm
shall have the following rights:
a) a minor has a right to his agreed share of the profits and of the firm.
b) he can have access to, inspect and copy the accounts of the firm.
c) he can sue the partners for accounts or for payments of his share but only, when
severing his connection with the firm, and not otherwise. The amount of share shall be
determined by a valuation made in accordance with the rules upon dissolution.
d) on attaining majority he may within 6 months elect to become a partner or not to
become a partner. If he elects to become a partner, then he is entitled to the share to
which he was entitled as a minor. If he does not, then his share is not liable for any
acts of the firm after the date of the public notice served to that effect.

Page 23
 A, B and C are partners in a firm. As per terms of the partnership deed, A is
entitled to 20% of the partnership property and profits. A retires from the firm and
dies after 15 days. B and C continue business of the firm without settling
accounts. Explain the rights of A’s legal representatives against the firm under the
Indian Partnership Act, 1932? (RTP May’ 18)

As per section 37 of the Indian Partnership Act, 1932 where a partner dies or
otherwise ceases to be a partner and there is no final settlement of account between the legal
representatives of the deceased partner and the firm, then, if there is no agreement to the
contrary the legal representatives of the deceased partner or the retired partner are entitled to
claim either:
i. Such shares of the profits earned after the death or retirement of the partner which is
attributable to the use of his share in the property of the firm; or
ii. Interest at the rate of 6 per cent annum on the amount of his share in the property.
In the above case A, B and C are partners of a firm. The contract specifies that A is entitled to
20% of the partnership property. A retires and then dies and the partners do not settle his
account. On the death of the partner the legal heirs are entitled to get his share or interest.
Thus A’s Legal representatives shall be entitled, at their option to:
i. 20% shares of profits (as per the partnership deed); or
ii. interest at the rate of 6 per cent per annum on the amount of A’s share in the property.

Page 24
 Mr A (transferor) transfer his share in a partnership firm to Mr B (transferee). Mr
B is not entitled for few rights and privileges as MrA (transferor) is entitled
therefor. Discuss in brief the points for which Mr B is not entitled during
continuance of partnership? (RTP May’ 21)

As per Section 29 of Indian Partnership Act, 1932, a transfer by a partner of his

interest in the firm, either absolute or by mortgage, or by the creation by him of a charge on
such interest, does not entitle the transferee, during the continuance of the firm, to interfere in
the conduct of business, or to require accounts, or to inspect the books of the firm, but entitles
the transferee only to receive the share of profits of the transferring partner, and the transferee
shall accept the account of profits agreed to by the partners.

In the given case during the continuance of partnership, such transferee Mr B is not entitled:

➢ to interfere with the conduct of the business

➢ to require accounts
➢ to inspect books of the firm.
However, Mr B is only entitled to receive the share of the profits of the transferring partner
and he is bound to accept the profits as agreed to by the partners, i.e. he cannot challenge the
accounts.

Page 25
 Ram & Co., a firm consists of three partners A, B and C having 1/3 rd
share each
in the firm. According to A and B, the activities of C are not in the interest of the
partnership and thus want to expel C from the firm. Advise A and B whether
they can do so quoting the relevant provisions of the Indian Partnership Act,
1932. (RTP Nov’ 18)

As per section 44 of the Indian Partnership Act, 1932 a partner may be expelled
from the firm if the following conditions are fulfilled:
i. the power of expulsion must have existed in a contract between the partners;
ii. the power has been exercised by a majority of the partners; and
iii. It has been exercised in good faith.
The test of good faith includes:
a) that the expulsion must be in the interest of the partnership;
b) that the partner to be expelled is served with a notice; and
c) that the partner has been given an opportunity of being heard.
If the expulsion does not fulfill all the conditions the expulsion is null and void.
In the above case A, B and C are partners of the firm. A and B want to expel C as his
activities are against the interest of the firm.
Thus, in the given case A and B the majority partners can expel the partner only if such
expulsion is in good faith as stated above.

Page 26
 M/s XYZ & Associates, a partnership firm with X, Y, Z as senior partners were
engaged in the business of carpet manufacturing and exporting to foreign countries.
On 25th August, 2016, they inducted Mr. G, an expert in the field of carpet
manufacturing as their partner. On 10th January 2018, Mr. G was blamed for
unauthorized activities and thus expelled from the partnership by united approval
of rest of the partners.
i. Examine whether action by the partners was justified or not?
ii. What should have the factors to be kept in mind prior expelling a partner
from the firm by other partners according to the provisions of the Indian
Partnership Act, 1932? (Nov’ 19)

As per the provisions of the Partnership Act, 1932 a partner can be expelled from a
firm by a majority of partners but only if the expulsion is in good faith. The test of good faith
as required under Section 33(1) includes three things:
i. The expulsion must be in the interest of the partnership.
ii. The partner to be expelled is served with a notice.
iii. He is given an opportunity of being heard.
If a partner is otherwise expelled, the expulsion is null and void.
In the above case G was introduced as a partner in a firm. Later it was found that he was
involved in unauthorized activities and all the partners consented to expel G.
Thus
i. As the expulsion is in the interest of partnership it is valid provided he was given a
notice and an opportunity of being heard.
ii. The factors to be kept in mind for expulsion is:
a. The power of expulsion is given in the contract
b. The power is exercised with the consent of majority; and
c. The expulsion is in good faith.

Page 27
 State the modes by which a partner may transfer his interest in the firm in
favour of another person under the Indian Partnership Act, 1932. What are the
rights of such a transferee? (RTP Nov’ 18)

Section 29 of the Indian Partnership Act, 1932 provides that a share in a

partnership is transferable like any other property. Such transfer may take place either by way
of sale, pledge or mortgage. By virtue of Section 31, a person cannot be introduced as a
partner in a firm without the consent of all the partners. A partner is not debarred from
transferring his interest but for such transfer he must get the consent of all the other partners.
However as the partnership relationship is based on mutual confidence, the assignee of a
partner’s interest cannot enjoy the same rights and privileges as the original partner.
The rights of such transferee are as follows:
1. During the continuance of partnership, such transferee is not entitled
a) to interfere with the conduct of the business,
b) to require accounts, or
c) to inspect books of the firm.
He is only entitled to receive the share of the profits of the transferring partner and he
is bound to accept the profits as agreed to by the partners, i.e., he cannot challenge the
accounts.
2. On the dissolution of the firm or on the retirement of the transferring partner, the
transferee will be entitled, against the remaining partners:
a) to receive the share of the assets of the firm to which the transferring partner
was entitled, and
b) for the purpose of ascertaining the share, he is entitled to an account as from the
date of the dissolution.

Page 28
 Discuss the liability of a partner for the act of the firm and liability of firm for act
of a partner to third parties as per Indian Partnership Act, 1932.(Jan’ 21)

As per section 25 of the Indian Partnership Act, 1932, every partner is liable,
jointly with all the other partners and also severally, for all acts of the firm done while he is a
partner. The partners are jointly and severally responsible to third parties for all acts which
come under the scope of their express or implied authority. This is because that all the acts
done within the scope of authority are the acts done towards the business of the firm. The
expression ‘act of firm’ connotes any act or omission by all the partners or by any partner or
agent of the firm, which gives rise to a right enforceable by or against the firm. In order to
bring a case under Section 25, it is necessary that the act of the firm, in respect of which
liability is brought to be enforced against a party, must have been done while he was a
partner.

As per sections 26 & 27 of the Indian Partnership Act, 1932,where, by the wrongful act or
omission of a partner in the ordinary course of the business of a firm, or with the authority of
his partners, loss or injury is caused to any third party, or any penalty is incurred, the firm is
liable thereof to the same extent as the partner. A partner acting within his apparent authority
receives money or property from a third party and misapplies it, or a firm in the course of its
business receives money or property from a third party, and 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.

Page 29
 A, B and C are partners in a firm. As per terms of the partnership deed, A is
entitled to 20% of the partnership property and profits. A retires from the firm and
dies after 15 days. B and C continue business of the firm without settling accounts.
What are the rights of A’s legal representatives against the firm under the Indian
Partnership Act, 1932? (RTP May’ 20)

As per section 37 of the Indian Partnership Act, 1932 where a partner dies or
otherwise ceases to be a partner and there is no final settlement of account between the legal
representatives of the deceased partner or the firms with the property of the firm, then, in the
absence of a contract to the contrary, the legal representatives of the deceased partner or the
retired partner are entitled to claim either.
i. Such shares of the profits earned after the death or retirement of the partner which is
attributable to the use of his share in the property of the firm; or
ii. His share shall be treated as advance and he shall be entitled to interest on the amount
of his share in the property. The rate of ineterst shall be rate agreed in the contract and
if nothing is agreed @6%.
In the above case A retires from the firm and is later dead. The other partners continue the
business without settling the account.
Thus A’s legal representatives shall be entitled, at his option to:
i. 20% shares of profits (as per the partnership deed); or
ii. interest at the rate of 6% per annum on the amount of A’s share in the property.

Page 30
 When the continuing guarantee can be revoked under the Indian Partnership Act,
1932? (Nov’ 19)

According to section 38 of the Indian Partnership Act, 1932, a continuing

guarantee given to a firm or to third party in respect of the transaction of a firm is, in the
absence of an agreement to the contrary, revoked as to future transactions from the date of
any change in the constitution of the firm. Such change may occur by the death, or retirement
of a partner, or by introduction of a new partner.

Page 31
 M, N and P were partners in a firm. The firm ordered JR Limited to supply the
furniture. P dies, and M and N continues the business in the firm's name. The firm
did not give any notice about P's death to the public or the persons dealing with
the firm. The furniture was delivered to the firm after P's death, fact about his
death was known to them at the time of delivery. Afterwards the firm became
insolvent and failed to pay the price of furniture to JR Limited. Explain with
reasons:

i. Whether P's private estate is liable for the price of furniture purchased by
the firm?
ii. Whether does it make any difference if JR Limited supplied the furniture to
the firm believing that all the three partners are alive?(Jan’ 21)/ (RTP
May’ 21)

According to Section 35 of the Indian Partnership Act, 1932, where under a

contract between the partners the firm is not dissolved by the death of a partner, the estate of a
deceased partner is not liable for any act of the firm done after his death. 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 notice either to the public or the persons having
dealings with the firm.

In the given question, JR Limited has supplied furniture to the partnership firm, after P’s
death. The firm did not give notice about P’s death to public or people dealing with the firm.
Afterwards, the firm became insolvent and could not pay JR Limited.

In the light of the facts of the case and provisions of law:

i. Since the delivery of furniture was made after P’s death, his estate would not be liable
for the debt of the firm. A suit for goods sold and delivered would not lie against the
representatives of the deceased partner. This is because there was no debt due in
respect of the goods in P’s lifetime.
ii. It will not make any difference even if JR Limited supplied furniture to the firm
believing that all the three partners are alive, as it is not necessary to give any notice
either to the public or the persons having dealings with the firm, so the estate of P
shall not be laible.

Page 32
 Ram, Mohan and Gopal were partners in a firm. During the course of partnership,
the firm ordered Sunrise Ltd. to supply a machine to the firm. Before the machine
was delivered, Ram expired. The machine, however, was later delivered to the
firm. Thereafter, the remaining partners became insolvent and the firm failed to pay
the price of machine to Sunrise Ltd. Explain with reasons:
i. Whether Ram’s private estate is liable for the price of the machine purchased
by the firm?
ii. Against whom can the creditor obtain a decree for the recovery of the price?
(RTP May’ 19)

As per section 35 of the Indian Partnership Act, 1932, where under a contract
between the partners the firm is not dissolved by the death of a partner, the estate of a
deceased partner is not liable for any act of the firm done after his death. The liability for such
contracts shall only be on the surviving partners.
In the above case Ram, Mohan and Gopal are partners of a firm. The firm ordered a machine
with Sunrise Ltd. in the ordinary course of business which was delivered to the firm after the
death of Ram. The firm later became insolvent and failed to pay the money. As the liability
was incurred after the death of Ram his estate shall not be liable for the contract.
i. Thus Ram’s estate in this case will not be liable for the price as the of the Machinery
purchased.
ii. The creditors in this case can have only a personal decree against the surviving
partners and decree against the partnership assets in the hands of those partners.
However, since the surviving partners are already insolvent, no suit for recovery of the
debt would lie against them.

Page 33
 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 views
between partners, P & Q decided to leave the partnership firm and started
competitive business on 31st July, 2019, in the name of M/S PQ & Co. Meanwhile,
R & S have continued using the property 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 of
outgoing partners as per the Indian Partnership Act, 1932 and comment on the
following:
i. Rights of P & Q to start a competitive business.
ii. Rights of P & Q regarding their share in property of M/S PQRS & Co.(Nov’
20)

As per section 36 of the Indian Partnership Act, 1932, an outgoing partner may
carry on business competing with that of the firm and he may advertise such business, but
subject to contract to the contrary, he may not,-

i. use the firm name,

ii. represent himself as carrying on the business of the firm or
iii. solicit the custom of persons who were dealing with the firm before he ceased to be a
partner.
Although this provision has imposed some restrictions on an outgoing partner, it effectively
permits him to carry on a business competing with that of the firm. However, the partner may
agree with his partners that on his ceasing to be so, he will not carry on a business similar to
that of the firm within a specified period or within specified local limits. Such an agreement
will not be in restraint of trade if the restraint is reasonable.

Page 34
According to Section 37, where any member of a firm has died or otherwise ceased to be
partner, and the surviving or continuing partners carry on the business of the firm with the
property of the firm without any final settlement of accounts as between them and the
outgoing partner or his estate, then, in the absence of a contract to the contrary, is entitled at
the option of himself or his representatives to such share of the profits made since he ceased
to be a partner as may be attributable to the use of his share of the property of the firm or to
interest at the rate of 6% per annum on the amount of his share in the property of the firm.

In the above case, P, Q, R and S are the partners in M/S PQRS & Co. P & Q decided to leave
the partnership firm and started competitive business in the name of M/S PQ & Co. R & S
continued using the property in the name of M/S PQRS & Co. in which P & Q also has a
share.

Thus from the above, we can infer that

i. P & Q can start competitive business in the name of M/S PQ & Co after following
above conditions in the absence of any agreement.
ii. P & Q will get their share in property of M/s PQRS & Co.

Page 35
 Comment on 'the right to expel partner must be exercised in good faith' under the
Indian Partnership Act, 1932. (Nov’ 20)

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. It is, thus,
essential that:

i. the power of expulsion must have existed in a contract between the partners;
ii. the power has been exercised by a majority of the partners; and
iii. it has been exercised in good faith.
If all these conditions are not present, the expulsion is not deemed to be in bona fide interest of
the business of the firm.

Page 36
 X, Y and Z are partners in a Partnership Firm. They were carrying their business
successfully for the past several years. Spouses of X and Y fought in ladies club
on their personal issue and X's wife was hurt badly. X got angry on the incident
and he convinced Z to expel Y from their partnership firm. Y was expelled from
partnership without any notice from X and Z. Considering the provisions of the
Indian 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? (May’
18)/ (MT)

As per section 33 a partner may be expelled from the firm if the following
conditions are fulfilled:
i. the power of expulsion must have existed in a contract between the partners;
ii. the power has been exercised by a majority of the partners; and
iii. it has been exercised in good faith.
If all these conditions are not present, the expulsion is not deemed to be in bonafide interest
of the business of the firm.
The test of good faith includes three things:
3. The expulsion must be in the interest of the partnership.
4. The partner to be expelled is served with a notice.
5. He is given an opportunity of being heard.
If a partner is otherwise expelled, the expulsion is null and void.
In the above case X, Y and Z are partners of a firm. The spouses of X and Y fought and X’s
wife was hurt. Y on this incident convinced Z to expel Y from the partnership. Y was
expelled without serving any notice. I this case expulsion was with the consent of majority
however the conditions for good faith were missing. If the expulsion is not in good faith the
expulsion is null and void.
Thus, according to the test of good faith as required under Section 33(1), expulsion of
Partner Y is not valid.

Page 37
 Mr. A. Mr. B and Mr. C were partners in a partnership firm M/s ABC & Co., which
is engaged in the business of trading of branded furniture. The name of 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. C passed away. His
name was neither removed from the list of partners as stated in front of the head
office nor from the letter-heads of the firm. As per the terms of partnership, the firm
continued its operations with 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. But the same was not paid to the legal heirs of Mr. C. On 16th
October, 2018, Mr. X, a supplier supplied furniture worth 20,00,000 to M/s ABC &
Co. M/s ABC & Co. could not repay the amount due to heavy losses. Mr. X wants
to recover the amount not only from M/s ABC & Co., but also from the legal heirs
of Mr. C.
Analyses the above situation in terms of the provisions of the Indian Partnership
Act, 1932 and decide whether the legal heirs of Mr. C can also be held liable for the
dues towards Mr. X. (Nov’ 18)

As per the provisions of the Indian Partnership Act, 1932, the death of a partner
results in the dissolution of the firm. However the partners may by a contract agree that the
death of a partner shall not dissolve the firm and the remaining Partners shall continue the
firm. In case of death of the partner a notice of the same need not be given to the public. Death
shall automatically result in the deceased ceasing to be a partner of the firm and his property
shall not be liable for the acts of the firm done after his death.

In the above case A, B and C are partners in a firm where the name of all the partners is
written along with the name of the firm. C passed away and the other partners did not remove
his name from the list of partners in front of the head office nor from the letter heads. The firm
continued its business after settling the accounts but the amount was not paid to the legal heirs.
X supplied furniture to the firm and the firm was unable to pay for it due to heavy losses. X
wanted to recover the money from the firm as well as the legal heirs of C. As the contract was
made after the death of C, the estate of C is not liable. In the light of the provisions of the Act
and the facts of the question, Mr. X (creditor) can have only a personal decree against the
surviving partners (Mr. A and Mr. B) and a decree against the partnership assets in the hands
of those partners deceased partner.

Hence, the legal heirs of Mr. C cannot be held liable for the dues towards Mr. X.

Page 38
 Mr. M, Mr. N and Mr. P were partners in a firm, which was dealing in
refrigerators. On 1st October, 2018, Mr. P retired from partnership, but failed to
give public notice of his retirement. After his retirement, Mr. M, Mr. N and Mr. P
visited a trade fair and enquired about some refrigerators with latest techniques.
Mr. X, who was exhibiting his refrigerators with the new techniques was
impressed 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
he had already retired. Mr. X. supplied some refrigerators to the firm and could
not recover his dues from the firm. Now, Mr. X wants to recover the dues not
only from the firm, but also from Mr. P.
Analyse the above case in terms of the provisions of the Indian Partnership Act,
1932 and decide whether Mr. P is liable in this situation. (Nov’ 18)

As per the provisions of the Indian Partnership Act, 1932, a partner when retiring
firm the firm must give a public notice of his retirement. If notice of retirement is not given
then the partner shall be liable for the acts of the firm even after his retirement. However if the
existence of a partner was not known then even if he retires without giving any public notice
he shall not be liable for the subsequent acts of the firm.
In the above case M, N and P are the partners of the firm. Partner P retired from the firm but
failed to give notice of retirement. After retirement P visited a fair along with the other
partners and the firm gave their card to a dealer in which P’s name was also printed. The
dealer sold some refrigerators to the firm and could not recover the dues. X wants to sue P
also. As P was a partner whose existence was known to the third parties and he retired without
giving any public notice he shall also be liable.
Thus P is also liable to X for the refrigerators sold.

Page 39
 State the legal consequences of the following as per the provisions of the Indian
Partnership Act, 1932:
(i) Retirement of a partner
(ii) Insolvency of a partner (RTP Nov’ 19)/ (Nov’ 19)

Retirement of partner:
A partner may retire:
i. with the consent of all the other partners;
ii. in accordance with an express agreement by the partners; or
iii. where the partnership is at will, by giving notice in writing to all the other partners of
his intention to retire.
The retiring partner shall be liable for the acts of the firm before his retirement until public
notice is given. Provided that he shall not be liable even if public notice is not given if the
third party did not know he was a partner of the firm. A retiring partner may be discharged
from any liability to any third party for acts of the firm done before his retirement by an
agreement made by him with such third party and the remaining partners.

Insolvency of a partner:
i. The insolvent partner cannot continue as a partner.
ii. He will be ceased to be a partner from the very date on which the order of adjudication
is made.
iii. The estate of the insolvent partner is not liable for the acts of the firm done after the
date of order of adjudication.
iv. The firm is also not liable for any act of the insolvent partner after the date of the order
of adjudication.
v. Insolvency of a partner results in dissolution of a firm, but the partners may agree
among themselves that the adjudication of a partner as an insolvent will not give rise
to dissolution of the firm

Page 40
 Distinguish between dissolution of firm and dissolution of partnership. (May’
18)

The following are the differences between dissolution of firm and dissolution of
partnership:
Dissolution of firm Dissolution of partnership
It involves discontinuation of It does not affect continuation of
business in partnership. business. It involves only
reconstitution of the firm.
It involves winding up of the firm It involves only reconstitution
and requires realization of assets and requires only revaluation of
and settlement of liabilities. assets and liabilities of the firm.
A firm may be dissolved by the Dissolution of partnership is not
order of the court. ordered by the court.
It necessarily involves dissolution It may or may not involve
of partnership. dissolution of firm.
It involves final closure of books It does not involve final closure
of the firm. of the books.

Page 41
 Referring to the Provisions of the Indian Partnership Act, 1932, answer the
following:

i. What are the consequences of Non-Registration of Partnership firm?

ii. What are the rights which won't be affected by Non-Registration of
Partnership firm?(Nov’ 20)/ (MT)

Consequences of Non-registration of partnership firm: Under Section 69 of

the Indian Partnership Act, 1932 non-registration of partnership gives rise to a number of
disabilities. Though registration of firms is not compulsory, yet the consequences or
disabilities of non-registration have a persuasive pressure for their registration.

Following are the consequences of non-registration:

a) No suit in a civil court by firm or other co-partners against third party: The firm or any
other person on its behalf cannot bring an action against the third party for breach of
contract entered into by the firm.
b) No relief to partners for set-off of claim: If an action is brought against the firm by a
third party, then neither the firm nor the partner can claim any set-off, if the suit be
valued for more than 100 or pursue other proceedings to enforce the rights arising
from any contract.
c) 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 from
bringing legal action against the firm or any person alleged to be or to have been a
partner in the firm.
d) Third-party can sue the firm: In case of an unregistered firm, an action can be brought
against the firm by a third party.
Non-registration of a firm does not, however, affect the following rights:

a) The right of third parties to sue the firm or any partner.

b) The right of partners to sue for the dissolution of the firm or for the settlement of the
accounts of a dissolved firm, or for realization of the property of a dissolved firm.
c) The power of an Official Assignees, Receiver of Court to release the property of the
insolvent partner and to bring an action.
d) The right to sue or claim a set-off if the value of suit does not exceed 100 in value.

Page 42
 What are the consequences of Non-Registration of a Partnership Firm? Discuss.
(May’ 19)
OR
Indian Partnership Act does not make the registration of firms compulsory nor does
it impose any penalty for non-registration." Explain. Discuss the various
disabilities or disadvantages that a non-registered partnership firm can face in
brief? (Nov’ 19)/ (MT May’ 20)/ (RTP May’ 21)
OR
What are the consequences of Non -Registration of a Partnership Firm? Discuss.
(MT Nov’ 19)

Registration of a partnership firm under the Indian Partnership Act, 1932 is

optional. However an unregistered faces certain disqualifications. These consequences are so
grave that a firm would opt for registration. The following are the disabilities of an
unregistered firm:
1. No suit in a civil court by firm or other co-partners against third party: The firm
or any other person on its behalf cannot bring an action against the third party for
breach of contract entered into by the firm, unless the firm is registered and the
persons suing are or have been shown in the register of firms as partners in the firm.
2. No relief to partners for set-off of claim: If an action is brought against the firm by a
third party, then neither the firm nor the partner can claim any set-off, if the suit be
valued for more than 100 or pursue other proceedings to enforce the rights arising
from any contract.
3. 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 from
bringing legal action against the firm or any person alleged to be or to have been a
partner in the firm. But, such a person may sue for dissolution of the firm or for
accounts and realization of hi s share in the firm’s property where the firm is
dissolved.
4. Third party can sue the firm: In case of an unregistered firm, an action can be
brought against the firm by a third party.

Page 43
 What is Partnership Deed? What are the particulars that the partnership
deed may contain? (RTP Nov’ 18)/ (MT Oct’ 18)

Partnership is the result of an agreement. No particular formalities are required for

an agreement of partnership. It may be in writing or formed verbally but it is desirable to
have the partnership agreement in writing to avoid future disputes. The document in writing
containing the various terms and conditions as to the relationship of the partners to each other
is called the ‘partnership deed’. It should be drafted with care and be stamped according to
the provisions of the Stamp Act, 1899. Where the partnership of comprises immovable
property, the instrument of partnership must be in writing, stamped and registered under the
Registration Act.
Partnership deed may contain the following information:
1. Name of the partnership firm.
2. Names of all the partners.
3. Nature and place of the business of the firm.
4. Date of commencement of partnership.
5. Duration of the partnership firm.
6. Capital contribution of each partner.
7. Profit Sharing ratio of the partners.
8. Admission and Retirement of a partner.
9. Rates of interest on Capital, Drawings and loans.
10. Provisions for settlement of accounts in the case of dissolution of the firm.
11. Provisions for Salaries or commissions, payable to the partners, if any.
12. Provisions for expulsion of a partner in case of gross breach of duty or fraud.
A partnership firm may add or delete any provision according to the needs of the firm.

Page 44
 What is the procedure of registration of a partnership firm under the Indian
Partnership Act, 1932? (RTP May’ 19)

U/s 58 of the Indian Partnership Act, 1932, the registration of a firm may be
affected at any time by:
1. A statement in the prescribed form along with the fee shall be sent to the Registrar of
the area in which any place of business of the firm is situated or proposed to be
situated. The statement shall be sent by post or hand and shall state: -
i. The firm’s name
ii. The place or principal place of business of the firm,
iii. The names of any other places where the firm carries on business,
iv. The date when each partner joined the firm,
v. The names in full and permanent addresses of the partners, and
vi. The duration of the firm.
The statement shall be signed by all the partners, or by their agents specially
authorised in this behalf.
2. Each person signing the statement shall also verify it in the manner prescribed.
3. A firm name shall not contain any of the following words, namely:- ‘Crown’,
Emperor’, ‘Empress’, ‘Empire’, ‘Imperial’, ‘King’, ‘Queen’, ‘Royal’, or words
expressing or implying the sanction, approval or patronage of Government except
when the State Government signifies its consent to the use of such words as part of the
firm-name by order in writing.

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 A & Co. is registered as a partnership firm in 2015 with A, B and C partners. In
2016, A dies. In 2017, B and C sue X in the name and on behalf of A & Co.,
without fresh registration. Decide whether the suit is maintainable. Whether your
answer would be same if in 2017 B and C had taken a new partner D and then
filed a suit against X without fresh registration? (RTP May’ 18)
OR
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 W in the name and on behalf of firm without notifying
to the Registrar of firms about the changes in the constitution of the firm. Is the
suit maintainable? (RTP May’ 19)

As per section 69 of the Partnership Act, 1932if a partnership firm wants to sue a
third party two conditions must be fulfilled:
i. the firm must be registered; and
ii. the partners suing should be named as partners of the firm.
In case of a registered firm if the firm continues its business after the death of a partner
without any fresh registration a suit can be filed by the remaining partners in respect of any
subsequent dealings or transactions without notifying to the Registrar of Firms, the changes
in the constitution of the firm. The suit shall be valid if it is filed by the remaining partners in
respect of such subsequent dealings or transactions. However in case the firm takes a new
partner the a suit cannot be filed without fresh registration.
In the above case A & Co. a registered partnership firm with A, B and C as partners. A dies
and without fresh registration the firm sues X. In view of this position of law, the suit is in the
case by B and C against X in the name and on behalf of A & Co. is maintainable. Further in
2017, B and C had taken a new partner, D, and then filed a suit against X without fresh
registration. Where a new partner is introduced, the fact is to be notified to Registrar who
shall make a record of the notice in the entry relating to the firm in the Register of firms. In
this case the second condition partners suing should be named as partners of the firm is not
fulfilled, as the name of D is not registered.
Therefore, in the first case the firm can sue the third party without fresh registration. However
in the second case the firm cannot sue as D’s name has not been entered in the register of
firms and partner suing i.e., D is not named as a partner of the firm.

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 State the grounds on which a firm may be dissolved by the Court under the
Indian Partnership Act, 1932? (RTP Nov’ 18)
OR
State any four grounds on which Court may dissolve a partnership firm in case
any partner files a suit for the same. (Nov’ 18)/ (RTP May’ 20)

U/s 44 of the Partnership Act, 1932 court may, at the suit of the partner, dissolve a
firm on any of the following ground:
1. Insanity/unsound mind: Where a partner (not a sleeping partner) has become of
unsound mind, the court may dissolve the firm on a suit of the other partners or by the
next friend of the insane partner. Temporary sickness is no ground for dissolution of
firm.
2. Permanent incapacity: When a partner, other than the partner suing, has become in
any way permanently incapable of performing his duties as partner, then the court may
dissolve the firm. Such permanent incapacity may result from physical disability or
illness etc.
3. Misconduct: Where a partner, other than the partner suing, is guilty of conduct which
is likely to affect prejudicially the carrying on of business, the court may order for
dissolution of the firm, by giving regard to the nature of business. It is not necessary
that misconduct must relate to the conduct of the business. The important point is the
adverse effect of misconduct on the business. In each case nature of business will
decide whether an act is misconduct or not.
4. Persistent breach of agreement: Where a partner other than the partner suing,
wilfully or persistently commits breach of agreements relating to the management of
the affairs of the firm or the conduct of its business, or conducts himself in matters
relating to the business that it is not reasonably practicable for other partners to carry
on the business in partnership with him, then the court may dissolve the firm at the
instance of any of the partners. Following comes in to category of breach of contract:
i. Embezzlement,
ii. Keeping erroneous accounts
iii. Holding more cash than allowed
iv. Refusal to show accounts despite repeated request etc.

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5. Transfer of interest: Where a partner other than the partner suing, has transferred the
whole of his interest in the firm to a third party or has allowed his share to be charged
or sold by the court, in the recovery of arrears of land revenue, the court may dissolve
the firm at the instance of any other partner.
6. Continuous/Perpetual losses: Where the business of the firm cannot be carried on
except at a loss in future also, the court may order for its dissolution.
7. Just and equitable grounds: Where the court considers any other ground to be just
and equitable for the dissolution of the firm, it may dissolve a firm. The following are
the cases for the just and equitable grounds-
i. Deadlock in the management.
ii. Where the partners are not in talking terms between them.
iii. Loss of substratum.
iv. Gambling by a partner on a stock exchange.

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 When does dissolution of a partnership firm take place under the provisions of the
Indian Partnership Act, 1932? Explain. (MT)

The Dissolution of Firm means the discontinuation of the jural relation existing
between all the partners of the Firm. However when only one of the partners retires or
becomes in capacitated from acting as a partner due to death, insolvency or insanity, the
partnership, i.e., the relationship between such a partner and other is dissolved, but the rest
may decide to continue. In such cases, there is in practice, no dissolution of the firm. The
particular partner goes out, but the remaining partners carry on the business of the Firm. In
the case of dissolution of the firm, on the other hand, the whole firm is dissolved. The
partnership terminates as between each and every partner of the firm.

Dissolution of a Firm may take place (Section 39 - 44)

a) as a result of any agreement between all the partners (i.e., dissolution by agreement);
b) by the adjudication of all the partners, or of all the partners but one, as insolvent (i.e.,
compulsory dissolution);
c) by the business of the Firm becoming unlawful (i.e., compulsory dissolution);
d) subject to agreement between the parties, on the happening of certain contingencies,
such as:
i. effluence of time;
ii. completion of the venture for which it was entered into;
iii. death of a partner;
iv. insolvency of a partner.
e) by a partner giving notice of his intention to dissolve the firm, in case of partnership at
will and the firm being dissolved as from the date mentioned in the notice, or if no
date is mentioned, as from the date of the communication of the notice; and
f) by intervention of court in case of:
i. a partner becoming the unsound mind;
ii. permanent incapacity of a partner to perform his duties as such;
iii. Misconduct of a partner affecting the business;
iv. willful or persistent branches of agreement by a partner;
v. transfer or sale of the whole interest of a partner;
vi. improbability of the business being carried on save at a loss;
vii. the court being satisfied on other equitable grounds that the firm should be
dissolved.

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 When does dissolution of a partnership firm take place under the provisions of
the Indian Partnership Act, 1932? Explain. (MT Mar’ 19/ RTP Nov’ 19)

The Dissolution of Firm means the discontinuation of the relation existing

between all the partners of the Firm. In the case of dissolution of the firm the other hand, the
whole firm is dissolved. The partnership terminates as between each and every partner of the
firm.
Dissolution of a Firm may take place in any of the following cases:
a) as a result of any agreement between all the partners (i.e., dissolution by agreement);
b) by the adjudication of all the partners, or of all the partners but one, as insolvent (i.e.,
compulsory dissolution);
c) by the business of the Firm becoming unlawful (i.e., compulsory dissolution);
d) subject to agreement between the parties, on the happening of certain contingencies,
such
e) (i) effluence of time; (ii) completion of the venture for which it was entered into; (iii)
death of a partner; (iv) insolvency of a partner.
f) by a partner giving notice of his intention to dissolve the firm, in case of partnership at
will and the firm being dissolved as from the date mentioned in the notice, or if no
date is mentioned, as from the date of the communication of the notice; and
g) by intervention of court in case of:
i. a partner becoming the unsound mind;
ii. permanent incapacity of a partner to perform his duties as such;
iii. Misconduct of a partner affecting the business;
iv. willful or persistent branches of agreement by a partner;
v. transfer or sale of the whole interest of a partner;
vi. Improbability of the business being carried on save at a loss;
vii. The court being satisfied on other equitable grounds that the firm should be
dissolved.

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 Subject to agreement by partners, state the rules that should be observed by
the partners in settling the accounts of the firm after dissolution under the
provisions of the Indian Partnership Act, 1932. (MT Aug’ 18)

Subject to a contract between the partners while settling the accounts of a firm after
dissolution, the following rules shall be observed:
i. Losses, including deficiencies of capital, shall be paid first out of profits, next out of
capital, and, lastly, if necessary, by the partners individually in the proportions in
which they were entitled to share profits.
ii. The assets of the firm, including any sums contributed by the partners to make up
deficiencies of capital, must be applied in the following manner and order:
a) in paying the debts of the firm to third parties;
b) in paying to each partner rateably what is due to him from capital;
c) in paying to each partner rateably what is due to him on account of capital; and
d) the residue, if any, shall be di vi ded among the partners in the proportions in
which they were entitled to share profits.

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