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Indian Partnership Act, 1932: Notes, Landmark

Case Laws, and Key Sections for CUET LLM
(Short and Crisp-In 15 pages)
AN INITIATIVE BY-

UJJAWAL DIXIT ABHISHEK SINGH

Advocate, Allahabad High Court B.A. LLB
B.A.LLB, LLM (RML NLU) CLAT PG 2025- AIR 86
CLAT PG 2023- AIR 35
CLAT PG 2024-AIR 22
UGC NET Qualified

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Study Plan Note:

The Partnership Act is an important but concise topic for your exam. Typically, a maximum of
two to three questions are asked from this Act. Therefore:

1. Complete the Partnership Act in one day, covering:

o Key definitions, provisions, and sections.
o Landmark case laws.
o Important distinctions and concepts.
2. After completing it, revise at 15-day intervals to ensure retention. Focus on short notes,
key sections, and case laws during these revisions.

By following this plan, you’ll have the Partnership Act ready for any MCQ-based questions.

Partnership Act 1932

1. Introduction:

o Originally part of the Indian Contract Act, 1872.

o Became a separate Act in 1932, effective from October 1, 1932.

o Governs partnerships in India, excluding Jammu & Kashmir.

2. Definition of Partnership (Section 4):

o Relationship between persons agreeing to share profits of a business.

o Key elements:

 Agreement between two or more persons.

 Agreement to share profits.

 Business conducted by all or any of them for all.

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3. Terms:

o Partners: Individuals in partnership.

o Firm: Collective group of partners.

o Firm Name: Name under which the business operates.

4. Maximum Partners:

o Banking: Maximum 10 members.

o Non-banking: Maximum 20 members.

5. Essentials of Partnership:

o Minimum two competent persons (not minors, unsound minds, or disqualified

persons).

o Based on an agreement (expressed or implied).

o Involves lawful business as defined by Section 2(b) of the Act.

o Must share profits (and losses unless agreed otherwise).

o Requires mutual agency (each partner acts as both agent and principal).

6. Legal Nature:

o Partnership is not a separate legal entity.

o Governed by principles of agency.

Test of Partnership (Section 6):

 True partnership involves:

o Sharing of profits (prima facie but not conclusive evidence).

o Existence of mutual agency.

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Differences from Other Concepts:

1. Partnership vs. Co-ownership:

o Partnership arises from agreement; co-ownership may not.

o Partners have mutual agency; co-owners do not.

o Co-owners can transfer their share without consent; partners cannot.

2. Partnership vs. Hindu Undivided Family (HUF):

o Partnership arises from agreement; HUF arises from status.

o Governed by different laws (Partnership Act vs. Hindu Law).

o Female members cannot be HUF coparceners by birth; they can be partners.

3. Partnership vs. Company:

o Partnership has no separate legal entity; a company does.

o Liability of partners is unlimited; liability in companies is limited.

Types of Partnerships:

1. Based on Duration:

o Partnership at Will: No fixed term; dissolved by notice.

o Particular Partnership: Formed for specific ventures or time.

2. Types of Partners:

o Active, Sleeping/Dormant, Nominal, Partner in Profits Only, Sub-partner, and

Partner by Estoppel or Holding Out.

3. Position of Minors:

o Minors can only be admitted to the benefits of the partnership with unanimous
consent of partners.
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Mutual Rights and Duties of Partners

1. Governance:

o Determined by:

 Partnership agreement.

 Provisions of the Partnership Act.

2. Mandatory Duties of Partners (Sections 9 & 10):

o Conduct business for the firm’s common advantage.

o Act justly and faithfully.

o Render true accounts and full information.

o Indemnify the firm for losses caused by their fraud.

3. General Duties (Subject to Agreement):

o Attend diligently to business.

o No remuneration for participation.

o Contribute equally to losses.

o Use firm property only for business purposes.

o Account for profits made from firm-related activities or competing businesses.

4. Rights of Partners (Unless Otherwise Agreed):

o Participate in management and decision-making.

o Access and inspect books.

o Share profits equally (in the absence of contrary agreements).

o Receive interest on capital and loans (6% per annum for advances).

o Prevent admission of new partners without consent.

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o Retire or not be expelled unfairly.

Relation of Partners with Third Parties

1. Implied Authority of Partners (Section 19):

o Acts within the scope of the firm’s business bind all partners.

o Includes purchasing goods, borrowing money, hiring staff, etc.

o Restrictions:

 Cannot acquire or transfer immovable property without express authority.

 Other acts like submitting disputes to arbitration or opening personal

accounts require prior approval.

2. Liabilities:

o Joint and several liabilities for firm’s obligations (Section 25).

o Liability for wrongful acts (Section 26).

o Misapplication of funds by a partner makes the firm liable (Section 27).

Reconstitution of a Firm

1. Introduction of a New Partner (Section 31):

o Requires unanimous consent unless otherwise agreed.

o Incoming partner not liable for past acts unless specified.

2. Retirement of a Partner (Section 32):

o Retired partner remains liable for firm’s prior acts unless discharged by
agreement and public notice.

3. Expulsion of a Partner (Section 33):

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o Requires:

 Contractual provision for expulsion.

 Majority decision in good faith.

 Opportunity for representation.

4. Insolvency of a Partner (Section 34):

o Partner ceases to be part of the firm upon adjudication.

o The firm dissolves unless there’s an agreement to continue.

5. Death of a Partner (Sections 35 & 42):

o Dissolves the firm unless an agreement states otherwise.

o Deceased partner’s estate is not liable for future acts.

6. Transfer of Partner’s Share (Section 29):

o Transferee acquires a share of profits but cannot interfere in management or

access books.

Dissolution of a Firm

1. Meaning:

o Dissolution terminates the partnership among all partners.

o Business ceases, assets liquidated, and liabilities settled.

2. Modes of Dissolution:

o By Agreement (Section 40): Mutual decision.

o Compulsory Dissolution (Section 41):

 Insolvency of all or all but one partner.

 Business becomes unlawful.

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o By Notice (Section 43): In a partnership at will, by giving written notice.

o By Court (Section 44): Grounds include:

 Insanity or incapacity of a partner.

 Misconduct affecting business.

 Breach of agreement.

 Continuous losses or just and equitable reasons.

3. Settlement of Accounts (Section 48):

o Assets distributed for:

 Payment of debts.

 Return of capital.

 Division of surplus among partners.

4. Continuing Liabilities (Section 45):

o Partners remain liable for acts done before public notice of dissolution.

Rights and Liabilities of Partners on Dissolution

1. Rights:

o Claim surplus assets after liabilities are settled (Section 46).

o Return of premium on premature dissolution (Section 51).

o Restrain others from using firm’s name or property post-dissolution (Section 53).

2. Liabilities:

o Continuing liability until public notice of dissolution is issued (Section 45).

o Mutual obligations continue for unfinished business (Section 47).

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Rights and Liabilities of Partners on Dissolution

1. Return of Premium (Section 51):

o Partners who paid a premium for joining a firm can claim its return if the firm
dissolves before the agreed term.

o Exceptions:

 Dissolution due to the partner’s misconduct.

 Dissolution caused by death.

 If agreement disallows the return of premium.

2. Fraud or Misrepresentation (Section 52):

o Aggrieved partners can:

 Retain a lien on surplus assets.

 Rank as creditors for contributions made.

 Seek indemnification from guilty partners.

3. Use of Firm Name and Property (Section 53):

o Partners can restrain others from:

 Using the firm’s name.

 Using its property for personal gain until winding up is complete.

4. Agreements in Restraint of Trade (Section 54):

o Valid if reasonable in terms of time and area.

o Applied during or after dissolution.

Settlement of Accounts (Section 48)

1. Order of Payment:
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o Firm’s debts to third parties.

o Partner’s advances distinguished from capital.

o Return of capital to partners.

o Division of surplus among partners.

2. Deficiencies in Capital:

o Shared in the same proportion as profits.

Continuing Authority of Partners for Winding Up (Section 47):

 Partners retain authority to:

o Complete unfinished transactions.

o Bind the firm for necessary actions related to winding up.

Goodwill

1. Meaning:

o Reputation of the firm considered an intangible asset.

2. Treatment During Dissolution:

o Goodwill is valued and sold.

o Share of goodwill is distributed among partners.

Dissolution by Court (Section 44):

o Grounds include:

 Misconduct of a partner.
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 Breach of agreements.

 Continuous losses.

 Just and equitable reasons like loss of confidence.

Registration of a Firm

1. Procedure (Section 58):

o Application to the registrar with details of the firm (name, place, partners’ details,
etc.).

2. Effects of Non-Registration (Section 69):

o Firm cannot:

 Enforce contracts in court.

 Sue third parties.

o However, third parties can sue the firm.

Partnership and Negotiable Instruments

1. Authority to Issue:

o Partners can draw, accept, and endorse negotiable instruments in the firm’s name.

o Binding only if within the scope of business.

2. Liabilities:

o Partners are jointly and severally liable for dishonored instruments.

Limited Liability Partnerships (LLPs)

1. Overview:

o Hybrid of partnership and company.

o Separate legal entity with limited liability.

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o Governed by the Limited Liability Partnership Act, 2008.

2. Key Features:

o Requires at least two designated partners.

o No maximum limit on partners.

o Liability limited to the extent of contribution.

3. Advantages:

o Separate legal identity.

o No partner is liable for another’s misconduct.

o Less regulatory compliance compared to companies.

Case Laws and Examples

1. Key Decisions:

o Dulichand v. CIT: Partnership requires a valid agreement.

o Cox v. Hickman: Sharing profits is not conclusive proof of partnership.

o Lloyd v. Grace, Smith & Co.: Firms liable for wrongful acts of partners if within
the scope of authority.

Miscellaneous Provisions

1. Minor as a Partner (Section 30):

o Cannot contract directly but can benefit from partnership with consent.

o Liabilities limited to their share in the partnership.

2. Notice Requirements (Sections 43 & 45):

o Public notice is crucial for retirement, expulsion, or dissolution to limit liability.

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Landmark Judgments on the Indian Partnership Act

1. Smith v. Anderson (1880) 15 Ch. D. 247

o Business refers to any activity which, if successful, would result in profit.

2. Abdul v. Century Wood Industries AIR 1954 Kant 33

o Partnership Agreement need not be express; it may arise from the conduct of the
parties.

3. Cox v. Hickman (1860) 8 H.L.C. 268

o Sharing of profits alone does not establish a partnership; mutual agency is the
critical factor for determining the existence of a partnership.

4. Munshi Ram v. Municipal Committee (1979) 3 SCC 83

o A firm is not a legal person nor does it have a separate legal entity independent of
its partners.

5. CIT v. Dwarkadas Khetan & Co. AIR 1961 SC 680

o A minor cannot be a full-fledged partner in an existing firm.

6. Shailesh Ranka and Ors v. Windsor Machines Limited (2022)

o Implied authority of a partner does not extend to arbitration without the consent of
all partners, as per Section 19(2)(a) of the Partnership Act, 1932.

7. Annapurna B. Uppin & Ors v. Malsiddappa & Anr. (2024)

o Legal heirs of a deceased partner are not liable for the firm's liabilities after the
partner's death.

8. State of Kerala v. Laxmi Vasanth (2022)

o Sub-Section (5) of Section 30 of the Partnership Act does not apply to a minor
partner who was not a partner at the time of attaining majority. Such a person is
not liable for past dues of the partnership firm.
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9. Shivaram v. Gauri Shankar

o Partnership requires at least two competent persons to contract, but minors can be
admitted to the benefits of a partnership with the consent of all partners.

10. Dulichand v. Commissioner of Income Tax

o A firm is not a legal entity and cannot form a partnership with another firm.
Partnerships require valid agreements between competent persons.

11. Holme v. Hammond

o Executors of a deceased partner who share profits do not automatically become

partners in the firm.

12. K.D. Kamath & Co. v. Commissioner of Income Tax

o Partnership is presumed when there is an agreement to share profits and the

business is carried out by all or any acting for all.

13. Malabar Fisheries Co. v. CIT

o A partnership firm is not a separate legal entity apart from its partners.

14. Whitwell v. Arthur

o A partner’s long-term imprisonment may be grounds for dissolution of the

partnership.

15. Lloyd v. Grace, Smith & Co.

o A firm is liable for wrongful acts committed by a partner within the scope of
business.

16. Keshav Lal v. Bhai Lal

o In a partnership at will, a partner can retire by giving notice even if pending

contracts exist.

17. Venkatratnam v. Venkatratnum

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o A sub-partner’s rights are equivalent to those of a transferee of a partner’s share

under Section 29.

Chart of the important sections

Section Topic Description

Section Defines partnership as the relationship between persons

Definition of Partnership
4 agreeing to share profits of a business.

Section Partnership Arises from

Partnership arises from contract and not from status.
5 Agreement

Section Determining factors include mutual agency and profit

Test of Partnership
6 sharing.

Section A partnership with no fixed duration; can be dissolved by

Partnership at Will
7 notice.

Section
Particular Partnership Partnership formed for a specific venture or period.
8

Section Duty to Act in Good Partners must act in the best interest of the firm and other
9 Faith partners.

Section Duty to Indemnify for Partners must compensate the firm for losses caused by
10 Fraud fraudulent acts.

Section Partnership must be formed by competent persons; minors

Capacity of Partners
11 can only be admitted to benefits.

Section Rights and Duties of

Includes participation in business and access to books.
12 Partners
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Section Topic Description

Section Sharing of Profits and Details profit-sharing and liability for losses among
13 Losses partners.

Section Personal Profits from Partners must account for personal profits derived from
16 Transactions firm-related transactions.

Section Partners act as agents and principals for the firm and each
Mutual Agency
18 other.

Section
Implied Authority Defines the acts a partner can perform that bind the firm.
19

Section Restriction on Implied Partners can limit or extend authority by mutual

20 Authority agreement.

Section Effect of Notice to a Notice to a partner acting for the firm is deemed notice to
24 Partner the firm.

Section Partners are jointly and severally liable for the firm’s
Liability of Partners
25 obligations.

Section Firm liable for a partner’s misapplication of money

Misapplication of Funds
27 received within the scope of authority.

Section Minors can be admitted to benefits of partnership but are

Position of Minors
30 not personally liable.

Section Admission of New

Requires unanimous consent unless agreed otherwise.
31 Partners

Section
Retirement of a Partner Details conditions and liabilities of a retiring partner.
32
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Section Topic Description

Section
Expulsion of a Partner Specifies grounds and conditions for expelling a partner.
33

Section Insolvent partner ceases to be part of the firm; firm may

Insolvency of a Partner
34 dissolve unless agreed otherwise.

Section
Death of a Partner Death dissolves the firm unless otherwise agreed.
35

Section Rights of Outgoing Entitled to share in profits or 6% interest until accounts are
37 Partner settled.

Section Dissolution ends partnership among all partners and

Dissolution of a Firm
39 business ceases.

Section Dissolution by
A firm may be dissolved by mutual consent of all partners.
40 Agreement

Section Occurs if all partners become insolvent or business

Compulsory Dissolution
41 becomes unlawful.

Section Dissolution upon expiration of term, completion of

Contingent Events
42 venture, or death/insolvency of a partner.

Section In partnerships at will, any partner can dissolve the firm by

Dissolution by Notice
43 written notice.

Section Lists grounds for judicial dissolution (e.g., incapacity,

Dissolution by Court
44 misconduct, constant breach of agreement).

Section Liability After Partners remain liable for acts until public notice of
45 Dissolution dissolution is given.
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Section Topic Description

Section Rights of Partners Upon Partners have the right to apply firm property to settle
46 Dissolution debts and claim surplus.

Section Order of payment: third-party debts, advances, capital, and

Settlement of Accounts
48 surplus.

Section Agreements in Restraint Allows reasonable restrictions on partners post-

54 of Trade dissolution.

Section
Registration of Firms Details procedure for registering a firm with the registrar.
58

Section Effects of Non- Limits the rights of an unregistered firm to sue or enforce
69 Registration contracts.