INTRODUCTION TO

INDIAN PARTNERSHIP
ACT, 1932
 INTRODUCTION
• The Indian Partnership Act, 1932 is an act of the Indian Parliament
that governs partnerships in India.
• It came into force on 1st October 1932 and has since been amended
several times.
• The Act provides for the registration of partnership firms and the
rights and obligations of partners in a partnership.
• It is applicable to the whole of India, except for the state of Jammu
and Kashmir.
• The Act defines partnership as the relation between persons who have
agreed to share the profits of a business carried on by all or any of
them acting for all.
• It lays down the essential elements of partnership, such as agreement,
sharing of profits, carrying on of a lawful business, number of
partners, mutual agency, and unlimited liability.
 OBJECTIVES OF THE IPA, 1932
• The Act aims to provide a legal framework for partnerships and to
ensure transparency and accountability in the management of
partnership firms.
• It seeks to provide a mechanism for the resolution of disputes among
partners and between partners and third parties.
• The Act also aims to protect the interests of minority partners and to
prevent fraud and mismanagement in partnership firms.
• It encourages the formation of partnerships by providing a legal
framework for the creation and dissolution of partnerships.
 ADVANTAGES OF REGISTERING A
PARTNERSHIP UNDER IPA, 1932
• Registration of a partnership firm under the Act provides legal
recognition to the firm and the partners.
• It enables the firm to sue and be sued in its own name and to enter into
contracts.
• It provides for the settlement of disputes through the courts.
• It provides for the creation of a separate legal entity that is distinct
from the partners.
• It enables the firm to avail of various tax benefits and other incentives
 DEFINITION OF PARTNERSHIP
(SECTION 4)
• Partnership is defined as the relation between two or more persons
who have agreed to share the profits of a business carried on by all or
any one of them acting for all.
• The essential feature of partnership is the agreement between the
partners to carry on a business and share its profits.
• The business must be carried on by all or any one of them acting for
all.
• The partnership agreement can be written or oral and can be implied
from the conduct of the parties.
• The partnership can be formed for any lawful purpose.
 NATURE OF PARTNERSHIP
• Partnership is a contractual relationship between two or more
persons.
• Partnership is based on mutual trust and confidence.
• Partnership is not a legal entity distinct from its partners.
• Partnership is dissolved on the death, insolvency, or
retirement of a partner.
• Partners are jointly and severally liable for the debts of the
partnership.
 KINDS OF PARTNERSHIP
• General Partnership:
• All partners have unlimited liability for the debts of the firm.
• Partners can participate in the management of the firm.
• Partners are jointly and severally liable for the debts of the
partnership.
• Example: A, B, and C enter into a partnership agreement to run a
business. They share profits and losses equally. If the firm incurs
any debt, all partners will be liable to pay the debt.
• Limited Partnership:
• One or more partners have limited liability for the debts of the firm.
• Partners with limited liability are known as 'limited partners'.
• Limited partners cannot participate in the management of the firm.
• General partners have unlimited liability and can participate in the
management of the firm.
• Example: X, Y, and Z enter into a limited partnership agreement. X
and Y are general partners with unlimited liability, while Z is a
limited partner with limited liability. Z cannot participate in the
management of the firm, and X and Y are jointly and severally
liable for the debts of the partnership.
• Partnership at Will:
• A partnership in which there is no fixed duration.
• Any partner can dissolve the partnership at any time.
• Example: A and B agree to carry on a business as partners for an
indefinite period. Either of them can dissolve the partnership at any
time.
• Partnership for a Fixed Term:
• A partnership formed for a specific period of time or for a specific
project.
• Partners cannot dissolve the partnership before the expiration of the
term or completion of the project.
• Example: A, B, and C form a partnership for a period of 5 years to
run a construction business. They cannot dissolve the partnership
before the completion of 5 years
 ESSENTIALS OF PARTNERSHIP
• Agreement (Section 5):
• Partnership is a contractual relationship based on the agreement
between the partners.
• The agreement may be written or oral, but it must be legally
enforceable.
• The agreement should specify the rights and obligations of each
partner, including their capital contribution, profit sharing ratio, and
the duration of the partnership.
• Case Law: In the case of Gokuldas Gopaldas v. Purshottam
Umedbhai & Co., the Supreme Court held that a partnership
agreement need not be in writing and can be implied from the conduct
of the parties.
• Sharing of Profits (Section 13):
• The essence of a partnership is the sharing of profits.
• The partners must agree on the proportion in which the
profits will be shared among them.
• The profit-sharing ratio may be equal or unequal, depending
on the agreement between the partners.
• Case Law: In the case of Mohd. Haneef & Anr. v. Mohd.
Iqbal & Ors., the court held that in the absence of an express
agreement, the profits of the partnership must be divided
equally among the partners.
• Business (Section 6):
• Partnership must be formed to carry on a lawful business.
• The business must be carried on with a view to making a
profit.
• Partners cannot engage in any illegal or immoral activity.
• Case Law: In the case of Nandkishore v. Mst. S. Sowani, the
court held that a partnership formed to carry on an illegal
business is void ab initio and cannot be enforced in law.
• Number of Partners (Section 4):
• A partnership must have at least two partners.
• The maximum number of partners in a firm is 50 for any
business, and 20 for a banking business.
• Case Law: In the case of National Bank of India Ltd. v. R.
Laxman & Sons, the court held that a partnership with more
than 20 partners cannot carry on a banking business as it is
prohibited under the Banking Regulation Act, 1949.
• Mutual Agency (Section 18):
• Each partner is an agent of the firm and other partners.
• The acts of a partner in the ordinary course of business bind
the firm and other partners.
• Partners can bind the firm even if they act outside the scope
of their authority if the act is done to carry on the business of
the firm.
• Case Law: In the case of Ashoka Marketing Ltd. v. Punjab
National Bank, the court held that a partner who had no
authority to sign cheques could bind the firm by issuing
cheques if such action was necessary for the conduct of the
business.
• Unlimited Liability (Section 25):
• Partners are jointly and severally liable for the debts and
obligations of the firm.
• In case of default, creditors can recover the entire amount
from any partner, regardless of their profit-sharing ratio.
• Case Law: In the case of K.L. Johar & Co. v. Deputy
Commissioner Tax Officer, the court held that the liability
of partners is joint and several, which means that the creditor
has the option to recover the entire amount from any partner
or from all the partners jointly.
END
 RELATION OF
PARTNERS TO ONE
ANOTHER (S. 9-17)
 INTRODUCTION
• The relation between partners of a Partnership Firm is covered from
Section 9 to 17 of IPA, 1932.
• These sections and some related case laws form the foundation of
partnership relations and outline rights, duties, and liabilities among
partners in India. Understanding these provisions is crucial for
maintaining trust and fairness within partnerships.
 GENERAL DUTIES OF PARTNERS
• Section 9 of the Indian Partnership Act, 1932:
• Deals with the general duties of partners towards each other.
• Obligates partners to conduct firm business for the greatest
common advantage.
• Requires partners to be just and faithful to each other.
• Mandates partners to render true accounts and full information
regarding firm matters to any partner or their legal representative.
• Emphasizes the obligation of partners to act in good faith and
disclose all relevant information to their fellow partners.
• Case of Bagree Textiles v. Gaurav Overseas Corporation
(2012) 12 SCC 579):
• Illustrates the importance of maintaining utmost good faith and
trust among partners.
• Highlights a scenario where one partner concealed crucial
information resulting in a loss to the firm.
• Court held that the partner who hid information breached the duty
of good faith towards the other partner.
 DUTY TO INDEMNIFY FOR LOSS
CAUSED BY FRAUD
• Section 10 of the Indian Partnership Act, 1932:
• States that every partner must indemnify the firm for losses caused
by their fraud in conducting the firm's business.
• Imposes personal liability on partners for losses resulting from their
fraudulent actions.
• Highlights the principle of accountability and responsibility among
partners.
• Serves to ensure fair and transparent conduct of the firm's business
operations.
 DETERMINATION OF RIGHTS AND DUTIES OF
PARTNERS BY CONTRACT BETWEEN THE
PARTNERS
• Section 11 of the Indian Partnership Act, 1932:
• Addresses the determination of rights and duties of partners
through contracts.
• Partners can establish mutual rights and duties through express or
implied contracts.
• These contracts can be modified with the consent of all partners.
• Allows for agreements in restraint of trade, where a partner agrees
not to engage in competing businesses while associated with the
firm.
•
• Case of Mohanlal Agarwal v. Lachhmi Narayan (AIR
2000 All 271):
• Court emphasized that agreements in restraint of trade must be
reasonable and necessary for protecting the firm's business.
• Agreements deemed unreasonable or unnecessary will be
considered as restraints of trade and rendered unenforceable.
• Highlights the importance of balancing partnership interests with
individual freedoms in such agreements.
 THE CONDUCT OF THE BUSINESS
• Section 12 of the Indian Partnership Act, 1932:
• Regulates the conduct of business among partners.
• Affirms every partner's right to participate in business operations.
• Partners are obligated to diligently attend to their duties.
• Ordinary matters may be decided by a majority, but major changes
require unanimous consent.
• Each partner has the right to access and inspect the firm's books.
• Case of Jugal Kishore v. Jyoti (AIR 2009 P&H 123):
• Reinforces a partner's right to access firm books.
• However, accessing books for ulterior motives, such as
competition, breaches the duty of good faith towards the firm.
• Highlights the importance of using firm resources ethically and in
the best interest of the partnership.
 MUTUAL RIGHTS AND LIABILITIES
• Section 13 of the Indian Partnership Act, 1932:
• Defines mutual rights and liabilities among partners.
• Partners are not entitled to remuneration but share profits and
losses equally.
• Partners receive interest on payments made beyond their agreed
capital subscription.
• The firm must indemnify partners for payments made or liabilities
incurred in ordinary business conduct or emergencies.
• Partners are liable to indemnify the firm for losses due to willful
neglect in business conduct.
• Case of Govindram Seksaria v. Collector of Customs (AIR 1976
SC 1957):
• Partners entitled to interest on payments made beyond agreed capital
subscription.
• Highlighted in a case where partners made an advance payment confiscated by
customs authorities.
• Court upheld partners' entitlement to interest as part of ordinary and proper
business conduct.
• Importance of Understanding Duties and Liabilities:
• Vital for partners to comprehend obligations under the Indian Partnership Act,
1932.
• Ensures partners act in good faith and maintain fairness in business operations.
• Emphasizes the necessity of clear partnership agreements to define mutual
rights and duties, averting potential disputes.
 THE PROPERTY OF THE FIRM
• Section 14 of the Indian Partnership Act, 1932:
• Governs the ownership and use of firm property.
• Firm property comprises all jointly owned assets, rights, and
interests resulting from business activities.
• Includes the firm's goodwill, representing its reputation and
customer base.
• Firm property is collectively owned by all partners; no individual
partner can claim exclusive rights.
• Property is to be used solely for the firm's business, not for
personal purposes.
• Case of Brij Mohan v. Lala Ram Lal (AIR 1960 All 123):
• Addresses clauses in partnership deeds granting one partner the authority to
expel another.
• Court deemed such clauses void as they conflict with Section 14.
• Upheld the principle of mutual agency in partnerships, emphasizing collective
ownership and decision-making.
• Importance of Section 14:
• Defines the scope and ownership of firm property, including goodwill.
• Establishes guidelines for the use of firm assets, preventing misuse for
personal gain.
• Upholds the principle of collective ownership and decision-making, fostering
mutual respect and collaboration among partners.
APPLICATION OF THE PROPERTY OF
THE FIRM
• Section 15 of the Indian Partnership Act, 1932:
• Addresses the rights and transfer of a partner's share in the firm.
• Prohibits the transfer of a partner's share to an outsider without unanimous
consent from other partners.
• Permits the transfer of a partner's share to an existing partner, who then
assumes all rights and obligations.
• In the event of a partner's death or insolvency, their share passes to legal heirs
or representatives, subject to partners' agreement for inclusion.
• Transfer of a partner's share does not dissolve the firm; it continues as long as
at least two partners remain.
• Case of Abdul Gafar Khan v. State of Haryana (AIR 2012 SC
3451):
• Highlights the doctrine of holding out, applicable even after a partner's
retirement.
• Retired partners, whose names are still used in the firm's advertisements, can
be held liable for post-retirement debts unless public notice of retirement is
given.
• Reinforces the importance of clarifying partnership status to avoid liabilities
beyond active involvement.
• Importance of Section 15:
• Defines procedures for transferring a partner's share, ensuring consent and
continuity in the firm's operations.
• Protects the interests of all partners and their heirs in the event of changes in
partnership status.
• Establishes guidelines for the dissolution and continuation of the firm,
maintaining stability and accountability in business operations.
 PERSONAL PROFITS NAMED BY
PARTNERS
• Section 16 of the Indian Partnership Act, 1932. This section governs
the treatment of personal profits earned by partners in a partnership
• Personal Profits from Firm Transactions or Resources:
• If a partner benefits personally from any transaction of the firm or utilizes the
firm's property, business connections, or name for personal gain, the partner
must account for those profits.
• The partner is required to pay the profits back to the firm.
• Competing Business Activities:
• If a partner engages in a business similar to and competing with that of the
firm, all profits earned in that competing business must be accounted for and
paid to the firm.
• This provision ensures fairness and prevents partners from engaging in
activities that could undermine the interests of the partnership.
• Subject to Contract Between Partners:
• The enforcement of these provisions depends on the terms established in the
partnership contract or agreement between the partners.
• The specific conditions regarding profit-sharing and competition may be
outlined in the partnership agreement.
• Overall, Section 16 aims to maintain integrity and prevent conflicts of
interest within the partnership by ensuring that personal profits derived
from firm resources or competitive activities are accounted for and
returned to the firm.
 RIGHT AND DUTIES OF PARTNERS
• Section 17 of the Indian Partnership Act, 1932, delineates the rights
and duties of partners, subject to the agreements made between them:
• Subject to Contract Between the Partners:
• The rights and duties of partners are contingent upon the terms established in
the partnership contract or agreement between them.
• After a Change in the Firm's Constitution:
• If there is a change in the firm's constitution, the mutual rights and duties of
the partners in the reconstituted firm remain the same as they were before the
change, to the extent possible.
• After the Expiry of the Firm's Term:
• If a firm constituted for a fixed term continues its operations after the term's
expiry, the mutual rights and duties of the partners remain unchanged, insofar
as they are consistent with the nature of a partnership at will.
• Additional Undertakings:
• If a firm initially formed for specific adventures or undertakings engages in
other ventures, the mutual rights and duties of the partners in these new
ventures mirror those of the original undertakings.
• This section underscores the importance of adherence to the
partnership agreement and recognizes the continuity of rights and
duties despite changes in the firm's structure or operations. It provides
clarity on the framework governing partnerships in various scenarios,
ensuring stability and consistency in partner relationships.
END
 RELATION OF
PARTNERS TO THIRD
PARTY(S. 18-30)
 INTRODUCTION
• The relation of partners with third person is covered from Section 18
to 30 of IPA, 1932.
• These sections and some related case laws create the foundation of
partner relations and outline rights, duties, and liabilities with third
person in India.
 PARTNERS TO BE AGENT OF THE
FIRM
• Section 18 of the Indian Partnership Act, point by point:
• The section states that a partner of a partnership firm is an agent of the
firm.
• The partner acts as an agent of the firm for the purpose of carrying out
the firm's business.
• Any act done by a partner in the course of the firm's business is deemed
to have been done by the firm itself.
• Therefore, the actions of a partner, acting within the scope of his or her
authority, legally bind the partnership firm.
• This means that if a partner makes a contract on behalf of the partnership
firm, the contract is binding on the firm and all its partners.
• It also means that if a partner incurs any liability in the course of
the firm's business, the partnership firm and all its partners are
jointly and severally liable for that liability.
• However, if a partner acts outside the scope of his or her
authority, the partner may be personally liable for any resulting
loss or damage.
• It is important to note that the section applies only to acts done in
the course of the firm's business. If a partner does something
outside the scope of the firm's business, the firm may not be
legally bound by that action.
• The section also implies that a partner has the implied authority to
act on behalf of the firm, unless there is an agreement between
the partners stating otherwise.
• The section emphasizes the importance of understanding the
scope of a partner's authority before engaging in any business
transactions on behalf of the firm.
 IMPLIED AUTHORITY OF PARTNER
AS AGENT OF THE FIRM
• Section 19 deals with the implied authority of a partner as an agent
of the partnership firm:
• It states that any act done by a partner in the usual course of business of
the kind carried on by the firm is deemed to be binding on the
partnership.
• This authority is called "implied authority" because it is not expressly
granted but is derived from the partnership agreement and the nature of
the business.
• The implied authority includes all acts that are necessary or incidental to
the carrying on of the business of the firm.
• For example, if a partner of a cloth merchant firm sells cloth to a
customer, it is an act done in the usual course of business and is binding
on the partnership.
• However, the implied authority of a partner is subject to certain
restrictions listed in sub-section (2) of Section 19.
• The restrictions include acts that are outside the scope of the
partnership business or are contrary to the terms of the
partnership agreement.
• If a partner acts beyond his/her implied authority, then the
partnership firm is not bound by those acts.
• In such a case, the partner may be held personally liable for any
loss or damage caused to the partnership.
• Therefore, it is important for partners to understand the scope of
their implied authority and act within it to avoid any legal
consequences.
• In the case of Rameshwar Prasad v. Shambehari Lal (AIR
1970 SC 564), it was held that where the partnership is for a
particular business, the partner has the implied authority to do all
acts that are necessary to carry on that business.
 EXTENSION AND RESTRICTION OF
PARTNER'S IMPLIED AUTHORITY
• Section 20:
• This section allows partners to restrict or extend the implied
authority of any partner through a contract between the
partners.
• If a partner acts within the scope of his implied authority, the
partnership firm is still bound by his actions, unless the
person he is dealing with is aware of the restriction or does
not believe him to be a partner.
 PARTNER'S AUTHORITY IN AN
EMERGENCY
• Section 21:
• This section deals with the authority of a partner in an emergency
situation.
• In such situations, a partner is authorized to do whatever is necessary to
protect the interests of the partnership firm.
• This includes acts that would be done by a prudent person in similar
circumstances.

• In the case of Dhulabhai v. State of Madhya Pradesh (1968 SCR (3)

662), it was held that a partner can take any action necessary to protect
the partnership firm during an emergency, even if such actions are not in
the ordinary course of business.
MODE OF DOING ACT TO BIND FIRM
• Section 22:
• This section specifies that any act done on behalf of the
partnership firm must be executed in the name of the firm or
in a manner that implies the intention to bind the partnership.
• This is to ensure that any act or instrument executed by a
partner or any other person on behalf of the partnership is
legally binding.
 EFFECT OF ADMISSIONS BY A
PARTNER
• Section 23:
• This section states that any admission or representation made by a
partner concerning the affairs of the partnership is evidence against the
firm if it is made in the ordinary course of business.
 EFFECT OF NOTICE TO ACTING
PARTNER
• Section 24:
• This section deals with the effect of notice to a partner.
• Notice to a partner who is involved in the business of the partnership
firm is deemed to be notice to the entire partnership firm, except in
cases of fraud.

• In the case of Nandkishore v. Sant Lal [(2003) 135 PLR 28], it was
held that notice to a partner in the course of business is deemed to be
notice to the entire partnership firm, except where the partner has
acted fraudulently.
 LIABILITY OF A PARTNER FOR ACTS
OF THE FIRM
• Section 25:
• Each partner in a partnership firm is jointly and severally liable for all
acts done by the firm while they are a partner.
• This means that each partner is individually responsible for the entire
debt and liabilities incurred by the partnership, regardless of the share
of profits or losses they may have.
• Potential partners should consider this clause before joining a
partnership, and all partners should be aware of and agree to the terms
and conditions in the partnership agreement before signing.
• Legal consultation may be necessary in case of disputes or conflicts.
 LIABILITY OF THE FIRM FOR
WRONGFUL ACTS OF A PARTNER
• Section 26:
• The firm is liable for any loss or injury caused by a partner's wrongful
acts or failure to perform a legal duty in the ordinary course of
business with the authority of their partners.
• In other words, the firm is responsible for the actions of its partners.
 LIABILITY OF FIRM FOR
MISAPPLICATION BY PARTNERS
• Section 27:
• The firm is liable for any loss resulting from a partner's misapplication
of money or property received from a third party while acting within
their apparent authority.
• The firm is also liable for any loss resulting from a partner's
misapplication of money or property received by the firm from a third
party while in the custody of the firm.
 HOLDING OUT
• Section 28:
• If a person represents themselves as a partner in a firm, or allows
themselves to be represented as a partner, they are liable as a partner to
any person who has given credit to the firm based on that
representation.
• The continued use of a deceased partner's name by a firm does not
make the legal representative or estate of the deceased partner liable
for any act of the firm done after their death.
 RIGHTS OF TRANSFEREE OF A
PARTNER'S INTEREST
• Section 29:
• A partner's transferee (the person who receives the partner's share) is not
entitled to interfere in the conduct of the business or inspect the books of the
firm during its continuance.
• However, the transferee is entitled to receive the share of profits of the
transferring partner and accept the account of profits agreed upon by the
partners.
• If the firm is dissolved or the transferring partner ceases to be a partner, the
transferee is entitled to receive the share of the assets of the firm to which
the transferring partner is entitled, and the court may determine their share
from the date of dissolution.
• Case Law: In Bharat Dyeing and Manufacturing Co. Ltd. v. CCE
[(2005) 183 ELT 481 SC], the court held that a transferee of a
partner's interest is not entitled to interfere in the management of the
firm's business, but he is entitled to his share of profits as agreed upon.
 MINORS ADMITTED TO THE
BENEFITS OF PARTNERSHIP
• Section 30:
• A minor cannot be a partner in a firm, but they can be admitted to the
benefits of partnership with the consent of all the partners.
• The minor's share is liable for the acts of the firm, but the minor is not
personally liable.
• The minor has a right to such share of the property and profits of the
firm as agreed upon and may access and inspect the firm's accounts.
• If the minor decides to sever their connection with the firm, they can
sue the partners for an account or payment of their share of the
property or profits of the firm.
• If the minor decides to become a partner, their rights and liabilities as a
minor continue until they become a partner, and they become personally
liable to third parties for all acts of the firm done since they were admitted
to the benefits of partnership.
• If the minor decides not to become a partner, their rights and liabilities
continue until they give public notice, after which their share is not liable
for any acts of the firm done after the notice, and they are entitled to sue the
partners for their share of the property and profits.
• Section 28 still applies despite subsections (7) and (8).

• In the case of Nagindas Ramdas v. Dalpatram Ichharam (1974 SCR (2)

544), the court held that a minor admitted to the benefits of partnership
cannot sue the partners for an account or payment of his share of the
property or profits of the firm, except when severing his connection with the
firm.
END
 INCOMING AND
OUTGOING PARTNERS
(S. 31-38)
 INTRODUCTION
• The Indian Partnership Act, 1932, governs the legal framework for
partnerships in India, outlining the rights, duties, and liabilities of
partners. Sections 31 to 38 specifically address the nuances
surrounding incoming and outgoing partners, retirement, expulsion,
insolvency, and other critical aspects of partnership dynamics. These
sections are pivotal in maintaining the integrity and stability of
partnerships while ensuring fair treatment and accountability among
partners.
 INTRODUCTION OF A PARTNER
• Section 31:

• No person can be introduced as a partner into a firm without the consent of all
existing partners. The introduction of a new partner can only take place if there is
an agreement between the existing partners and the provisions of Section 30 are
followed.

1. If a new partner is introduced into a firm, they are not liable for any act done by
the firm before they became a partner, subject to the provisions of Section 18.
• Illustration: If X and Y have a partnership firm, they cannot
introduce Z as a new partner without the consent of both X
and Y. If Z is introduced as a new partner, they will not be
liable for any act done by the firm before they became a
partner.
 RETIERMENT OF A PARTNER (S.32)
1. A partner may retire from a firm in three ways:
(a)with the consent of all other partners,
(b)in accordance with an express agreement made by the partners, or
(c)where the partnership is at will, by giving written notice to all other partners of their intention
to retire.

2. A retiring partner can be discharged from any liability to any third party for acts of the firm done
before their retirement by an agreement made by them with such third party and the partners of
the reconstituted firm. Such an agreement can be implied by a course of dealing between such
third party and the reconstituted firm after they had knowledge of the retirement.
1. Even after a partner retires from a firm, they and the partners continue to be liable as
partners to third parties for any act done by any of them which would have been an act of
the firm if done before the retirement, until public notice is given of the retirement.
However, a retired partner is not liable to any third party who deals with the firm without
knowing that they were a partner.

2. Notices under subsection (3) can be given by the retired partner or by any partner of the
reconstituted firm.

• Illustration: If X and Y have a partnership firm, and X decides to retire from the
partnership, they can retire by giving written notice to Y of their intention to retire. Until
public notice is given of the retirement, X and Y continue to be liable as partners to third
parties for any act done by them which would have been an act of the firm if done before
the retirement.
 EXPULSION OF A PARTNER (S.33)
1. A partner cannot be expelled from a firm by any majority of the partners except in the
exercise in good faith of powers conferred by contract between the partners.

2. The provisions of subsections (2), (3), and (4) of Section 32 apply to an expelled partner
as if they were a retired partner.

• Illustration: If X, Y, and Z have a partnership firm, Y and Z cannot expel X from the
partnership unless they have the power to do so under the partnership agreement. If X is
expelled from the partnership, they are treated as if they had retired from the partnership.
 INSOLVENCY OF A PARTNER (S.34)
1. If a partner in a firm is adjudicated insolvent, they cease to be a partner on the date on which the
order of adjudication is made, whether or not the firm is thereby dissolved.

2. If the firm is not dissolved by the adjudication of a partner as an insolvent under a contract
between the partners, the estate of the insolvent partner is not liable for any act of the firm, and
the firm is not liable for any act of the insolvent partner done after the date on which the order of
adjudication is made.
• Illustration: If X and Y have a partnership firm, and X is adjudicated
insolvent, they cease to be a partner in the firm, and the partnership is
dissolved. This means that Y will have to wind up the partnership business and
distribute the assets and liabilities among the partners as per their profit-
sharing ratio. However, if the partnership deed includes a clause for the
continuation of the partnership in such a scenario, then the partnership may
continue with Y as the sole proprietor until a new partner is inducted. It is
important to note that the liability of the insolvent partner will continue even
after their cessation from the partnership, and the creditors can proceed against
their separate property to recover their dues.
 LIABILITY OF ESTATE OF DECEASED
PARTNER (S.35)
1. This section deals with the liability of the estate of a deceased partner in a firm. Here are the main points:

2. If the partnership agreement does not state that the firm will be dissolved in the event of a partner's death,
then the estate of the deceased partner will not be liable for any acts of the firm done after the partner's
death.

3. This means that the deceased partner's estate will not be responsible for any debts or obligations incurred by
the firm after the partner's death.

• Illustration: Suppose A, B, and C are partners in a firm, and the partnership agreement does not provide for
the dissolution of the firm upon the death of a partner. If A dies, his estate will not be liable for any acts of the
firm done after his death.
 RIGHTS OF OUTGOING PARTNER TO CARRY ON
COMPETING BUSINESS (S.36)

1. This section deals with the rights of an outgoing partner to carry on a competing
business. Here are the main points:

2. An outgoing partner may carry on a business that competes with the firm, and
may advertise that business. However, there are certain restrictions.

3. The outgoing partner may not use the firm-name, represent himself as carrying on
the business of the firm, or solicit the custom of persons who were dealing with
the firm before he ceased to be a partner, unless there is a contract to the contrary.
1. A partner may make an agreement with his partners that on ceasing to be a
partner, he will not carry on any business similar to that of the firm within
a specified period or within specified local limits. Such an agreement is
valid if the restrictions imposed are reasonable.

• Illustration: Suppose A is an outgoing partner of a firm that sells cars. A

may start a business that sells cars, but he cannot use the firm-name or
represent himself as carrying on the business of the firm. He also cannot
solicit the custom of persons who were dealing with the firm before he
ceased to be a partner, unless there is a contract to the contrary.
RIGHT OF OUTGOING PARTNER IN CERTAIN CASES
TO SHARE SUBSEQUENT PROFITS (S.37)

1. This section deals with the right of an outgoing partner to share in subsequent profits of the firm.
Here are the main points:

2. If a member of a firm dies or otherwise ceases to be a 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 the outgoing
partner or his estate is entitled to a share of the profits made since he ceased to be a partner.

3. The share of profits may be attributable to the use of the outgoing partner's share of the property
of the firm, or to interest at the rate of six per cent per annum on the amount of his share in the
property of the firm.
1. If there is a contract between the partners that gives the surviving or
continuing partners the option to purchase the interest of a deceased or
outgoing partner, and that option is exercised, then the estate of the
deceased partner or the outgoing partner's estate is not entitled to any
further share of profits.

• Illustration: Suppose A, B, and C are partners in a firm, and A decides to

leave the firm. If there is no final settlement of accounts between A and the
firm, and the firm continues to use A's share of the property of the firm to
make profits, then A or his estate is entitled to a share of those profits.
• Section 38 of the Indian Partnership Act deals with the revocation of continuing guarantees given to a firm or
third party in respect of transactions of the firm. Here's a point-wise explanation:

1. A continuing guarantee given to a firm or third party in respect of transactions of the

firm is automatically revoked as to future transactions if there is a change in the
constitution of the firm.

2. This means that if the partnership changes in any way, such as by the admission or
retirement of a partner, any continuing guarantee given to the firm or third party is
revoked as to any transactions that occur after the change.

3. However, this revocation only applies in the absence of an agreement to the contrary. If
the partners have made an agreement to the effect that a continuing guarantee will
continue even after a change in the constitution of the firm, then this section will not
apply.
A relevant Supreme Court case law related to this section is the case of Bank of Bihar v.
Damodar Prasad & Sons. In this case, a partnership firm had given a continuing guarantee to a
bank, which had advanced a loan to a third party on the basis of the guarantee. Subsequently, the
partnership was dissolved and a new partnership was formed, but the bank continued to make
payments to the third party on the basis of the original guarantee.

The Supreme Court held that since there was a change in the constitution of the firm, the
guarantee given by the original partnership was automatically revoked as to future transactions.
Therefore, the bank could not recover any further amounts from the new partnership on the
basis of the original guarantee. However, the Court also noted that if the new partnership had
agreed to assume the liability under the original guarantee, then it would be bound by it.
END
 DISOLUTION OF
PARTNERSHIP FIRM (S.
39-44)
 INTRODUCTION
• The dissolution of a partnership, as governed by Sections 39 to 44 of
the Indian Partnership Act, 1932, marks the cessation of the business
operations conducted by all partners collectively, thereby terminating
the legal entity known as the firm. These sections delineate the various
circumstances and procedures under which a partnership may come to
an end, reflecting the legal intricacies involved in the dissolution
process
 DISSOLUTION OF A FIRM
• Section 39:

1.The dissolution of a partnership between all the partners of a

firm is called the "dissolution of the firm".
2.When all partners of the firm decide to end their partnership,
it leads to the dissolution of the firm.
3.For example, if three partners were running a business and
decided to part ways, then the firm would be dissolved.
 TYPES OF DISSOLUTION OF
PARTNERSHIP

DISSOLUTION ON
DISSOLUTION COMPULSARY DISSOLUTION BY DISSOLUTION
THE HAPPENING OF
BY AGREEMENT DISSOLUTION NOTICE OF BY COURT
CERTAIN
(SEC – 40) (SEC – 41) PARTNERSHIP AT (SEC – 44)
CONTINGENCIES
WILL
(SEC – 42)
(SEC – 43)
 DISSOLUTION BY AGREEMENT
(SEC – 40)
1.A firm may be dissolved with the consent of all the partners
or in accordance with a contract between the partners.
2.When all partners agree to dissolve the firm or have a
contract which specifies conditions for dissolution, the firm
can be dissolved.
3.For example, if the partnership agreement mentions that the
firm can be dissolved if any partner decides to leave, then the
firm can be dissolved if that condition is met.
 COMPULSARY DISSOLUTION (SEC – 41)

1. A firm is dissolved (a) by the adjudication of all the partners or of all

the partners but one as insolvent, or (b) by the happening of any event
which makes it unlawful for the business of the firm to be carried on
or for the partners to carry it on in partnership.
2. When all partners of a firm are adjudicated as insolvent, or if an event
occurs which makes it illegal to carry on the business of the firm, then
the firm is compulsorily dissolved.
3. For example, if a law is passed that makes the business of the firm
illegal or if all partners are declared insolvent, then the firm is
dissolved.
 DISSOLUTION ON THE HAPPENING OF
CERTAIN CONTINGENCIES
(SEC – 42)
1. Subject to contract between the partners, a firm is dissolved (a) if constituted for
a fixed term, by the expiry of that term; (b) if constituted to carry out one or more
adventures or undertakings, by the completion thereof; (c) by the death of a
partner; and (d) by the adjudication of a partner as an insolvent.
2. If a firm was constituted for a fixed term, then the firm is dissolved when the
term expires. If the firm was constituted to carry out a specific undertaking, then
the firm is dissolved when that undertaking is completed. The death of a partner
or the adjudication of a partner as an insolvent also leads to dissolution of the
firm.
3. For example, if a partnership was formed to complete a specific project, then the
firm is dissolved when the project is completed.
 DISSOLUTION BY NOTICE OF
PARTNERSHIP AT WILL (SEC – 43)
1. Where the partnership is at will, the firm may be dissolved by any
partner giving notice in writing to all the other partners of his
intention to dissolve the firm.
2. If the partnership is at will, which means that the partnership has not
been formed for any specific duration or purpose, then any partner
can dissolve the firm by giving notice to all other partners of his
intention to dissolve the firm.
3. For example, if two friends decided to start a business and formed a
partnership at will, either one of them can dissolve the partnership by
giving notice to the other partner.
 DISSOLUTION BY COURT (SEC – 44)

• At the suit of a partner, the Court may dissolve a firm on any

of the following grounds, namely:
(a)that a partner has become of unsound mind, in which case the suit may be
brought as well by the next friend of the partner who has become of unsound
mind as by any other partner;
(b)that a partner, other than the partner suing, has become in any way
permanently incapable of performing his duties as partner;
(c)that a partner, other than the partner suing, is guilty of conduct which is likely
to affect the working of partnership firm.
END
 REGISTRATION OF
PARTNERSHIP FIRM
(S. 56-59 AND 69)
 INTRODUCTION
• The Indian Partnership Act, 1932 provides for the registration
of partnership firms. The Act empowers the State
Government to exempt the provisions of the Act from any
state or any part thereof. The State Government also has the
power to appoint Registrars of Firms, and the registration
process requires submitting a statement containing the
necessary information to the Registrar of Firms.
 POWER OF STATE GOVERNMENT
FOR EXCEMPTION OF IPA
The State Government holds the authority to exempt any state or part
thereof from the provisions of the Indian Partnership Act, 1932 through an
official notification.

Illustration:

The State Government of Gujarat issues a notification exempting the state

from the application of the Indian Partnership Act, 1932, thereby excluding
partnerships in Gujarat from the Act's governance.
 SECTION 57: APPOINTMENT OF
REGISTRARS
• Registrars of Firms are appointed by the State Government,
with defined areas of jurisdiction. They are considered public
servants under section 21 of the Indian Penal Code.
• Illustration:
• The State Government of Uttar Pradesh appoints Mr. Rajesh
as the Registrar of Firms for the state, with specified areas of
responsibility.
 SECTION 58: APPLICATION FOR
REGISTRATION
• A firm may apply for registration by submitting a statement in the
prescribed form, along with the required fee, to the Registrar of Firms.
The statement must contain various details about the firm and must be
signed by all partners or their authorized agents.
• The statement must contain the following information:
• The name of the firm
• The place or principal place of business of the firm
• The names of any other places where the firm carries on business
• The date when each partner joined the firm
• The names and full and permanent addresses of the partners
• The duration of the firm
• The statement must be signed by all the partners or their agents specially authorized
on their behalf. Each person signing the statement must also verify it in the
prescribed manner.

• The firm name must not contain certain words such as "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.
• Illustration:
• Ram, Shyam, and Mohan wish to start a partnership firm for a construction
business in Delhi. They prepare a statement in the prescribed form containing all
the necessary information such as the name of the firm, the place of business, the
names of partners, etc. They sign and verify the statement and submit it to the
Registrar of Firms in Delhi along with the prescribed fee. The Registrar of Firms
examines the application, and if satisfied, he will enter the name of the firm in the
Register of Firms and issue a Certificate of Registration.
 SECTION 59: RECORDING OF
STATEMENT
• Upon satisfaction with the application, the Registrar records the
statement in the Register of Firms, thereby registering the firm. The
Register of Firms serves as a public document containing details of all
registered firms.
• Illustration:
• After examining the statement from Ram, Shyam, and Mohan, the
Registrar of Firms in Delhi records it in the Register of Firms,
signifying the firm's registration.
 SECTION 69: EFFECT OF NON-
REGISTRATION
• Non-registration of a firm prohibits suits to enforce rights arising from
a contract by or against the firm unless registered. However, this
section does not affect suits for dissolution, accounts of dissolved
firms, or certain powers of insolvency officials.
• Illustration:
• A suit cannot be filed against an unregistered firm in any court to
enforce contract rights, unless the firm is registered and the suing party
is listed as a partner.
END
 LIMITED LIABILITY
PARTNERSHIP ACT, 2008:
ESSENTIAL FEATURES,
DISTINCTION BETWEEN LLP
AND ORDINARY
PARTNERSHIP
 INTRODUCTION
• Limited Liability Partnership (LLP) is a partnership in
which all partners have limited liability. It is a hybrid
form of a partnership, which combines the flexibility
of a partnership and the limited liability of a company.
The LLP structure was introduced in India in 2008
under the Limited Liability Partnership Act, 2008
 ESSENTIAL FEATURES OF LLP ACT,
2008

SEPARATE LIMITED NO MANAGEMENT AUDIT AND

LEGAL LIABILITY RESTRICTIO MAINTENAN
ENTITY N ON THE CE OF
NUMBER OF ACCOUNTS
PARTNERS
 SEPARATE LEGAL ENTITY
• Provision: Section 3 of the LLP Act, 2008.
• Case law: Satyam Food Specialties Pvt. Ltd. vs. State of
Maharashtra (2012).
• Explanation:
• An LLP is treated as a distinct legal entity from its partners.
This means it can own property, enter into contracts, sue and
be sued in its own name.
• Any change in the partners does not effect the firm under
LLP.
 LIMITED LIABILITY
• Provision: Section 26 of the LLP Act, 2008.
• Case law: Rajasthan State Electricity Board vs. Rapid Power Limited
(2016).
• Explanation: Partners' liability is limited to the amount they have
invested in the LLP. They are not personally liable for the debts and
obligations of the LLP beyond this amount.
NO RESTRICTIONS ON THE NUMBER
OF PARTNERS
• Provision: Section 6 of the LLP Act, 2008.
• Case law: M/S Atop Automobiles Pvt. Ltd. vs. Shri Rakesh Gupta
(2014).
• Explanation: An LLP can have any number of partners, with a
minimum requirement of at least two partners. There is no maximum
limit on the number of partners.
 MANAGEMENT
• Provision: Sections 7, 8, and 9 of the LLP Act, 2008.
• Case law: Sandvik Asia Ltd. vs. B.S. Shanthi (2017).
• Explanation: Partners manage the affairs of the LLP, and
designated partners may be appointed for administrative
purposes. At least one designated partner must be a resident
of India.
 EXPLANATION OF DESIGNATED
PARTNER (SEC – 7 TO 10, LLP)
• Minimum Requirement and Residency:

• Every LLP must have at least two designated partners, who must be individuals. At least one
designated partner must be a resident of India.
• If all partners are corporate bodies or if there is a mix of individuals and corporate bodies, at least two
individuals or nominees of corporate bodies must act as designated partners.

• Appointment and Cessation:

• Designation of partners can be specified in the incorporation document or as per the LLP agreement.
• Any partner can become a designated partner as per the LLP agreement and can cease to be one
according to the same agreement.
• Consent and Filing Requirements:

• An individual must give prior consent in the prescribed manner to act as a designated partner.

• The LLP must file the particulars of every individual who consents to act as a designated partner within
thirty days of their appointment.

• Eligibility and Identification Number:

• Designated partners must satisfy prescribed conditions and requirements.

• Every designated partner must obtain a Designated Partner Identification Number (DPIN) from the
Central Government, and relevant provisions of the Companies Act, 2013 apply for this purpose.

• Liabilities of Designated Partners:

• Designated partners are responsible for ensuring LLP compliance with the LLP Act, including filing
necessary documents and reports.
• They are liable for penalties imposed on the LLP for contraventions of the Act, unless expressly
provided otherwise.
• Changes and Vacancies:
• LLP can appoint a new designated partner within thirty days of a vacancy arising, with
provisions for filing particulars similar to initial appointments.
• In the absence of appointed designated partners or if there is only one, every partner is
deemed to be a designated partner.
• Punishment for Contravention:
• Penalties are imposed on the LLP and its partners for contravention of provisions
regarding the minimum number of designated partners, failure to file particulars of
designated partners, and changes in designated partners.
• Penalties escalate for continuing contraventions, with maximum limits set for both the
LLP and individual partners.
• Punishment shall be minimum of 10,000 rupees and for continuing contravention the
penalty of rupees 100/day shall be imposed up to maximum of 1 lakh rupees and 50,000
for each partner.
 AUDIT AND MAINTENANCE OF
ACCOUNTS
• Provision: Section 34 of the LLP Act, 2008.
• Case law: National Aviation Co. of India Ltd. vs.
Commissioner of Service Tax (2015).
• Explanation: LLPs are required to maintain proper books of
accounts and get them audited annually. This ensures
transparency and accountability in the LLP's financial
operations.
 Distinction between LLP and ordinary partnership

1. Liability: In an ordinary partnership, the partners have unlimited liability, which

means they are personally liable for the debts and obligations of the partnership.
In an LLP, the liability of partners is limited to the amount of capital they have
contributed to the LLP.

2. Legal entity: An ordinary partnership is not a separate legal entity, and the
partners are jointly and severally liable. In an LLP, it is a separate legal entity, and
partners are not personally liable for the debts and obligations of the LLP.
1. Management: In an ordinary partnership, all partners have an equal
say in the management of the partnership. In an LLP, the partners can
appoint designated partners who have the responsibility of managing
the LLP.

2. Audit and maintenance of accounts: An ordinary partnership is not

required to maintain proper books of accounts or have them audited.
In an LLP, proper books of accounts must be maintained and audited
annually.
END