Question

• Can a new partner be introduced into a firm

without the unanimous consent of the
existing partners?
 Introduction of a Partner
[Section 31(1)]

• Subject to a contract between the partners

and to the provisions of Section 30, no
person shall be introduced as a partner into a
firm without the consent of all the existing
partners.
 Introduction of a New Partner
• The general rule is that a new partner cannot be
introduced to a firm without the consent of all
partners.
• But this rule is subject to a contract to the contrary
among the partners.
• Hence, if the partnership deed allows the partners
to add a new partner to the firm by simple or
special majority, the introduction of a new partner
would be valid.
 Question

• Can a newly introduced partner be held

liable for an act of the firm done before
he became a partner?
 Liability of an Incoming Partner
[Section 31(2)]
• Subject to the provisions of Section 30, a
person who is introduced as a partner
into a firm does not thereby become
liable for any act of the firm done before
he became a partner.
 Question

• What are the various modes by which

an existing partner can cease to be a
partner in a firm?
 Modes of Leaving a Firm

• Retirement (Resignation)
• Expulsion
• Insolvency
• Death
 Retirement of a Partner (Section
32)
• A partner may retire from the firm:
• (a) with the consent of all the other partners,
• (b) in accordance with an express agreement
by the partners, or
• (c) where the partnership is at will, by giving
notice in writing to all the other partners of
his intention to retire.
 With the Consent of all Other Partners

• As a general rule, no partner can retire at his sweet

will.
• A Firm’s business depends upon the continuous
support of all partners.
• Hence, a partner can retire only with the express or
implied consent of all other partners.
 Under an Express Agreement of
Partners

• If an agreement among partners condones the

requirement of consent of all partners, a partner
may retire accordingly.
• For ex: the partnership deed may provide that a
partner can retire with the consent of majority of
partners, or by submitting one year’s notice, or on
attaining the age of 65 years.
 In Case of Partnership at Will

• In case of partnership at will, a partner may retire

by giving a notice in writing to all other partners.
• He can also dissolve the firm by giving a notice in
writing to all other partners.
 Question

• Whether a firm stands dissolved if one

of the partners retires from the firm?
 Effect of Retirement of a Partner
• If a firm comprises of 3 or more partners, then
on the retirement of one partner, the firm
does not stand dissolved.
• But if a firm comprises of only 2 partners, then
on the retirement of one partner, it stands
dissolved.
 Question

• Can a retiring partner be discharged

from liability for acts of the firm done
before his retirement?
Liability for Acts Done Before Retirement
[Section 32(2)]
• 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
partners of the reconstituted firm.
• Such agreement may be implied by a course of
dealing between such third party and the
reconstituted firm after he (third party) had
knowledge of the retirement.
 Example
• Z has a right of action against 3 partners, i.e.,
A, B and C.
• A retires from the firm.
• Z decides to make only B and C liable.
• A is thereby discharged from his liability.
 Question

• Can a retired partner be held liable for

the acts of the firm done after his
retirement?
Liability for Acts Done After Retirement
[Section 32(3) & (4)]
• Notwithstanding the retirement of a partner from a firm,
he 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:
• Provided that a retired partner is not liable to any third
party who deals with the firm without knowing that he
was a partner.
• Notices under sub-section (3) may be given by the
retired partner or by any partner of the reconstituted
firm.
 M/s Glorious Plastics vs Laghate
Enterprises (AIR 1993 Bombay 224)
• The Bombay High Court held that the proviso
to Section 32(3) is to the effect that even
when there is a failure to give public notice of
a partner’s retirement, a retired partner will
not be liable to a third party who did not know
that such person was a partner and deals with
the firm after such retirement.
 Expulsion of a Partner (Section 33)
• A partner may not be expelled from a firm by
any majority of the partners, save in the
exercise in good faith of powers conferred by
contract between the partners.
• The provisions of sub-sections (2), (3) and (4)
of Section 32 shall apply to an expelled
partner as if he were a retired partner.
 Conditions for Expulsion

• The power to expel a partner must have been

conferred by a contract entered into between
the partners; and
• Such power must be exercised in good faith.
 Liability of an Expelled Partner
• He continues to be liable for the acts of the firm
done before his expulsion, unless he is discharged
from liability by following the procedure under
Section 32(2).
• He can be made liable towards third parties for the
acts of the firm done after his expulsion, unless a
public notice of the expulsion has been given.
 Insolvency of a Partner [Section
34(1)]

• Where a partner in a firm is adjudicated an

insolvent he ceases to be a partner on the
date on which the order of adjudication is
made, whether or not the firm is thereby
dissolved.
 Liability of Insolvent Partner
[Section 34(2)]
• Where under a contract between the
partners, the firm is not dissolved by the
adjudication of a partner as an insolvent, the
estate of a partner so adjudicated is not
liable for any act of the firm and the firm is
not liable for any act of the insolvent, done
after the date on which the order of
adjudication is made.
 Effect of Section 34(2)
• No public notice is required to be given when
an individual ceases to be a partner due to his
insolvency.
• The reason is that insolvency is itself a
notorious fact which is not required to be
notified to anybody.
• Hence the position of an insolvent partner is
different from a retired or expelled partner.
 Question

• Whether a partnership firm gets

automatically dissolved on the death of
a partner?
 Death of a Partner (Section 35)
• 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.
 Effect of Section 35
• As a general rule, a firm stands dissolved on the
death of a partner.
• But this rule is subject to a contract to the contrary
between the partners.
• If the other partners agree, the business of a firm
may be continued with the remaining partners.
• No public notice is required to be given of the death
of a partner.
 Rights of Outgoing Partners

• Right to Carry on Competing Business

(Section 36); and
• Right to share subsequent profits until the
amount due to him has been paid (Section 37)
 Right to Carry on Competing
Business [Section 36(1)]
• An outgoing partner may carry on a business
competing with that of the firm and he may
advertise such business, but subject to contract to
the contrary, he may not—
• (a) use the firm name,
• (b) represent himself as carrying on the business of
the firm, or
• (c) solicit the custom of persons who were dealing
with the firm before he ceased to be a partner.
 Agreement in Restraint of Trade by
the Outgoing Partner [Section 36(2)]
• 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; and
• Notwithstanding anything contained in Section 27
of the Indian Contract Act, 1872, such agreement
shall be valid if the restrictions imposed are
reasonable.
 Example
• A, B, C and D are partners in a construction firm
based in Chandigarh.
• Due to some reasons, D is no longer interested in
continuing as a partner and resigns from his
position.
• He enters into an agreement with A, B and C that he
will not start a construction business within 20 km
of the vicinity of Chandigarh for the next 2 years.
• The agreement is valid as the restriction imposed is
reasonable.
 Object of Section 36(2)

• The object of Section 36(2) is to protect the

interests of the firm.
• Generally, an outgoing partner is paid his share of
the goodwill of the firm.
• Hence it is reasonable if he agrees that he will not
carry on a business similar to that of the firm.
 Question
• If the property of an outgoing or deceased
partner is being used by the remaining
partners of a firm even after he ceases to be a
partner, can the outgoing/deceased partner or
his legal representatives claim a share in the
profits made by the firm after his retirement,
expulsion or death?
 Right to Share Subsequent Profits
(Section 37)
• Where any member of a firm has died or otherwise
ceased 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, in the absence of a contract to the
contrary, the outgoing partner or his estate 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.
 Question
• If the continuing partners exercise the power
to purchase the interest of an outgoing or
deceased partner under a contract, can the
outgoing/deceased partner or his legal
representatives claim a share in the profits
made by the firm after his retirement,
expulsion or death?
 Proviso to Section 37
• Provided that where by contract between the
partners an option is given to surviving or continuing
partners to purchase the interest of a deceased or
outgoing partner, and that option is duly exercised,
the estate of the deceased partner, or the outgoing
partner or his estate, as the case may be, is not
entitled to any further or other share of profits.
• But if any partner assuming to act in exercise of the
option does not in all material respects comply with
the terms thereof, he is liable to account under the
foregoing provisions of this section.
Board of Revenue, UP vs Auto Sales,
Allahabad (AIR 1979 Allahabad 312)
• A Division Bench of the Allahabad High Court
held that on the retirement of a partner, even
when his share is determined and
consideration is paid, it does not amount to a
transfer of property and cannot be treated as
a Deed of Conveyance under Section 2(10) of
The Stamp Act, 1899.