IMPLIED AUTHORITY OF PARTNER: A JUDICIAL

APPROACH

3.1 LAW OF CONTRACTS

Submitted by:

Pragya Sanchety

UID No. 2019-80

B.A. LL.B. (Hons.)

2nd Year 3rd Semester

Submitted To:

Prof. Manish Yadav

( Professor of Contracts)

MAHARASHTRA NATIONAL LAW UNIVERSITY, NAGPUR

Contents
Introduction................................................................................................................................1

Aim and Objective.....................................................................................................................2

Research methodology...............................................................................................................2

Research questions.....................................................................................................................2

Implied Authority.......................................................................................................................3

Scope of Implied authority.........................................................................................................3

Scope of implied authority in trading and non-trading business................................................5

Scope of implied authority in joint venture................................................................................5

Scope of implied authority in legal proceedings........................................................................6

Partner’s authority in emergency...............................................................................................6

Partner acting in self- interest....................................................................................................7

Extension and restriction of a partner’s implied authority.........................................................8

Conclusion................................................................................................................................11

Bibliography.............................................................................................................................12
Introduction
Under section 18 of the Indian Partnership Act 1932, a partner shall be treated as an agent of
that company and thus, by his acts, the partner shall be granted a real or apparent role for
acting on behalf of the business1. A partner has the authority to transfer and conduct business
as normal in some standard or unprecedented circumstances with particular impediments2

A partnership is a formal agreement between two or more parties for the management and
operation and profit sharing of a company. It can be achieved by anyone or by someone who
works for others. Therefore, a partner is both agent and a principal. They are agents of the
company and each other for third parties for the commercial purposes of the company. 3
Section 19(1) which talks about implied authority of the partner says that “subject to the
provisions of sec.22, 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”.4

1
Section 18, Indian Partnership act, 1932
2
Ingrid Patient, “IMPLIED AUTHORITY”, the modern law review, vol.35, no.4, page no. 420, jstor.
3
J.O. Fabunmi, “ THE SCOPE OF AGENTS AND POWER”, vol.22, no..3, journal of the Indian law institute,
page no. 415, jstor.
4
Section 19 (1), Indian Partnership act, 1932.

1
Aim and Objective
The main objective of this project is to understand the concept of Implied authority of the
partner mainly through analysing the judicial cases. This project also focuses on the partner’s
authority in emergency.

Research methodology
The purpose of this project is to discover answers to questions through the understanding of
the concept of implied authority of the partner. The nature of research used in this project is
doctrinal research i.e. research used by the information of various credible sources which
makes the data of the research admissible to an extent.

The project uses all the secondary sources available. Secondary sources such as articles,
books, journals and websites. It uses the internet sources and various books available to
understand and analyse the concept.

Research questions
 What is the “scope of implied authority”?
 What is the “scope of implied authority in trading and non-trading business”?
 What is the “scope of implied authority in joint venture”?
 What is the “scope of implied authority in legal proceedings”?
 What is the “partner’s implied authority in emergency”?
 What happens when the partner acts n self-interest?
 What are the extensions and restrictions of partner’s implied authority?

2
Implied Authority
Implied authority is provided in situations where a person's status is implied by the conduct
of a anothrer person to act on behalf of another person. Partners in a partnership shall have
implied power to undertake on behalf of the partnership on a regular basis such as purchasing
and selling goods and services, billing consumers and receipt of payments, advertisement
contracts and other services. For e.g., Z and Y are in partnership, Z residing in New York,
and Y in Maldives. In the company's name, Z draws an exchange bill. Y has no alert or
involvement in the transaction. The bill has no notification. The firm is responsible for the
charge, provided that the charge is not known to the holder of the bill.

Some partners' actions, on behalf of the partnership, can only be carried out by express
authority and not include acquisition of properties on behalf of the partnership, start of a case,
cancellation of a partnership claim or admitting a legal action default. For e.g. Z is one of the
solicitors of a “firm of solicitors and attorneys”. In the name of the company without
authority he draws the letter of exchange. The other partners are not held liable on the bill
because drawing, accepting or endorsing bills of exchange does not come under the ordinary
business of a solicitors.

In the case of bank of Australia v. Breillat, each partner is in consideration of law the general
and authorize agent of the partnership firm, or as it is now and again communicated, each
partner is praepositus negotiis societatis or put in charge of a partnership’s business and may
thus bind all the partners by his acts in all issues which are inside the degree and objects of
the partnership. 5

In the case of agricultural insurance co., in all matters relating to the partnership company,
each Partner is the unrestricted agent of any other. The act of a partner as an agent in the
ordinary business process is also an act of the corporation. This is the partner's implied
authority.6

Scope of Implied authority

The scope of authority is related to the nature of the business and the accustomed way of
carrying it on. It is an issue to be answered by the nature of the market whether a partner has
done an act in the normal way of business. To determine what acts of a partner can bind a
firm, nature of the business and the practices, customs and usages of businesses engaged in
5
Bank of Australia vs. Breillat, 1847 6 Moo PCC 152.
6
Agricultural insurance company, in re,(1870) 23 LT 424.

3
that kind of business must be known because the needs of one business may differ from that
of others.

Section 19(2) says that “in the absence of any usage or custom of trade to the contract, the
implied authority of 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 proceeding filed on behalf of the firm.
e) Admit any liability in a suit or proceeding against the firm.
f) Acquire immovable property on behalf of the firm.
g) Transfer immovable property belonging to the firm or
h) Enter into partnership on behalf of the firm.”7

In Nachattar singh and and ors. Vs. Puran Chand Vinod Kumar and ors., the court without
appreciating the fact that decree was on behalf of the firm and all acts by the partners are
binding upon the firm is proceeding ahead with execution application. The learned counsel
appearing on behalf of respondent no. 1 submits that as per the explanation carved out in
section 19(2) of the Indian partnership act, 1932, the said act of jyoti singhla, partner is not
permissible in law because the decree has been passed in favour of the firm cannot be
prevented from seeking vindication of its grievance. This act would not bind the firm.8

In the case of sushil singh and ors. Vs. reeta and associates, the plaintiffs cannot enter into an
agreement to sell, in view of embargo of section 19 of the partnership act and permission was
also required from other partners. Keeping in view the aforementioned facts, the judgements
and decrees of the courts below cannot be said to be suffering from illegality and perversity.
The substantial question of law is answered in favour of the respondents-defendants and
against the appellants-plaintiffs. No ground is made out for interference. Resultantly, the
second appeal is dismissed.9

7
Section 19(2), Indian partnership act, 1932.
8
Nachattar Singh and ors. Vs. Puran Chand Vinod Kumar and ors.,PLR (2016) 2 851.
9
Sushil singh vs. reeta and associates, RSA-1099-1988 (O&M).

4
Scope of implied authority in trading and non-trading business
It is appropriate or useful for traders, but not for professionals, to borrow and issue negotiable
devices. This is why courts have separated trade from non-commercial firms.10

In wheatley vs. Smithers, an attempt has been made to describe trade firms. Here a partner of
a group of auctioneers lent money by accepting an exchange letter on behalf of the company.
The court held that an auctioneer is not a broker and argued that the corporation was not
responsible. Although the trading cannot be clarified in detail, the main thing is that a trading
requires the purchasing and selling of products. No items are being buyed by an auctioneer.
Only those who belong to others are sold.11

In punamchand vs. kapoorchand, a corporation constituted for the purchase and sale of
utensils in copper and brass was regarded as a trading company to be liable for the act of
loans from one single partner.12

In keshari engg works vs. bank of india, all partners have signed loan papers, all the partners
have been held liable to repay the loan and one of them knowing his personal loan is
immaterial..13

Scope of implied authority in joint venture

A relationship with other individuals in another company has none of the implicit authority
from another relationship. It would take very clear forces to make a man's wife a wife to
someone else.14 But it's something other than a relationship that includes the corporation in
one deal with another person to share its benefit.
In Mann vs. D’Arey, The accused were doing business with the purchase and sale of
potatoes. The successful partner negotiated with the complainant that a percentage of the
potato cargo must be shared with the company in order to share the profits of the company. It
10
H.W.R Wade, “CONTRACTS BY NON- TRADING CORPORATIONS, FORMALITIES, LAW
REFORM”, vol.17, no.1, pp.30.
11
Wheatley vs. smithers, (1907) 2 KB 684 (CA).
12
Punamchand vs. Kapoorchand, AIR 1924 Bom 260.
13
Keshari engg works vs. bank of india, AIR 1991 Pat 194.
14
https://blog.ipleaders.in/extension-restriction-partners-implied authority/#:~:text=4%20of%20the%20Indian
%20Partnership%20Act.&text=%E2%80%9CImplied%E2%80%9D%20denotes%20authority%20vested
%20on,carried%20on%20by%20the%20firm.

5
was kept within the competence. The agreement was merely a way of buying and selling, on
behalf of the partnership, what he should buy and sell..15

Scope of implied authority in legal proceedings

It is within the competence of a partner to defend an action taken against the company and to
hire an attorney to that end. But a lawsuit or proceeding on behalf of the corporation is
beyond the jurisdiction of the partner to withdraw.16

In Tomlinson vs. broadsmith, the corporation was sued by an executive partner of a business,
who bought products on credit. He took a strongman and sponsored the operation, but it was
in vain. Before the Sheriff kloped his door with the decree, the other partner knew no thing
about the contract. He is responsible, though. The court characterised the conduct of the
partner as nothing more than a normal business effect. A partner may keep a debt recovery
solicitor because of the relationship. The sleeping partner is responsible for covering the bills
and bills.17

Partner’s authority in emergency

In the event of an emergency, a partner has implied the right to perform all such acts to
protect the company against losing as would be performed, in his or her circumstances, by the
common individual, and those acts bind the business.18 “A power to do what is usual does not
include the power to do what is usual however urgent” by section 19 of the partnership act,
1932. Section 21 of Indian partnership act, 1932, “ a partner has 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 circumstances, and such acts bind
the firm.”19

The requirements of the section are: the partner must attempt to protect the company against
losses threatened by the emergency, the action must, in the circumstances, be reasonable.

For instance, A, a partner, borrows B Rs 1000 on behalf of the company but beyond its
competence and uses this to pay off the company's debts. The fact that the company has
15
Mann vs. D’Arey, (1968) 1 WLR 893.
16
L.R.C., “PARTNERSHIP. TAKING OF FIRM PROPERTY IN EXECUTION OF A JUDGEMENT
OBTAINED AFTER SERVICE OF ONE PARTNER”, vol.12, no.7, virginia law review, jstor.
17
Tomlinson vs. broadsmith, (1896) 1 QB 386.
18
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5956522/.
19
Section 21, Indian Partnership act, 1932.

6
contracted its loans here indicates that it is a trading company, and as such it can be lent for
the company's business by the implied authority of A. As you have noted, this implied
authority can be limited by an arrangement between him and other partners. Now if B, the
creditor, does not know the cap on A, the company is liable to refund the money to B. B 's
knowledge of this limitation, on the contrary, would exempt the organisation from
responsibility for paying B the number.

In the case of Darpan cinema and ors. Vs. the state of Gujarat and ors., it was contended that
a partner of the firm had no power and authority to admit liability of entertainment tax for
and on behalf of the firm.20 In Dr Indramani Pyarelal Gupta and ors. Vs. W.R. Natu and ors.,
such a strict construction will, though unanimously adopted when the following resolution is
taken, prohibit the rule making authority from making a rule in an emergency. With the
suspension of government trading, the Board resolves by statute that an emergency has taken
place.21

Partner acting in self- interest

Where, to the knowledge of the third party, the act of a partner comes under his tacit
authority, but is performed by him, not for his business, but for his own ends, the business is
not liable. Thus the reimbursement from the company's money by a partner of a personal debt
does not bind the company and the company will recover none of the company.

In S.N. Soni vs. Taufiq Farooki, Delhi High Court found a partner's act of awarding a lower
value promisory note outside its jurisdiction but to become binding on the company when
subsequently ratified by the other partners..22

In sangener daal and flour mill vs. FCI, the Court considered it to be the duty of the partner to
argue that one of the contractors did not have the authority or that he did not contract with
and on behalf of the company. Where there were no such objections presented, and the other
party did not appeal against the revocation of the security deposit, the firm was held bound by
the transaction.23

20
Darpan cinema and ors. Vs. the state of Gujarat., AIR 1971 Guj 103.
21
Indramani pyarelal gupta vs. W.R. Natu and ors., 1963 AIR (SC) 274, 1963(1) SCR 721,65 BomLR 378.
22
SN. Soni vs Taufiq Farooki, AIR 1976 DELHI 63, 1976 RLR 103.
23
Sanganer daal and flour mill vs. FCI, (1992) 1 SCC 145.

7
Extension and restriction of a partner’s implied authority
 What authority can be extended and what cannot be?

Section 18 of the Indian Partnership Act prescribes that “a partner is the agent of the
firm for the purposes of the business of the firm”. There is an implied authority that
has been vested on the partner to bind the firm until and unless there is a clause or a
statement that proves otherwise. Section 19(1) of the Partnership Act states that only
“the acts conducted by the partner in the usual course of business of the firm, binds
the firm to the actions of the partner”.24 Furthermore, Section 20 suggests that “the
implied authority granted to the partners can be either be restricted or extended by
virtue of a contract between the partners themselves.” 25 Even if such restriction is in
effect, the act performed by the partner for the business binds the business unless the
partner learns of the restriction of the implied authority conferred upon the partner.

Section 19(2) of the Partnership Act “enumerates various matters such as submitting a
dispute to arbitration, opening a bank account on behalf of the firm, transferring or
acquiring immovable property on behalf of the firm, which a partner cannot do under
the liberty of implied authority and this is in absence of any usage or custom to the
contrary”. Even though the list provided in Section 19(2) is not exhaustive, In the
absence of any other constitutional precedents it is the only calculation and containing
the implicit authority of the partners.26 While the restrictions laid down in the law
apply, any action taken on behalf of the company by the partner shall bind the
company until the third party has known the constraints imposed and does not know
or feel that the person is not a partnership.

 What can the partner do and not do?

Section 20 of the Partnership Act provides that “the partners in a firm may, by
contract between the partners, extend or restrict the implied authority of any
partner”.27 Section 11 also recognises that “the partners ought to be allowed as much

24
Supra 4.
25
Section 20, Indian partnership act, 1932.
26
Supra 7.
27
Supra 20.

8
 freedom in regulating their relations in the firm inter se.” 28 The implied authority of
partners cannot be limited and expanded with the cooperation of all partners and
should not be determined by one person or the majority on its own. For those
limitations that exist under contracts between third parties that control the authority,
they shall not be affected by such limitations until they are aware of (i) such a
restriction or (ii) if they have no belief or understanding that a partner is the
individual.

The implied authority and its extension ought to be seen in light of the intention of the
doer to bind the firm to his/her actions. This intention however, has to be inferred
from the facts and circumstances of the case. The intention of the partner at the time
of his actions are to be checked and not the intention in any subsequent time. For
instance, if a partner of the firm borrows money under his own name with a clear
intention to utilise it for the business of the firm, this action does not fall within the
ambit of “implied authority” even if it was ultimately used for the purposes of the
firm. 

Section 22 prescribes “the manner in which a partner of a firm is to act within the
scope of their implied authority so as to bind the firm to their actions.” 29 “Any act
which is done on the behalf of the firm and executed in the firm name and with an
express or implied intention to bind the firm,” attracts the provisions of Section 19. If
performed on behalf of the company, it is not difficult to track the partner's acts back
to the company.30 But in a case where the act was done with an implied intention to
bind the firm, such intention as referred to, should be inferred from the facts and
circumstances of the case.

 Restriction by agreement

Restrictions placed by a partnership certificate or other partnership arrangement. In

other words, if the act falls beyond the scope of the implied authority of a partner, the

28
Section 11, Indian partnership act, 1932.
29
Section 22, Indian partnership act, 1932.
30
Akhileshwar phathak, “CONTRACT LAW”,2011, oxford.

9
 corporation shall have a responsibility unless it can be shown: (1) that the contractor
knows about the constraint or does not know or believe a partner.

In moti lal vs. unnao commercial bank, a trade firm was retained when, considering
the limitations placed on loans in the partnership act, one of its partners lent money by
accepting a currency swap, while the other party was aware of that clause in the
deed..31

31
Motilal vs. unnao commercial bank, (1930) 32 Bom LR 1571.

10
Conclusion
While in Section 19 of the Act "involved control" is narrowly defined and limits on an
implied authority of a partner are created, this is not exhaustive. However, various criteria
have been developed to assess the tacit authority of a partner by means of different decisions
and precedent. One of these reasons is that the partner 's actions should be carried out during
the company's daily operation. We may also assume that the determination of an implicit
authority of a partner varies in different situations and depends on several factors.

This article addresses the responsibility of partners to a third party, in which conditions the
permission to act on behalf of a company may be granted to partners, what restrictions the
said act imposes, where partners act on behalf of the company, what is the implicit authority
in the establishment of the relationship and the options available to partners in the event of an
emergency; the article also discusses the partners’ authority under emergency situations and
how the partner is supposed to act in those situations.

11
Bibliography
Articles: -

 Ingrid Patient, “implied authority”, the modern law review, vol.35, no.4, page no. 420.
 J.O. Fabunmi, “ the scope of agents and power”, vol.22, no..3, journal of the Indian
law institute, page no. 415.
 H.W.R Wade, “contracts by non- trading corporations, formalities, law reform”,
vol.17, no.1, pp.30.
 L.R.C., “partnership. Taking of firm property in execution of a judgement obtained
after service of one partner”, vol.12, no.7, virginia law review.

Books:-

 Akhileshwar Phathak, “contract law”,2011, oxford.

 K. Kannan, “ Mulla the sales of good act and the Indian partnership act, 11th ed,
lexisnexis.

Websites: -

 https://blog.ipleaders.in/extension-restriction-partners-implied
authority/#:~:text=4%20of%20the%20Indian%20Partnership%20Act.&text=
%E2%80%9CImplied%E2%80%9D%20denotes%20authority%20vested
%20on,carried%20on%20by%20the%20firm.
 https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5956522/.

12
13