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Indian Partnership Act, 1932

Assignment
Q. No. Questions and Answers Marks
1 Is the registration of a partnership firm compulsory? Explain. Discuss the 5
various disadvantages that a non-registered partnership firm can face in brief?
(ICAI SM, Nov. 2020, May 2019, RTP May 2021, May 2018)
Ans. As per the Indian Partnership Act, 1932, the registration of a partnership firm 5
is not mandatory. An Indian partnership firm need not be registered from the
beginning but can be registered during continuation also.
But, if a partnership firm is not registered, it has to face some consequences:
1) No suit in a civil court by the firm or other co-partners against the
third party: The firm or any other person on its behalf cannot bring an
action against the third party for breach of contract entered into by the firm
unless the firm is registered and the persons suing are or have been shown
in the register of firms as partners in the firm.
2) No relief to partners for set-off of claim: If an action is brought against
the firm by a third party, then neither the firm nor the partner can claim
any set-off if the suit is valued for more than ₹100 or pursue other
proceedings to enforce the rights arising from any contract.
3) An aggrieved partner cannot bring legal action against other partners
or the firm: A partner of an unregistered firm (or any other person on his
behalf) is precluded from bringing legal action against the firm or any
person alleged to be or to have been a partner in the firm. But such a person
may sue for dissolution of the firm or for accounts and realization of his
share in the firm’s property where the firm is dissolved.
4) Third-party can sue the firm: In case of an unregistered firm, an action
can be brought against the firm by a third party.
2 Explain the following kinds of partnership under the Indian Partnership Act, 4
1932:
1) Partnership at will
2) Particular partnership
(Jan. 2021, RTP May 2020, Nov. 2020, RTP Nov. 2019)
Ans. 1) Partnership at will: As per the provision of the Indian Partnership Act, 4
1932, partnership at will is a partnership when:
i) no fixed period has been agreed upon for the duration of the
partnership, and
ii) there is no provision made as to the determination of the partnership.
These two conditions must be satisfied before a partnership can be
regarded as a partnership at will. A partnership at will may be dissolved by
any partner by giving notice in writing to all the other partners of his
intention to dissolve the same.
Where a partnership entered into for a fixed term is continued after the
expiry of such term, it is treated as having become a partnership at will.
2) Particular Partnership: A partnership may be organized for the
prosecution of a single adventure as well as for the conduct of continuous
business. Where a person becomes a partner with another person in any
particular adventure or undertaking, the partnership is called ‘particular
partnership’.

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A particular partnership is, subject to any agreement, dissolved by the

completion of the adventure or purpose for which it was formed.
3 X was minor introduced to the benefits of the Partnership of ABC & Co. with 6
the consent of all partners. After attaining majority, more than six months
elapsed, and he failed to give public notice as to whether he elected to become
or not to become a partner in the firm. Later on, L, a supplier of material to ABC
& Co., filed a suit against ABC & Co. for the recovery of the debt due. Explain:
1) To what extent X will be liable?
2) Can L recover his debt from X? (Nov. 2019, ICAI SM, RTP Nov. 2020)
Ans. As per the provision of the Indian Partnership Act, 1932, a minor cannot be 6
admitted to a partnership firm, but, with the consent of all the partners, for the
time being, he may be admitted to the benefits of the partnership.
But, at any time within six months of his attaining majority, or of his obtaining
knowledge that he had been admitted to the benefits of partnership, whichever
date is later, such person may give public notice that he has elected to become
or that he has elected not to become a partner in the firm, and such notice shall
determine his position as regards the firm.
Provided that, if he fails to give such notice, he shall become a partner in the
firm on the expiry of said six months.
Fact of the case:
X was introduced to the benefits of the Partnership of ABC & Co. with the
consent of all partners. After attaining majority, more than six months elapsed,
and he failed to give public notice as to whether he elected to become or not to
become a partner in the firm. Later on, L, a supplier of material to ABC & Co.,
filed a suit against ABC & Co. for the recovery of the debt due.
Conclusion:
1) Since X failed to give the public notice after attaining the majority, he should
become a partner in the firm on the expiry of six months after attaining the
majority. After becoming the partner of the firm, his rights and liabilities as
a major partner on the date on which he becomes a partner, but he also
becomes personally liable to third parties for all acts of the firm done since
he was admitted to the benefits of the partnership.
2) Yes, L can recover his debt from X because now X has attained majority and
is liable to third parties for all acts of the firm.
4 Explain in detail the circumstances which lead to liability of firm for 4
misapplication by partners as per provisions of the Indian Partnership Act,
1932. (Nov. 2020, RTP May 2021)
Ans. Liability of Firm for Misapplication by Partners: 4
a) A partner acting within his apparent authority receives money or property
from a third party and misapplies it, or
b) A firm in the course of its business receives money or property from a third
party, and the money or property is misapplied by any of the partners while
it is in the custody of the firm; the firm is liable to make good the loss.
Analysis:
It may be observed that the working of the two clauses is designed to bring out
clearly an important point of distinction between the two categories of cases of
misapplication of money by partners.
a) Where a partner acts within his authority and due to his authority as a
partner, he receives money or property belonging to a third party and

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misapplies that money or property. For this provision to be attracted, it is

not necessary that the money should have actually come into the custody
of the firm.
b) When such money or property has come into the custody of the firm, and it
is misapplied by any of the partners.
The firm would be liable in both cases.
5 Mr XU and Mr YU are partners in a partnership firm. Mr XU introduced MU (an 3
employee) as his partner to ZU. MU remained silent. ZU, a trader is believing
MU as a partner, supplied 50 laptops to the firm on credit. After the expiry of
the credit period. ZU did not get the amount of laptops sold to the partnership
firm. ZU filed a suit against XU and MU for the recovery of the price. Does MU
is liable for such a purpose? (ICAI SM, RTP Nov. 2019)
Ans. As per the provision of the Indian Partnership Act, 1932, partnership by holding 3
out mean when a man holds himself out as a partner or allows others to do it,
he is then stopped from denying the character he has assumed and upon the
faith of which creditors may be presumed to have acted. A person may himself,
by his words or conduct, have induced others to believe that he is a partner, or
he may have allowed others to represent him as a partner. The result in both
cases is identical.
Facts of the case:
Mr XU and Mr YU are partners in a partnership firm. Mr XU introduced MU (an
employee) as his partner to ZU. MU remained silent. ZU, a trader is believing
MU as a partner, supplied 50 laptops to the firm on credit. After the expiry of
the credit period. ZU did not get the amount of laptops sold to the partnership
firm. ZU filed a suit against XU and MU for the recovery of the price.
Conclusion:
In the present case, MU (an employee) is also liable for the price because it
becomes a partner by holding out.
6 When does the dissolution of a partnership firm take place? 4
(ICAI SM, RTP Nov. 2019)
Ans. As per the provision of the Indian Partnership Act, 1932, the dissolution of a 4
partnership firm takes place in the following cases:
i) Dissolution without the order of the Court or voluntary dissolution.
ii) Dissolution by order of the Court.
1. Dissolution without the order of the Court or voluntary dissolution:
i) Dissolution by agreement between the partners.
ii) By adjudication of all or any partner as insolvent.
iii) On the happening of certain contingencies between partners like expiry
of the time period of partnership.
iv) Business of the firm becoming unlawful.
v) By giving notice of dissolution by all the partners.
2. Dissolution by order of the Court:
i) Partner becoming of unsound mind.
ii) Permanent incapacity of the partner to perform his duties.
iii) Misconduct of partner affecting the business.
iv) Willful breaches by a partner.
v) Transfer or sale of the whole interest of a partner.
vi) Continuous losses incurred by the firm.

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vii) The Court is satisfied on just and equitable grounds for the dissolution
of the firm.
7 Amar, Aman and Amaan are partners in a firm. As per the terms of the 4
partnership deed, Amaan is entitled to 20% of the partnership property and
profits. Amaan retires from the firm and dies after 10 days. Amar and Aman
continue the business of the firm without settling the accounts. Explain the
rights of Amaan’s legal representatives against the firm under the Indian
Partnership Act, 1932. (ICAI SM, RTP May 2020)
Ans. As per the provision of the Indian Partnership Act, 1932, where any partner of 4
a firm has died or is ceased to be a partner, and the surviving partners continue
the business without settling the accounts of the firm between the surviving
partners and deceased or outgoing partner, in the absence of a contract to the
contrary, legal representatives of the deceased partner or the outgoing partner
are entitled to: -
• Interest at 6% p.a, on amount of his share in the property, or
• Profit earned after the death or retirement of the partner in the capital ratio
of partners, whichever is higher.
Fact of the case:
Amar, Aman and Amaan are partners in a firm. As per the terms of the
partnership deed, Amaan is entitled to 20% of the partnership property and
profits. Amaan retires from the firm and dies after 10 days. Amar and Aman
continue the business of the firm without settling the accounts.
Conclusion:
In the present case, Amaan’s legal representatives shall be entitled to the 20%
partnership property and the profits made during Amaan’s Partnership. Amar
and Aman cannot continue the business without settling the accounts with
Amann’s legal representatives.
8 M/s XYZ & Associates, a partnership firm with X, Y, Z as senior partners, were 6
engaged in the business of carpet manufacturing and exporting to foreign
countries. On 25th August 2019, they inducted Mr G, an expert in the field of
carpet manufacturing, as their partner. On 10th January 2020, Mr G was blamed
for unauthorized activities and thus expelled from the partnership by the
united approval of the rest of the partners.
i) Examine whether action by the partners was justified or not?
ii) What should have the factors to be kept in mind prior to expelling a partner
from the firm by other partners according to the provisions of the Indian
Partnership Act, 1932? (ICAI SM, May 2019)
Ans. As per the provision of the Indian Partnership Act, 1932, a partner may not be 6
expelled from a firm by a majority of partners except in exercise, in good faith,
of powers conferred by contract between the partners.
The test of good faith includes three things:
1) The expulsion must be in the interest of the partnership.
2) The partner to be expelled is served with a notice.
3) He is given an opportunity of being heard.
If a partner is otherwise expelled, the expulsion is null and void.
Fact of the case:
M/s XYZ & Associates, a partnership firm with X, Y, Z as senior partners, were
engaged in the business of carpet manufacturing and exporting to foreign
countries. On 25th August 2019, they inducted Mr G, an expert in the field of
carpet manufacturing, as their partner. On 10th January 2020, Mr G was blamed

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for unauthorized activities and thus expelled from the partnership by the
united approval of the rest of the partners.

Conclusion:
i) Action by the partners of M/s XYZ & Associates, a partnership firm, to
expel Mr G from the partnership was justified as he was expelled by
united approval of the partners exercised in good faith to protect the
interest of the partnership against the unauthorized activities charged
against Mr G. A proper notice and opportunity of being heard has to be
given to Mr G.
ii) The following are the factors to be kept in mind prior to expelling a
partner from the firm by other partners:
a) the power of expulsion must have existed in a contract between the
partners;
b) the power has been exercised by a majority of the partners; and
c) it has been exercised in good faith.
9 Distinguish between ‘Dissolution of Firm’ and ‘Dissolution of Partnership’. 4
[Any 4 points] (Nov. 2019, May 2018)
Ans. (Any 4 points) 4
Basis Dissolution of Firm Dissolution of
Partnership
Continuation It involves discontinuation It does not affect the
of Business of business in partnership. continuation of the
business. It involves only
the reconstitution of the
firm.
Winding-up It involves the winding up It involves only
of the firm and requires the reconstitution and
realization of assets and requires the only
settlement of liabilities. revaluation of the assets
and liabilities of the firm.
Order of A firm may be dissolved by Dissolution of Partnership
Court order of the Court. is not ordered by the Court.
Scope It necessarily involves the It may or may not involve
dissolution of the the dissolution of the firm.
partnership.
Final closure It involves the final closure It does not involve the final
6of books of the books of the firm. closure of books of the
firm.
10 State any four grounds on which Court may dissolve a partnership firm in case 4
any partner files a suit for the same. (Nov. 2018, RTP May 2020)
As per the provision of the Indian Partnership Act, 1932, the Court may, at the 1 mark
suit of the partner, dissolve a firm on any of the following ground: (Any four for
points) each
Insanity/unsound mind: Where a partner (not a sleeping partner) has point
become of unsound mind, the Court may dissolve the firm on a suit of the other
partners or by the next friend of the insane partner.
1) Permanent incapacity: When a partner, other than the partner suing, has
become in any way permanently incapable of performing his duties as a

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partner, then the Court may dissolve the firm. Such permanent incapacity
may result from physical disability or illness etc.
2) Misconduct: Where a partner, other than the partner suing, is guilty of
conduct which is likely to affect the business, the Court may order for
dissolution of the firm by giving regard to the nature of business.
3) Persistent breach of agreement: Where a partner other than the partner
suing, willfully or persistently commits a breach of agreements relating to
the management of the affairs of the firm or the conduct of its business, or
otherwise so conduct himself in matters relating to the business that it is
not reasonably practicable for other partners to carry on the business in
partnership with him, then the Court may dissolve the firm at the instance
of any of the partners. The following comes into the category of breach of
contract:
i) Embezzlement,
ii) Keeping erroneous accounts
iii) Holding more cash than allowed
Refusal to show accounts despite repeated requests etc.
4) Transfer of interest: Where a partner other than the partner suing has
transferred the whole of his interest in the firm to a third party or has
allowed his share to be charged or sold by the Court, in the recovery of
arrears of land revenue, the Court may dissolve the firm at the instance of
any other partner.
5) Continuous/Perpetual losses: Where the business of the firm cannot be
carried on except at a loss in future also, the Court may order for its
dissolution.
6) Just and equitable grounds: Where the Court considers any other
ground to be just and equitable for the dissolution of the firm, it may
dissolve a firm. The following are the cases for just and equitable grounds-
i) Deadlock in the management.
ii) Where the partners are not on talking terms.
iii) Loss of substratum.
iv) Gambling by a partner on a stock exchange.
11 “Mutual Agency is the cardinal principle of the partnership law”. Discuss. 3
(Jan. 2021, RTP May 2020)
Ans. 1) As per the Indian Partnership Act, 1932, the existence of mutual agency is 3
the cardinal principle of partnership law. It is also known as the true test of
partnership.
2) Each partner carrying on the business is the principal as well as an agent of
other partners. So, the act of one partner done on behalf of the firm bind all
the partners.
3) If the elements of a mutual agency relationship exist between the parties
constituting a group formed with a view to earning profits by running a
business, a partnership may be deemed to exist.
12 M, N and P were partners in a firm. The firm ordered JR Limited to supply the 4
furniture. P dies, and M and N continue the business in the firm’s name. The
firm did not give any notice about P’s death to the public or the persons dealing
with the firm. The furniture was delivered to the firm after P’s death; the fact
about his death was known to them at the time of delivery. Afterwards, the firm
becomes insolvent and failed to pay the price of furniture to JR Limited.

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Explain with reasons:

1) Whether P’s private estate is liable for the price of furniture purchased by
the firm?
2) Whether does it make any difference if JR Limited supplied the furniture to
the firm, believing that all the three partners are alive?
(RTP May 2021, Jan. 2021)
Ans. As per the provision of the Indian Partnership Act, 1932, A contract between 4
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. It is
not necessary to give any notice either to the public or the person having dealt
with the firm.
Facts of the case:
M, N and P were partners in a firm. The firm ordered JR Limited to supply the
furniture. P dies, and M and N continue the business in the firm’s name. The
firm did not give any notice about P’s death to the public or the persons dealing
with the firm. The furniture was delivered to the firm after P’s death; the fact
about his death was known to them at the time of delivery. Afterwards, the firm
becomes insolvent and failed to pay the price of furniture to JR Limited.
Conclusion:
1) The delivery of the furniture was made after P’s death; his estate would not
be liable for the debt of the firm. A suit for goods sold and delivered would
not lie against the representative of the deceased partner. This is because
there was no debt due with respect of the goods in P’s lifetime.
2) It would not make any difference even if JR Limited supplied furniture to
the firm believing that all the three partners are alive, as it is not necessary
to give any notice either to the public or the persons having dealings with
the firm, so the estate of the deceased partner may be absolved from
liability for the future obligations of the firm.
13 Mr A (transferor) transfer his share in a partnership to Mr B (transferee). Mr B 5
is not entitled to few rights and privileges as Mr A is entitled, therefore. Discuss
in brief the points for which Mr B is not entitled during the continuance of the
partnership? (ICAI SM, RTP May 2021, Nov 2021 RTP)
Ans. As per the provision of the Indian Partnership Act, 1932, a transfer by a partner 5
of his interest in the firm, either absolute or by a mortgage, or by the creation
by him of charge on such interest, does not entitle the transferee, during the
continuance of the firm, to interfere in the conduct of business, or to require an
account, or to inspect the books of the firm, but entitled the transferee only to
receive the share of profits of the transferring partner, and the transferee shall
accept the account of profits agreed to by the partners.
Facts of the case:
Mr A (transferor) transfer his share in a partnership to Mr B (transferee). Mr B
is not entitled to few rights and privileges as Mr A is entitled, therefore.
Conclusion:
In the given case during the continuance of partnership, such transferee Mr B
is not entitled:
✓ To interfere with the conduct of the business.
✓ To require accounts.
✓ To inspect books of the firm

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However, Mr B is only entitled to receive the share of the profits of the

transferring partner, and he is bound to accept the profit as agreed to by
partners, .i.e, he cannot challenge the accounts.
14 What is the conclusive evidence of partnership? State the circumstances when 5
the partnership is not considered between two or more parties.
(May 2018, Dec 2021)
Ans. As per the provision of the Indian Partnership Act, 1932, the existence of 5
Mutual Agency, which is the cardinal principle of partnership law, is very much
helpful in reaching a conclusion with respect to the determination of the
existence of the partnership. Each partner carrying on the business is the
principal as well as an agent of other partners. So, the act of one partner done
on behalf of the firm binds all the partners. If the element of mutual agency
relationship exists between the parties constituting a group formed with a view
to earning profits by running a business, a partnership may be deemed to exist.
Circumstances when a partnership is not considered between two or more
parties: Various judicial pronouncements have laid to the following factors
leading to no partnership between the parties:
1) Parties have not retained any record of the terms and conditions of the
partnership.
2) Partnership business has maintained no accounts of its own, which would
be open to inspection by both parties.
3) No account of the partnership was opened with any bank.
4) No written intimation was conveyed to the Deputy Director of
Procurement with respect to the newly created partnership.
15 “Whether a group of persons is or is not a firm, or whether a person is or not a 4
partner in a firm”. Explain the mode of determining the existence of partnership
as per the Indian Partnership Act, 1932? (May 2019, Dec 2021)
Ans. As per the provision of the Indian Partnership Act, 1932, in determining whether 4
a group of persons is or is not a firm, or whether a person is or not a partner in
a firm, regard shall be had to the real relation between the parties, as shown by
all relevant facts taken together.
For determining the existence of a partnership, the following things must be
present:
1) Agreement: Partnership is created by agreement and not by status. The
relation of partnership arises from the contract and not from status.
2) Sharing of Profit: Sharing of profit is an essential element to constitute a
partnership. But, it is only prima facie evidence and not conclusive
evidence in that regard. The sharing of profits or of gross returns accruing
from the property by persons holding a joint or common interest in the
property would not by itself make such person partners.
3) Agency: The existence of Mutual Agency which is the cardinal principle
of partnership law, is very much helpful in reaching a conclusion in this
regard. Each partner carrying on the business is the principal as well as
an agent of other partners. So, the act of one partner done on behalf of the
firm binds all the partners. If the elements of a mutual agency relationship
exist between the parties constituting a group formed with a view to
earning profits by running a business, a partnership may be deemed to
exist.

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16 Explain different types of partners. (Jan. 2021) 7

Ans. Types of partners: 7
1) Active or Actual or Ostensible Partner: A person who has become a
partner by agreement and actively participates in the conduct of the
partnership business is known as an actual or active or ostensible partner.
In the event of retirement, he had to give public notice in order to relieve
himself of all liabilities for acts of other partners done after the retirement.
2) Sleeping or Dormant Partner: A person who is a partner by agreement
and who does not actively take part in the conduct of the partnership
business. A sleeping partner share profits and is also liable to the third
parties for all acts of the firm. Public notice is not required in the event of
retirement.
3) Nominal Partner: A person who lends his name to the firm without having
any real interest in it is called a nominal partner. He is not entitled to share
the profits of the firm. Neither he invests in the firm nor takes part in the
conduct of the business. However, a nominal partner is liable to third
parties for all acts of the firm.
4) Partner in profits only: A partner who is entitled to share profits only
without being liable for the losses is known as the partner for profits only
and is also liable to the third parties for all the acts of the firm.
5) Incoming Partner: A person who is admitted as a partner into an already
existing firm with the consent of all the existing partners is called an
incoming partner. Such a partner is not liable for any act of the firm done
before his admission as a partner.
6) Outgoing Partner: A partner who leaves the firm in which the rest of the
partners continue to carry on business is called a retiring or outgoing
partner. Such a partner remains liable to third parties for all acts of the firm
until public notice is given of his retirement.
7) Partner by Estoppel: When a person, who is not a partner in the firm,
represents himself as a partner in a firm, he is liable to anyone who, on the
faith of such representation, has given credit to the firm.
17 Ms Lucy, while drafting the partnership deed to take care of few important 6
points. What are those points? She wants to know the list of information which
must be part of the partnership deed drafted by her. Also, give a list of
information to be included in the partnership deed? (ICAI SM)
Ans. As per the provision of the Indian Partnership Act, 1932, a document which 6
contains various terms and conditions related to the relationship of partners to
each other is called a partnership deed.
The information contained in a partnership deed is as follows:
1) Name of the partnership firm.
2) Name of all the partners.
3) Nature and place of the business of the firm.
4) Date of commencement of partnership.
5) Duration of the partnership firm.
6) Capital contribution of each partner.
7) The profit-sharing ratio of the partners.
8) Admission and retirement of a partner.
9) Rates of Interest on Capital, Drawings and Loans.
10) Provisions for settlement of accounts in the case of dissolution of the firm.

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11) Provisions for salaries or commissions payable to the partners, If any.

12) Provisions for the expulsion of a partner in case of breach of duty or fraud
Ms Lucy, while drafting the partnership deed to take care of few important
points.
i) The partnership agreement must be in writing. An oral partnership
agreement is not a partnership deed.
ii) The partnership deed contains various terms & conditions as to the
relationship of the partners to each other.
iii) The partnership comprises of immovable property, then the partnership
deed must be in Writing, stamped & registered under Registration Act
iv) If the partnership comprises of no immovable property, then the
partnership deed must be writing and Stamped according to the provisions
of Stamp Act, 1899.
18 What are the rights of a transferee of a partner’s interest? (ICAI SM, July 2021) 4
Ans. As per the provision of the Indian Partnership Act, 1932, a share in a 4
partnership is transferable like any other property, but as the partnership is
based on a mutual agency, the transferee of a partner’s interest by sale,
mortgage or otherwise, cannot enjoy the same rights and privileges as the
original partner.
The rights of a transferee are as follows: -
1) During the continuation of the partnership, such transferee is not entitled
to interfere with the conduct of the business, to require accounts or to
inspect the books of the firm.
2) He is entitled to receive a share of the profits of the transferring partner
and is bound to accept the profits as agreed by the partners.
3) On dissolution of the firm or on the retirement of the transferring partner,
the transferee partner is entitled to receive the share of assets of the firm
to which the transferring partner was entitled and for the purpose of
ascertaining the share, he is entitled to an account from the date of the
dissolution.
19 When can the continuing guarantee be revoked under the Indian Partnership 2
Act, 1932? (Nov. 2019)
Ans. As per the provision of the Indian Partnership Act, 1932, a continuing 2
guarantee given to a firm or to the third party in respect of the transaction of a
firm is, in the absence of an agreement to the contrary, revoked as to future
transactions from the date of any change in the constitution of the firm.
Mere changes in the constitution of the firm operate to revoke the guarantee as
to all future transactions. Such change may occur by the death or retirement of
a partner or by the introduction of a new partner.
20 Explain the various effects of insolvency of a partner as per the Indian 4
Partnership Act, 1932. (Nov. 2019)
Ans. As per the Indian Partnership Act, 1932, where a partner in a firm is adjudicated 4
insolvent, he ceases to be a partner on the date on which the order of
adjudication is made, whether or not the firm is dissolved.
Effects of insolvency of a partner:
1) The insolvent partner cannot be continued as a partner.
2) He will be ceased to be a partner from the very date on which the order of
adjudication is made.
3) The estate of the insolvent partner is not liable for the acts of the firm done

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after the date of order of adjudication.

4) The firm is also not liable for any act of the insolvent partner after the date
of the order of the adjudication.
5) Ordinarily but not invariably, the insolvency of a partner results in the
dissolution of the firm, but the partners are competent to agree among
themselves that the adjudication of a partner as an insolvent will not give
rise to dissolution of the firm.
21 Define ‘Goodwill’ as per the Indian Partnership Act, 1932. Also, explain the 6
rights of the buyer and seller of goodwill as per the Indian Partnership Act,
1932. (Nov. 2019)
Ans. As per the provision of the Indian Partnership Act, 1932, ‘goodwill’ is a 6
partnership asset which means the benefits arising from a firm’s business’
connections or reputation. It is the advantage which is acquired by a business
beyond the mere value of the capital, stock fund and property.
Though an intangible asset, it has value, and unless otherwise agreed in the
partnership agreement and upon dissolution, it must be sold and the proceeds
of sale distributed as capital. Where dissolution is caused by death, the estate
of the deceased partner is entitled to share in the proceeds of the sale.
Rights of buyer and seller of goodwill:
1) Buyer’s rights: On the sale of goodwill, the buyer may, unless the terms in
the contract of sale provide otherwise:
a) represent himself in continuing the business,
b) maintain his exclusive rights to the use of the firm name, and
c) solicit former customers of the business and restrain the seller of the
goodwill from doing so.
2) Seller’s rights: The seller may enter into competition with the purchaser
unless he is prevented by a valid restraint clause in the contract of sale.
22 X, Y and Z are partners in a Partnership Firm. They were carrying their 6
business successfully for the past several years. The spouses of X and Y fought
in ladies’ club on their personal issues, and X's wife was hurt badly. X got
angry about the incident, and he convinced Z to expel Y from their partnership
firm. Y was expelled from the partnership without any notice from X and Z.
Considering the provisions of the Indian Partnership Act, 1932, state whether
they can expel a partner from the firm. What are the criteria for the test of
good faith in such circumstances? (May 2018)
Ans. As per the provision of the Indian Partnership Act, 1932, a partner may not 6
be expelled from a firm by a majority of partners except in exercise, in good
faith, of powers conferred by contract between the partners. It is thus,
essential that:
1) the power of expulsion must have existed in a contract between the
partners;
2) the power has been exercised by a majority of the partners; and
3) it has been exercised in good faith.
4) If all these conditions are not present, the expulsion is not deemed to be
in the bonafide interest of the business of the firm.
The test of good faith includes three things:
i) The expulsion must be in the interest of the partnership.
ii) The partner to be expelled is served with a notice.
iii) He is given an opportunity of being heard.

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iv) If a partner is otherwise expelled, the expulsion is null and void.

Facts of the case:
X, Y and Z are partners in a Partnership Firm. They were carrying their
business successfully for the past several years. The spouses of X and Y fought
in ladies’ club on their personal issues, and X's wife was hurt badly. X got
angry about the incident, and he convinced Z to expel Y from their partnership
firm. Y was expelled from the partnership without any notice from X and Z.
Conclusion:
In the above case, according to the test of good faith, the expulsion of Partner Y
is not valid.
23 “Though a minor cannot be a partner in a firm, he can nonetheless be admitted
to the benefits of the partnership."
1) Referring to the provisions of the Indian Partnership Act, 1932, state the 4
rights which can be enjoyed by a minor partner.
2) State the liabilities of a minor partner both: 2
i) Before attaining majority and
ii) After attaining majority. (Nov. 2018, Nov 2021 RTP)
Ans. 1) As per the provision of the Indian Partnership Act, 1932, rights which can 4
be enjoyed by a minor partner are:
a) A minor partner has a right to his agreed share of the profits and of the
firm.
b) He can have access to, inspect and copy the accounts of the firm.
c) He can sue the partners for accounts or for payment of his share but
only when severing his connection with the firm and not otherwise.
d) On attaining majority, he may within 6 months elect to become a
partner or not to become a partner. If he elects to become a partner,
then he is entitled to the share to which he was entitled as a minor. If
he does not, then he is not liable for any acts of the firm after the date
of the public notice served to that effect.
2) Liabilities of a minor partner before attaining majority: 1
a) The liability of the minor is confined only to the extent of his share in
the profits and the property of the firm.
b) Minor has no personal liability for the debts of the firm incurred during
his minority.
c) Minor cannot be declared insolvent, but if the firm is declared
insolvent, his share in the firm vests in the Official Receiver/ Assignee.
3) Liabilities of a minor partner after attaining majority: 1
a) Within 6 months of his attaining majority or on his obtaining
knowledge that he had been admitted to the benefits of partnership,
whichever date is later, the minor partner has to decide whether he
shall remain a partner or leave the firm.
b) Where he has elected not to become a partner, he may give public
notice that he has elected not to become a partner, and such notice shall
determine his position as regards the firm. If he fails to give such notice,
he shall become a partner in the firm on the expiry of the said six
months.
24 What is the provision related to the effect of notice to an acting partner of the 2
firm as per the Indian Partnership Act, 1932? (May 2019)

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Ans. As per the provision of the Indian Partnership Act, 1932, notice to a partner who 2
habitually acts in the business of the firm of any matter relating to the affairs of
the firm operates as notice to the firm, except in the case of a fraud on the firm
committed by or with the consent of that partner.
Thus, the notice to one is equivalent to the notice to the rest of the partners of
the firm, just as a notice to an agent is a notice to his principal. This notice must
be actual and not constructive. It must further relate to the firm’s business. Only
then it would constitute notice to the firm.
25 Whether a minor may be admitted in the business of a partnership firm? 3
Explain. (ICAI SM)
Ans. As per the provision of the Indian Partnership Act, 1932, with the consent of all 3
the partners, for the time being, a minor can be admitted into the benefits of the
partnership.
1) A minor partner has the right to agreed profits share of the firm.
2) He can have access to, inspect and copy the accounts of the firm.
3) He can sue the partners for accounts or for payment of his share but only
when severing his connection with the firm.
4) On attaining majority, he may within 6 months elect to become a partner or
not. In both cases, a public notice shall be issued by the firm.
5) A minor shall not be held personally liable for the debts of the firm. He is
only liable to the extent of his share in the profits and property of the firm.
26 What is the procedure of registration of a partnership firm under the Indian 4
Partnership Act, 1932? (ICAI SM)
Ans. As per the provision of the Indian Partnership Act, 1932, the following is the 4
procedure for the registration of a partnership firm:
1) It is optional, not mandatory
2) The firm need not be registered from the beginning; it can be registered
during continuation also.
3) For registration, apply to the registrar with the prescribed form and the
prescribed fee, stating.
✓ The firm’s name.
✓ The place or principal place of the 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 name in full and permanent addresses of the partners.
✓ The duration of the firm.
4) The statement shall be signed by all the partners or by their agents specially
authorized on this behalf. Each person signing the statement also verify it
in the manner prescribed.
5) A firm shall not contain any of the following words, namely, Crown,
Emperor, Empress, Empire, Imperial, King, Queen, Royal, etc.
6) Registration is effective from the date when all documents with prescribed
form and prescribed fees as delivered to the registrar, the date on which
the Registrar makes an entry in the register of the firms is immaterial.
7) In English law, the registration of the firm is mandatory, and there is a
penalty for non-registration.
27 Discuss the liability of a partner for the act of the firm and liability of the firm 4
for the act of a partner to third parties as per the Indian Partnership Act, 1932.
(Jan. 2021)

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Ans. The question of liability of partners to third parties may be considered under 4
different heads. These are as follows:
1) Liability of a partner for acts of the firm: Every partner is liable, jointly
with all the other partners and also severally, for all acts of the firm done
while he is a partner.
2) Liability of the firm for wrongful acts of a partner: Where the wrongful
act or omission of a partner in the ordinary course of the business of a firm
or with the authority of his partners, loss or injury is caused to any third
party, or any penalty is incurred, the firm is liable therefore to the same
extent as the partner.

28 Comment on ‘the right to expel partner must be exercised in good faith’ under 3
the Indian Partnership Act, 1932? (Nov. 2020)
Ans. As per the provision of the Indian Partnership Act, 1932, a partner may not be 3
expelled from a firm by a majority of partners except in exercise, in good faith,
of powers conferred by contract between the partners.
The test of good faith includes three things:
✓ The expulsion must be in the interest of the partnership.
✓ The partner to be expelled is served with a notice.
✓ He is given an opportunity of being heard.
If a partner is otherwise expelled, the expulsion is null and void.
29 What are the rights which won’t be affected by the Non-Registration of 4
Partnership firm? (Nov. 2020)
Ans. As per the provision of the Indian Partnership Act, 1932, non-registration of a 4
firm does not affect the following rights:
1) Right of third parties to sue the firm or any other party.
2) Right of partners to sue:
✓ for the dissolution of the firm, or
✓ for the settlement of accounts of the dissolved firm, or
✓ for the realization of the property of the dissolved firm.
3) Power an Official Assignee of Court to release the property of the insolvent
partner and to bring an action.
4) Right to use or claim a set-off if the value of suit does not exceed ₹100 in
value.
30 P, Q, R and S are the partners in M/S PQRS & Co., a partnership firm which deals 6
in the trading of washing Machines of various brands. Due to the conflict of
views between partners, P & Q decided to leave the partnership firm and
started competitive business on 31st July 2019, in the name of M/S PQ & Co.
Meanwhile, R & S Have continued using the property in the name of M/S PQRS
& Co., in which P & Q also has a share.
Based on the above facts, explain in detail the rights of outgoing partners as per
the Indian Partnership Act, 1932 and comment on the following:
1) Rights P & Q to start a competitive business.
2) Rights of P & Q regarding their share in the property of M/S PQRS & Co.
(Nov. 2020)
Ans. As per the provision of the Indian Partnership Act, 1932, the right of outgoing 6
partner may carry the business on competing for business with that of the firm,
and he may advertise such business, but subject to contract to the contrary, he
may not: -

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a) Use the firm name.

b) Represent himself as carrying on the business of the firm or
c) Solicit the customers of persons who were dealing with the firm before he
ceased to be a partner.
However, the partner may agree with his partners that on his ceasing to be so,
he will not carry on a business similar to that of the firm within a specified
period or within specified local limits. Such as agreement will not be in restraint
of trade if the restraint is reasonable.
As per the provision of the Indian Partnership Act, 1932, any member of a firm
has died or otherwise ceased to be a partner, and the 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, 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 an interest at the rate of six per cent per annum on the amount
of his share in the property of the firm.
Facts of the case:
P, Q, R and S are the partners in M/S PQRS & Co., a partnership firm which deals
in the trading of washing Machines of various brands. Due to the conflict of
views between partners, P & Q decided to leave the partnership firm and
started competitive business on 31st July 2019, in the name of M/S PQ & Co.
Meanwhile, R & S Have continued using the property in the name of M/S PQRS
& Co., in which P & Q also has a share.
Conclusion:
1) P & Q can start a competitive business in the name of M/S PQ & Co. after
following the above conditions in the absence of any agreement.
2) P & Q can share in the property of M/s PQRS & Co.
31 Discuss the provision regarding personal profits earned by a partner under the 2
Indian Partnership Act, 1932? (May 2019)
Ans. As per the provision of the Indian Contract Act, 1932, it is provided that if any 2
personal profits earned after dissolution but before the partnership completely
wound up, then it must be accounted as the firm’s profit.
32 State the legal position of a minor partner after attaining majority: 4
1) When he opts to become a partner of the same firm.
2) When he decides not to become a partner. (Nov. 2018)
Ans. 1) Where such person becomes a partner: 4
a) His right and liabilities as a minor continue up to the date on which he
becomes a partner, but he also becomes personally of partnership, and
b) His share in the property and profits of a firm shall be the share to
which he was entitled as a minor.
2) When such person elects not to become a partner:
a) His right and liabilities as a minor continue to be those of a minor under
this section up to the date on which he gives public notice.
b) His share shall not be liable for any acts of the firm done after the date
of the notice.
c) He shall be entitled to sue the partners for his share of the property and
the profit.

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33 A B and C were partners in a partnership firm M/s ABC & Co., which is engaged 4
in the business of trading branded furniture. The name of the partners was
clearly written along with the firm named in front of the head office of the firm
as well as on the letterhead of the firm. On 1st October 2018, C passed away. His
name was neither removed from the list of partners as stated in front of the
head office nor from the letterheads of the firm. As per the terms of the
partnership, the firm continued its operations with A and B as partners. The
accounts of the firm were settled, and the amount due to the legal heirs of C was
also determined on 10th October 2018. But the same was not paid to the legal
heirs of C. on 16th October 2018, X, a supplier, supplied furniture worth
₹20,00,000 to M/s ABC & Co. M/s ABC & Co. could not repay the amount not
only from M/s ABC & Co. but also from the legal heirs of C.
Analyses the above situation in terms of the provisions of the Indian
Partnership Act, 1932 and decide whether the legal heirs of Mr C can also be
liable for the due towards Mr X. (Nov. 2018, May 2022 RTP)
Ans. As per the provision of the Indian Partnership Act, 1932, A contract between 4
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. It is
not necessary to give any notice either to the public or the person having dealt
with the firm.
Facts of the case:
A B and C were partners in a partnership firm M/s ABC & Co., which is engaged
in the business of trading branded furniture. The name of the partners was
clearly written along with the firm named in front of the head office of the firm
as well as on the letterhead of the firm. On 1st October 2018, C passed away. His
name was neither removed from the list of partners as stated in front of the
head office nor from the letterheads of the firm. As per the terms of the
partnership, the firm continued its operations with A and B as partners. The
accounts of the firm were settled, and the amount due to the legal heirs of C was
also determined on 10th October 2018. But the same was not paid to the legal
heirs of C. on 16th October 2018, X, a supplier, supplied furniture worth
₹20,00,000 to M/s ABC & Co. M/s ABC & Co. could not repay the amount not
only from M/s ABC & Co. but also from the legal heirs of C.
Conclusion:
The delivery of the furniture was made after C’s death; his estate would not be
liable for the debt of the firm. A suit for goods sold and delivered would not lie
against the representative of the deceased partner. This is because there was
no debt due with respect if the goods in C’s lifetime.
34 M, N and P were partners in a firm which was dealing in refrigerators. On 1st 3
October 2018, P retired from the partnership but failed to give public notice of
his retirement. After his retirement, M, N and P visited a trade fair and enquired
about some refrigerators with the latest techniques. X, who was exhibiting his
refrigerators with the new techniques, was impressed with the interactions of
P and requested the visiting card of the firm. The visiting card also included the
name of P as a partner even though he had already retired. X supplied some
refrigerators to the firm and could not recover the dues not only from the firm
but also from P.
Analyses the above case in terms of the provisions of the Indian Partnership
Act, 1932 and decide whether P is liable in this situation. (Nov. 2018)

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Ans. As per the provision of the Indian Partnership Act, 1932, partnership by holding 3
out mean when a man holds himself out as a partner or allows others to do it,
he is then stopped from denying the character he has assumed and upon the
faith of which creditors may be presumed to have acted. A person may himself,
by his words or conduct, have induced others to believe that he is a partner, or
he may have allowed others to represent him as a partner. The result in both
cases is identical.
Facts of the case:
M, N and P were partners in a firm which was dealing in refrigerators. On 1 st
October 2018, P retired from the partnership but failed to give public notice of
his retirement. After his retirement, M, N and P visited a trade fair and enquired
about some refrigerators with the latest techniques. X, who was exhibiting his
refrigerators with the new techniques, was impressed with the interactions of
P and requested the visiting card of the firm. The visiting card also included the
name of P as a partner even though he had already retired. X supplied some
refrigerators to the firm and could not recover the dues not only from the firm
but also from P.
Conclusion:
P is also liable for the price because he becomes a partner by holding out.
35 Ram, Laxman and Bharat are partners of a partnership firm RLB Furniture’s & 6
Co. The firm is a dealer in office furniture. Ram was in charge of purchase and
sale, Laxman was in charge of maintenance of accounts of the firm, and Bharat
was in charge of handling all legal matters. Recently through an agreement
among them, it was decided that Ram will be in charge of maintenance of
accounts and Laxman will be in charge of purchase and sale. Being ignorant
about such an agreement, Shyam, a supplier, supplied some furniture to Ram,
who ultimately sold them to a third party at a profit. Referring to the provisions
of the Partnership Act, 1932, advise whether Ram’s actions were correct or not?
(Jan. 2021, July 2021)
Ans. As per the provision of the Indian Partnership Act, 1932, it is the duty of the 6
partner to act within the scope of his actual authority. If he exceeds his
authority, he shall compensate the other partners for loss unless they ratify his
act. Also, a partner must not make any secret profits.
Facts of the case:
Ram, Laxman and Bharat are partners of a partnership firm RLB Furnitures &
Co. The firm is a dealer in office furniture. Ram was in charge of purchase and
sale, Laxman was in charge of maintenance of accounts of the firm, and Bharat
was in charge of handling all legal matters. Recently through an agreement
among them, it was decided that Ram will be in charge of maintenance of
accounts and Laxman will be in charge of purchase and sale. Being ignorant
about such an agreement, Shyam, a supplier, supplied some furniture to Ram,
who ultimately sold them to a third party at a profit.
Conclusion:
Here, Ram has to compensate the other partners and the firm as Ram had acted
outside his actual authority and made an agreement with Shyam for the
purchase of furniture, which was not within the scope of his duties. Ram’s duty
was the maintenance of accounts of the firm, not sale and purchase of the
furniture. Also, the profit which Ram has made from selling the furniture shall
be claimed by the firm.

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36 Explain the provision of the Indian Partnership Act, 1932 relating to the 2
creation of partnership by holding out. (RTP Nov. 2020)
Ans. Partnership by Holding out: 2
Partnership by holding out means “to represent”, strangers who hold
themselves out or represents to be partners in the firm.
✓ No entitled to share profit and losses of the firm.
✓ Liable to the third party with which contract is entered into becoming of
such representation.
37 State the legal consequence of the following as per the provisions of the Indian 4
Partnership Act, 1932:
1) Retirement of a partner
2) Insolvency of a partner (RTP Nov. 2019)
Ans. 1) Retirement of a partner 4
a) A partner may retire:
✓ with the consent of all the other partners;
✓ in accordance with an express agreement by the partners;
✓ where the partnership is a will, by giving notice in writing to all the
other partners of his intention to retire.
b) 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, and such agreement may be implied by a course of
dealing between the third party and the reconstituted firm after he had
knowledge of the retirement.
c) Notwithstanding the retirement of a partner from a firm, he and the
partners continue to be liable as a partner to third parties for any act
done by any of them.
d) Notice may be given by the retired partner or by any partner of the
reconstituted firm
2) Insolvency of a partner
a) The insolvent partner cannot be continued as a partner.
b) He will be ceased to be a partner from the very date on which the order
of adjudication is made.
c) The estate of the insolvent partner is not liable for the acts of the firm
done after the date of order of adjudication.
d) The firm is also not liable for any act of the insolvent partner after the
date of the order of adjudication.
e) Ordinarily but not invariably, the insolvency of a partner results in the
dissolution of a firm, but the partners are competent to agree among
themselves that the adjudication of a partner as an insolvent will not
give rise to dissolution of the firm.
38 A, B and C are partners of a partnership firm carrying on the business of 4
construction of apartments. B who himself was a wholesale dealer of iron bars
was entrusted with the work of selection of iron bars after examining its
quality. As a wholesaler, B is well aware of the market conditions. Current
market price of iron bar for construction is ₹350 per Kilogram. B already had
1000 Kg of iron bars in stock which he had purchased before price hike in the
market for ₹200 per Kg. He supplied iron bars to the firm without the firm
realising the purchase cost. Is B liable to pay the firm the extra money he made,

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or he doesn’t have to inform the firm as it is his own business and he has not
taken any amount more than the current prevailing market price of ₹350?
Assume there is no contract between the partners regarding the above.
(Nov 2021 RTP)
Ans. According to section 16 of the Indian Partnership Act, 1932, subject to contract 4
between partners:
a) if a partner derives any profit for himself from any transaction of the firm,
or from the use of the property or business connection of the firm or the
firm name, he shall account for that profit and pay it to the firm;
b) if a partner carries on any business of the same nature as and competing
with that of the firm, he shall account for and pay to the firm all profits
made by him in that business.
Facts of the case:
A, B and C are partners of a partnership firm carrying on the business of
construction of apartments. B who himself was a wholesale dealer of iron bars
was entrusted with the work of selection of iron bars after examining its
quality. As a wholesaler, B is well aware of the market conditions. Current
market price of iron bar for construction is ₹350 per Kilogram. B already had
1000 Kg of iron bars in stock which he had purchased before price hike in the
market for ₹200 per Kg. He supplied iron bars to the firm without the firm
realising the purchase cost.
Conclusion:
In the given scenario, Mr. B had sold iron bar to the firm at the current
prevailing market rate of ₹350 per Kg though he had stock with him which he
bought for ₹200 per Kg. Hence, he made an extra profit of ₹150 per Kg. This is
arising purely out of transactions with the firm. Hence, Mr. B is accountable to
the firm for the extra profit earned thereby.
39 MN partnership firm has two different lines of manufacturing business. One 5
line of business is the manufacturing of Ajinomoto, a popular seasoning & taste
enhancer for food. Another line of business is the manufacture of paper plates
& cups. One fine day, a law is passed by the Government banning Ajinomoto’
use in food and to stop its manufacturing making it an unlawful business
because it is injurious to health. Should the firm compulsorily dissolve under
the Indian Partnership Act, 1932? How will its other line of business (paper
plates & cups) be affected? (Nov 2021 RTP)
Ans. According to Section 41 of the Indian Partnership Act, 1932, a firm is 5
compulsorily 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.
However, where more than one separate adventure or undertaking is carried
on by the firm, the illegality of one or more shall not of itself cause the
dissolution of the firm in respect of its lawful adventures and undertakings.
Facts of the case:
MN partnership firm has two different lines of manufacturing business. One
line of business is the manufacturing of Ajinomoto, a popular seasoning & taste
enhancer for food. Another line of business is the manufacture of paper plates
& cups. One fine day, a law is passed by the Government banning Ajinomoto’

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use in food and to stop its manufacturing making it an unlawful business

because it is injurious to health.
Conclusion:
Here, MN has to compulsorily dissolve due to happening of law which bans the
usage of ajinomoto. Else the business of the firm shall be treated as unlawful.
However, the illegality of ajinomoto business will in no way affect the legality
or dissolution of the other line of business (paper plates & cups). MN can
continue with paper plates and cup manufacture.
40 Moni and Tony were partners in the firm M/s MOTO & Company. They admitted 3
Sony as partner in the firm and he is actively engaged in day-to-day activities
of the firm. There is a tradition in the firm that all active partners will get a
monthly remuneration of ₹20,000 but no express agreement was there. After
admission of Sony in the firm, Moni and Tony were continuing getting salary
from the firm but no salary was given to Sony from the firm. Sony claimed his
remuneration but denied by existing partners by saying that there was no
express agreement for that. Whether under the Indian Partnership Act, 1932,
Sony can claim remuneration from the firm? (May 2022 RTP)
Ans. By virtue of provisions of Section 13 (a) of the Indian Partnership Act, 1932 a 3
partner is not entitled to receive remuneration for taking part in the conduct of
the business. But this rule can always be varied by an express agreement, or by
a course of dealings, in which event the partner will be entitled to
remuneration. Thus, a partner can claim remuneration even in the absence of a
contract, when such remuneration is payable under the continued usage of the
firm. In other words, where it is customary to pay remuneration to a partner
for conducting the business of the firm, he can claim it even in the absence of a
contract for the payment of the same.
Facts of the case:
Moni and Tony were partners in the firm M/s MOTO & Company. They admitted
Sony as partner in the firm and he is actively engaged in day-to-day activities
of the firm. There is a tradition in the firm that all active partners will get a
monthly remuneration of ₹20,000 but no express agreement was there. After
admission of Sony in the firm, Moni and Tony were continuing getting salary
from the firm but no salary was given to Sony from the firm. Sony claimed his
remuneration but denied by existing partners by saying that there was no
express agreement for that.
Conclusion:
In the given problem, existing partners are getting regularly a monthly
remuneration from firm customarily being working partners of the firm. As
Sony also admitted as working partner of the firm, he is entitled to get
remuneration like other partners.
41 M/s XYZ & Company is a partnership firm. The firm is an unregistered firm. The 3
firm has purchased some iron rods from another partnership firm M/s LMN &
Company which is also an unregistered firm. M/s XYZ & Company could not pay
the price within the time as decided. M/s LMN & Company has filed the suit
against M/s XYZ & Company for recovery of price. State under the provisions of
the Indian Partnership Act, 1932:
a) Whether M/s LMN & Company can file the suit against M/s XYZ &
Company?
b) What would be your answer, in case M/s XYZ & Company is a registered

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firm while M/s LMN & Company is an unregistered firm?

c) What would be your answer, in case M/s XYZ & Company is an unregistered
firm while M/s LMN & Company is a registered firm? (May 2022 RTP)
Ans. According to provisions of Section 69 of the Indian Partnership Act, 1932 an 3
unregistered firm cannot file a suit against a third party to enforce any right
arising from contract, e.g., for the recovery of the price of goods supplied. But
this section does not prohibit a third party to file suit against the unregistered
firm or its partners.
Facts of the case:
M/s XYZ & Company is a partnership firm. The firm is an unregistered firm. The
firm has purchased some iron rods from another partnership firm M/s LMN &
Company which is also an unregistered firm. M/s XYZ & Company could not pay
the price within the time as decided. M/s LMN & Company has filed the suit
against M/s XYZ & Company for recovery of price.
Conclusion:
a) On the basis of above, M/s LMN & Company cannot file the suit against M/s
XYZ & Company as M/s LMN & Company is an unregistered firm.
b) In case M/s XYZ & Company is a registered firm while M/s LMN & Company
is an unregistered firm, the answer would remain same as in point a) above.
c) In case M/s LMN & Company is a registered firm, it can file the suit against
M/s XYZ & Company.

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