LEGAL ASPECTS OF

BUSINESS

INDIAN PARTNERSHIP ACT

1932 WITH LATEST
AMENDMENTS.
SUBMITTED BY -
ARUNIM MEHROTRA
SUBMITTED TO - RITUPARNA
PRASOON
SHORT TITLE EXTENT AND
COMMENCEMENT.
This Act may be called the Indian Partnership Act, 1932.
It extends to the whole of India except the State of
Jammu and Kashmir. It shall come into force on the
1st day of October 1932, except section 6 9
which shall come into force on the 1st day of October
1933.
D E F IN IT IO N S
In t he Ac t , unless t here is anyt hing repug nant in the subject or context, an " act
of a firm " means any act or omission by all partners, or by any partner or
the
agent of the firm which gives rise to a right enforceable by or against the firm;
" business " includes every trade, occupation and profession; " prescribed " means
prescribed by rules made under this Act; (c-1) " Registrar " means the Registrar of
Firms appointed under sub - section (1) of section 57 and the Deputy
includes
Registrar of Firms and Assistant Registrar of Firms appointed under sub - section
(2) of that section; " third party " used in relation to a firm or to a partner therein
means any person who is not a partner in the firm; and expressions used but
not defined in this Act and defined in the Indian Contract Act, 1872, shall have
the meanings assigned to them in that Act.
APPLICATION OF PROVISIONS
OF ACT IX OF 1872.

The unrepealed provisions of the Indian Contract Act, 1872, save in so far as they are
inconsistent with the express provisions of this Act, shall continue to apply to firms.
DEFINITION OF
" PARTNERSHIP " , " PARTNER " ,
" FIRM " AND " FIRM - NAME " .
" Partnership " is the relation between persons who have agreed
to share the profits of a business carried on by all or any of
them acting for all. Persons who have entered into partnership
with one another are called individually, " partners " and
collectively "a firm " , and the name under which their
business is carried on is called the "firm - name " .
PARTNERSHIP NOT
CREATED BY STATUS.
The relation of partnership arises from contract and not from
status; and, in particular, the members of a Hindu undivided family
carrying on a family business as such, or a Burmese Buddhist
husband and wife carrying on business as such are not partners
in such business.
M ODE OF DETERM INING
EXISTENCE OF PARTNERSHIP.
In determining whether a group of persons is or is not a firm, or whether a person is or is
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. Explanation I : The sharing of profits or of
gross returns arising from property by persons holding a joint or common interest in that
property does not of itself make such persons partners. Explanation II : The receipt by a
person of a share of the profits of a business, or of a payment contingent upon the
earning of profits or varying with the profits earned by a business, does not itself make him
a partner with the persons carrying on the business; and, in particular, the receipt of such
share or payment - by a lender of money to persons engaged or about to engage in any
business by a servant or agent as remuneration, by the widow or child of a deceased
partner, as annuity, or by a previous owner or part-owner of the business, as consideration
for the sale of the goodwill or share thereof, does not of itself make the receiver a
partner with the persons carrying on the business.
PARTNERSHIP - AT - WILL.

Where no provision is made by contract between the partners for the

duration of their partnership, or for the determination of their
partnership, the partnership is " partnership - at - will " .
PARTICULAR
PARTNERSHIP.
A person may become a partner with another person in
particular adventures or undertakings.
GENERAL DUTIES OF
PARTNERS.
Partners are bound to carry on the business of the firm to greatest common advantage, to be
just and faithful to each other, and to render true accounts and full information of all things
affecting the firm to any partner, his heir or legal representative.
DUTY TO INDEMNIFY FOR
LOSS CAUSED BY FRAUD.
Every partner shall indemnify the firm for any loss caused to it by
his fraud in the conduct of the business of the firm.
DETERM INATION OF RIGHTS AND DUTIES
OF PARTNERS BY CONTRACT BETWEEN
THE PARTNERS.
(1)Subject to the provisions of this Act, the mutual rights and duties
of the partners of a firm may be determined by contract between the
partners, and such contract may be express or may be implied by a
course of dealing. Such contract may be varied by consent of all
the partners, and such consent may be express or
may be implied by a course of dealing.
(2)AGREEMENTS IN RESTRAINT OF TRADE. Notwithstanding anything
contained in section 27 of the Indian Contract Act, 1872, such
contracts may provide that a partner shall not carry on any business
other than that of the firm while he is a partner.
THE CONDUCT OF THE
BUSINESS.
Subject to contract between the partners -
(a) every partner has a right to take part in the conduct of the business;
(b) every partner is bound to attend diligently to his duties in the conduct of the business;
(c)any difference arising as to ordinary matters connected with the business may be decided
by a majority of the partners, and every partner shall have the right to express his opinion
before the matter is decided, but no change may be made in the nature of the
business without the consent of all the partners;
(d)every partner has a right to have access to and to inspect and copy any of the books
of the firm;
(e)in the event of the death of a partner, his heirs or legal representatives or their duly
authorised agents shall have a right of access to and to inspect and copy any of the books
of the firm.
MUTUAL RIGHT AND
LIABILITIES
Subject to contract between the partners -
(a) a partner is not entitled to receive remuneration for taking part in the conduct of the
business;
(b)the partners are entitled to share equally in the profits earned, and shall contribute
equally to the losses sustained by the firm;
(c)where a partner is entitled to interest on the capital subscribed by him, such interest shall
be payable only out of profits;
(d)a partner making, for the purposes of the business, any payment or advance beyond the
amount of capital he has agreed to subscribe, is entitled to interest thereon at the rate of six
per cent. per annum;
(e)the firm shall indemnify a partner in respect of payments made and liabilities incurred by
him (i) in the ordinary and proper conduct of the business; and (ii) in doing such act, in an
emergency, for the purpose of protecting the firm from loss, as would be done by a person
of ordinary prudence, in his own case, under similar circumstances; and
(f)a partner shall indemnify the firm for any loss caused to it by his willful neglect in the conduct of
THE PROPERTY OF THE
FIRM
Subject .
to contract between the partners, the property of the firm
includes all property and rights and interest in property originally
brought into the stock of the firm, or acquired, by purchase or
otherwise, by or for the firm for the purposes and in the course of the
business of the firm, and includes also the goodwill of the business.
Unless the contrary intention appears, property and rights and interest
in property acquired with money belonging to the firm are deemed to
have been acquired for the firm
RIGHTS AND DUTIES OF
PARTNERS AFTER A CHANGE IN
THE
Subject FIRM.
to contract between the partners, -
(a)where a change occurs in the constitution of a firm, the mutual rights and duties of the
partners in the reconstituted firm remain the same as they were immediately before the
change, as far as may be;
(b) AFTER THE EXPIRY OF THE TERM OF THE FIRM.
where a firm constituted for a fixed term continues to carry on business after the expiry of
that term, the mutual rights and duties of the partners remain the same as they were
before the expiry, and so far as they may be consistent with the incidents of partnership-at-
will; and
(c) WHERE ADDITIONAL UNDERTAKINGS ARE CARRIED OUT.
where a firm constituted to carry out one or more adventures or undertakings
c arries out other adventures or undertakings, the mutual rights and duties of the
partners in respect of the other adventures or undertakings are the same as
those in respect of the original adventures or undertakings.
IMPLIED AUTHORITY OF PARTNER
AS AGENT OF THE FIRM.
(1)Subject to the provisions of section 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".
(2)In the absenc e of any usage or c ustom of trade to the c ontrary, the implied authority of a
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.
RIGHTS OF TRANSFEREE OF A
PARTNER ' S INTEREST.
(1)A transfer by a partner of his interest in the firm, either absolute or by mortgage, or, by the
creation by him of a charge on such interest, does not entitle the transferee, during the
continuance of the firm, to interfere in the conduct of the business or to require accounts or to
inspect the books of the firm, but entitles 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.
(2)If the firm is dissolved or if the transferring partner ceases to be a
partner, the transferee is entitled as against the remaining partners, to
receive the share of the assets of the firm to which the transferring partner
is entitled and, for the purpose of asc ertaining that share, to an ac c ount as
from the date of the dissolution.
RETIREMENT OF A PARTNER.
(1) A partner may retire -
(a) with the consent of all the otter partners,
(b) in accordance with an express agreement by the partners, or
(c)w here the partnership is at w ill, by giving notic e in w riting to all the other partners of his
intention to retire.
(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, and such agreement may be implied by a course of dealing
between such third party and the reconstituted firm after he had knowledge of the retirement.
(3)Notw ithstanding the retirement of a partner from a firm, he and the partners c ontinue 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 party.
(4) Notices under sub-section
(5) may be given by the retired partner or by any partner of the reconstituted firm.
RIGHTS OF OUTGOING PARTNER TO
CARRY ON COMPETING BUSINESS.
(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.
(2) AGREEMENT IN RESTRAINT OF TRADE. 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 w ithina spec ified period or w ithin spec ified loc al 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.
 RIGHT OF OUTGOING PARTNER
IN CERTAIN CASES TO SHARE
SUBSEQUENT PROFITS.
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 six per cent. per annum on the amount of his share in the property of the
firm : 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 of 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.
DISS O LUTION BY THE
C O URT.
At the suit of a partner, the Court may dissolve a firm on any of the following grounds, namely :- (a) that a
partner has become of unsound mind, in which case the suit may be brought as well by the next friend
of the partner who has become of unsound mind as by any other partner;
(b)that a partner, other than the partner suing, has become in any way permanently incapable
of performing his duties as partner;
(c)that a partner, other than the partner suing, is guilty of conduct which is likely to affect
prejudicially the carrying on of the business regard being had to the nature of the
business;
(d)that a partner, other than the partner suing, wilfully or persistently commits breach of
agreements relating to the management of the affairs of the firm of the conduct of its
business; or otherwise so conducts himself in matters relating to the business that it is not
reasonably practicable for the other partners to carry on the business in partnership with him;
(e)that a partner, other than the partner suing, has in any way transferred the whole of his interest in the
firm to a third party, or has allowed his share to be charged under the provisions of rule 4 9 of Order XXI
of the First Schedule to the Code of Civil Procedure, 1908, or has allowed it to be
sold in the recovery of arrears of land revenue or of any dues recoverable as arrears of land revenue
due by the partner;
RIGHTS WHERE PARTNERSHIP
CONTRACT IS RESCINDED
FOR
FRAUD
Where a contract OR
creating partnership is rescinded on the ground of fraud or misrepresentation
of any of the parties thereto, the party entitled to rescind is, without prejudice to any other right,
MISREPRESENTATION.
entitle -
(a)to a lien on, or right of retention of, the surplus of the assets of the firm remaining after the
debts of the firm have been paid, for any sum paid by him for the purchase of a share in the
firm and for any capital contributed by him;
(b)to rank as a creditor of the firm in respect of any payment made by him towards the debts of
the firm; and
(c)to he indemnified by the partner or partners guilty of fraud or misrepresentation against
all the debts of the firm.
THANK YOU