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The Indian Partnership Act, 1932 |
[9 of 1932]
An act to define and amend the law relating to partnership Whereas it is expedient to define and amend the law relating to partnership; it is hereby enacted as follows :
I. Prelimnary
1. Short title extent and commencement
(a) This Act may be called the Indian Partnership Act 1932.
(2) It extends to the whole of India.
(3) It shall come into force on the 1st day of October 1932 except section 69 which shall come into force on the 1st day of October 1933.
2. Definitions
In this Act unless there is anything repugnant in the subject or context –
(a) an “act of a firm” means any act or omission by all the partners or by any partner or agent of the firm which gives rise to a right enforceable by or against the firm;
(b) “business” includes every trade occupation and profession;
(c) “prescribed” means prescribed by rules made under this Act;
(d) “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
(e) expressions used but not defined in this Act and defined in the Indian Contract Act 1872 (9 of 1872) shall have the meanings assigned to them in that Act.
3. Application of provisions of Act 9 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.
II. THE NATURE OF PARTNERSHIP
4. 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.
5. 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 business as such are not partners in such business.
6. Mode of determining 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 1 : 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 2 : 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 –
(a) by a lender of money to persons engaged or about to engage in any business
(b) by a servant or agent as remuneration
(c) by the widow or child of a deceased partner as annuity or
(d) 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 of the business.
7. 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’.
8. Particular partnership
A person may become a partner with another person in particular adventures or undertakings.
III. RELATIONS OF PARTNERS TO ONE ANOTHER
9. General duties of partners
Partners are bound to carry on the business of the firm to the 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 or his legal representative.
10. 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.
11. Determination 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 expressed 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 expressed or may be implied by a course of dealing.
(2) Agreements in restraints of trade – Notwithstanding anything contained in section 27 of the Indian Contract Act 1872 (9 of 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.
12. 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; and
(d) every partner has a right to have access to and to inspect and copy any of the books of the firm.
13. Mutual rights 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 idemnify the firm for any loss caused to it by his wilful neglect in the conduct of the business of the firm.
14. The property of the firm
Subject to contract between the partners the property of the firm includes all property and rights and interests in property originally brought into the stock of the firm or acquired by purchase or otherwise by or for the firm or for the purposes and in the course of business of the firm and includes also the goodwill of the business.
Unless the contrary intention appears property and rights and interests in property acquired with money belonging to the firm are deemed to have been acquired for the firm.
15. Application of the property of the firm
Subject to contract between the partners the property of the firm shall be held and used by the partners exclusively for the purposes of the business.
16. Persons profits earned by partners
Subject to contract between the 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 the 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.
17. Rights and duties of partners
Subject to contract between the partners –
(a) after a change in the firm – 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 and – 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 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 carries out other adventures or undertakings are the same as those in respect of the original adventures or undertakings.
IV. RELATIONS OF PARTNERS TO THIRD PARTIES
18. Partner to be agent of the firm
Subject to the provisions of this Act a partner is the agent of the firm for the purpose of the business of the firm.
19. 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 absence of any usage or custom of trade to the contrary 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 him 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.
20. Extension and restriction of partner’s implied authority
The partners in a firm may by contract between the parties, extend or restrict the implied authority of any partner.
Notwithstanding any such restriction any act done by a partner on behalf of the firm which falls within his implied authority binds the firm unless the person with whom he is dealing knows of the restriction or does not know or believe that partner to be a partner.
21. Partner’s authority in an emergency
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
22. Mode of doing act to bind firm
In order to bind a firm an act or instrument done or executed by a partner or other person on behalf of the firm shall be done or executed in the firm name or in any other manner expressing or implying an intention to bind the firm.
23. Effect of admissions by a partner
An admission on representation made by a partner concerning the affairs of the firm is evidence against the firm if it made in the ordinary course of business.
24. Effect of notice to acting partner
Notice to a partner who 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.
25. 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.
26. Liability of the firm for wrongful acts of a partner
Where by the wrongful act or omission of a partner acting 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 therefor to the same extent as the partner
27. Liability of firm for misapplication by partners
Where –
(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.
28. Holding out
(1) Anyone who by words spoken or written or by conduct represents himself or knowingly permits himself to be represented to be a partner in a firm is a liable as a partner in that firm to any who has on the faith of any such representation given credit to the firm whether the person representing himself or represented to be a partner does or does not know that the representation has reached the person so giving credit.
(2) Where after a partner’s death the business is continued in the old firm name the continued use of that name or of the deceased partner’s name as a part thereof shall not of itself make his legal representative or his estate liable for any act of the firm done after his death.
29. Rights of transferee or 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 change 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 to the assets of the firm to which the transferring partner is entitled and for the purpose of ascertaining that share to an account as from the date of the dissolution.
30. Minors admitted to the benefits of partnership
(1) A person who is a minor according to the law to which he is subject may not be a partner in a firm but with the consent of all the partners for the time being he may be admitted to the benefits of partnership.
(2) Such minor has a right to such share of the property and of the profits of the firm as may be agreed upon and he may have assess to and inspect and copy any of the accounts of the firm.
(3) Such minor’s share is liable for the acts of the firm but the minor is not personally liable for any such act.
(4) Such minor may not sue the partners for an account or payment of his share of the property or profits of the firm save when severing his connection with the firm and in such case the amount of his share shall be determined by a valuation made as far as possible is accordance with the rules contained in section 48 :
Provided that all the partners acting together or any partner entitled to dissolve the firm upon notice to other partners may elect in such suit to dissolve the firm and thereupon the court shall proceed with the suit as one for dissolution and for setting accounts between the partners and the amount of the share of the minor shall be determined along with the shares of the partners.
(5) 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 the said six moths.
(6) Where any person has been admitted as a minor to the benefits of partnership in a firm the burden of proving the fact that such person had no knowledge of such admission until a particular date after the expiry of six months of his attaining majority shall lie on the persons asserting that fact.
(7) Where such person becomes a partner –
(a) his rights and liabilities as a minor continue up to 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 partnership and
(b) his share in the property and profits of the firm shall be the share to which he was entitled as a minor.
(8) Where such person elects not to become a partner –
(a) his rights and liabilities shall continue to be those of a minor under this section up to the date on which he given public notice
(b) his share shall not be liable for any acts of the firm done after the date of the notice and
(c) he shall be entitled to sue the partners for his share of the property and profits in occurrence with sub-section (4).
(9) Nothing in sub-sections (7) and (8) shall affect the provisions of section 28.
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