Partnership lectures

Partnership lectures

PAHUJA LAW ACADEMY

INDIAN PARTNERSHIP ACT

MAINS QUESTION

 

  1. Discuss the history of law of partnership.
  2. What are the essential elements of partnership? Distinguish partnership from company.
  3. Sharing the profits is only a prima facie evidence of the existence of partnership. The conclusive test is that of mutual agency.
  4. Determine the existence of partnership in the following situation and give reason in support of your answer. A partnership firm was financially embarrassed and therefore made a compromise with their creditors B, C, D and E. Under the compromise, the property of firm was assigned to all the four creditors. They were empowered to carry on business, to share the profits among themselves, till the debts have been discharged.
  5. In a memorandum of partnership among A, B and C, it is provided that A will manage the business and will be paid Rs. 2000 P.M. but shall have no share in profits of the firm. In a suit for dissolution, A declines any liability for losses and asserts that he was not partner in the firm. Determine the validity of plea raised by him.
  6. A suit was brought by two plaintiffs but there was no evidence as to what was the ex- act contract between them with regard to joint business which was carried on by them and there was no evidence that partnership business was carried on by all or any of partners acting for all nor did bond upon which suit was based described them as partners in a firm though there was recital in bond which was to the effect that money was advanced from common fund. Defendant pleaded that suit was barred under Section 69 of Indian Partnership Act. Decide.

 

Introduction:

The law relating to partnership was contained in Chapter XI consisting of sections 239 to 266 of the Indian Contract Act, 1872.

The Indian Partnership Bill having been passed by the Legislature received its assent on 8th April 1932 and came into force on 1st day of October, 1932.

Whether the act is exhaustive or not?

Define Partnership as per Indian contract act 1872 and Indian Partnership act 1932?

What is the Criteria of partnership?

 

Any two or more than two persons can join together for creating partnership. Section 11 of the Companies Act, 1956 imposes limit as to maximum number of persons in a partnership for the purpose of carrying:

 

  • Banking business – there can be maximum of 10 persons
  • Any other business – there can be maximum of 20 persons.

 

If the number of members in any association exceeds the above stated limit, that must be registered as a company under Companies Act, 1956 otherwise that will be considered to be an illegal association.

 

What are the different dimensions of the partnership?

 

A ‘Partnership’ is an agreement where parties known as Partners agree to cooperate to advance their mutual interests.

 

Partnership is a relationship in which each party will get his part for the business (profit) by providing labor, skill or capital.

 

Partnership is a form of business organization, where two or more persons join together for jointly carrying on some business.

 

Section 239 of the Indian Contract Act, 1872 defines “Partnership” as:

 

…Partnership is the relation which subsists between persons who have agreed to combine their property, labour, skill in some business and to share the profits thereof between them…

 

BASIC ELEMENTS / ADVANTAGES OF A PARTNERSHIP

 

The basic elements of a partnership are:-

 

  1. Mutual trust and confidence between the partners.

 

  1. Personal / unlimited liability in relation to third parties of a partner.

 

  1. For creation of a partnership just an agreement between various persons is all what is required.

 

  1. Partners are their own masters for regulating their affairs.

 

  1. For dissolution of a partnership, mere agreement is required between the parties.

 

  1. A partnership firm does not have any legal personality.

 

  1. The minimum number of members required for a partnership is two or maximum is ten.

 

  1. The liability of the partners of a partnership is unlimited.

 

How many types of partners are their in a partnership firm?

 

Active Partner

 

Sleeping or Dormant Partner

 

Nominal Partner

 

Partner in Profits

 

Sub-partner

 

               Partner by Estoppel or Holding out

               Minor Partner

 

 What are the essentials for a Partnership?

 

What is the acid test to determine the partnership?

 

Conclusive Remarks:

 

 

PAHUJA LAW ACADEMY 

INDIAN PARTNERSHIP ACT 

PRELIMINARY QUESTIONS

 

  1. Indian Partnership Act, 1932:

(a) Superseded the’ earlier law relating to partnership contained in the Indian Contract Act, 1872

(b) Expression used but not defined in Partnership Act and defined in the Indian Contract Act, 1872, shall have the meanings assigned to them in Contract Act.

(c) Both (a) and (b) are correct

(d) Both (a) and (b) are incorrect

 

  1. An “act of firm” under the Partnership Act, 1932 means

(a) Any act or omission by all the partners

(b) Any act or omission by any partner

(c) Any act or omission by an agent of the firm

(d) all of the above

 

  1. The definition of “partnership” given under Sec. 4 of the Partnership Act, 1932 is:

(a) Relation between persons who have agreed to share the profit of a business carried on by all or any of them acting for all

(b) Relation which subsists between persons who have agreed to combine their property, labour or skill in some business, and to share the profits thereof between them

(c) Relation which subsists between persons carrying on a business in common with a view to profit

(d) All are correct.

 

  1. Which is an essential element of the, definition of “partnership” given under the Partnership’ Act, 1932:

(a) A combination of property, labour or skill

(b) Mutual agency

(c) Both (a) and (b)

(d) Only (b)

 

  1. Which of the following is not an essential ingredient to constitute partnership:

(a) Association of two or more persons.

(b) Mutual agency

(c) Sharing of profits

(d) Capital contribution

 

PAHUJA LAW ACADEMY

INDIAN PARTNERSHIP ACT

MAINS QUESTIONS

 

  1. Discuss the mutual rights and liabilities of partner’s inter se.

 

  1. ‘A’ owner of a cinema hall entered into partnership with ‘B’ for business of exhibiting films. Films of partnership were continuously exhibited in said cinema hall. In the account books the said cinema hall was never shown as property of partnership. In a suit for rendition of accounts ‘B’ claimed the said cinema hall as partnership property, which claim was disputed by ‘A’. Decide.

 

 

  1. Discuss the implied authority of a partner.

Or

What are the limitations on the implied authority of a partner in a firm? When such authority is automatically extended and upto what extent?

 

  1. ‘X’ and ‘Y’ are partners in a trading firm. X borrows Rs. 9000from P and executes a pronote in the name of the firm. ‘X’ spends the money in purchasing a plot of land in his own name for his personal purposes. Can P hold Y also liable for debt? Give reasons. 

 

Relation of partners to one another

Topic 2

 

What are the GENERAL DUTIES OF PARTNERS ?

 

Section-9

 

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.

 

What are the Rights and liabilities between partners?

 

  1. Rights

 

  1. Right to take part in the Management

 

  1. Right to be consulted and heard

 

 

  1. Right to free access to all records

 

  1. Entitled to share in the profits

 

  1. Right to indemnity

 

  1. Right to own partnership property jointly

 

  1. Right to act in emergency

 

  1. Right to retire
  2. Right not to be

 

What are the Liabilities ?

 

  1. To carry on the business of the firm to the common advantage.

 

  1. To render true accounts and full information of all things affecting the firm, to other partner or his legal representatives.

 

  1. Every partner is liable to indemnify the firm for any loss caused to it by his fraud in the conduct of the business of the firm,

 

  1. Every partner is bound to attend diligently to his duties in the conduct of the business of the firm.

 

  1. Liability to indemnify firm for any loss caused to it by wilful neglect of a partner in the conduct of the business of the firm.

 

  1. In the absence of a contract to the contrary, every partner is liable to contribute equally to losses sustained by the firm.

 

  1. To hold and use the property of the firm exclusively for the purposes of the business of the firm.

 

  1. A partner is liable to account for and pay to the firm for any profits derived by him for himself from any transaction of the firm from the use of the property or business connection of the firm or the firm name.

 

  1. In case a partner carried on business of the same nature as and competing with that of the firm, he shall be liable to account for and pay to the firm all profits made by him in that business.

 

  1. A partner is liable to account for any losses ensuing from any act committed by him outside the scope of the actual authority conferred upon him.

  

Section-10

 

What are the Duty to  INDEMNIFY for LOSS caused by the fraud?

 

What are the ways of determining the rights and duties of partners?

By the contract between the Partners.

newim 

The principles governs the relation of partners are

 

  1. One gives the freedom to settle the mutual rights and duties of partner
  2. Second of absolute good faith.

 

 

The rights and duties of the partners are given herein below:

 

What are the rights of the Partners?

 

What are the duties of partners?

 

 

Section-12 How will you determine the conduct of the business?

 

Conclusive Remarks:

 

Pre Questions

 

  1. Mark the incorrect statement:

(a) The mutual rights and duties, which have been agreed upon, may be subsequently varied by the consent of all the partners (Sec. 11).

(b) In case of any conflict between the provisions of the Partnership Act and those of the partnership agreement, the agreement will prevail.

(c) Sections 9 and 10 of the Partnership Act contain certain duties by which all the partners are bound and those duties cannot be negative by a contract between the partners.

(d) Sections 12 to 17 contain various other mutual rights and duties of the partners, which have been made “subject to the contract between the partners”.

 

  1. Which of the following is not a mutual duty of a partner?’

(a) Duty of utmost good faith i.e. uberrimae fide.

(b) Duty to carry on business to greatest common advantage.

(c) Duty to render true accounts and full information.

(d) Duty to contribute funds or capital for” the firm’s business.

 

  1. Mark the correct statement:

(a) A partner can make a personal profit out of the firm’s business, if , there has been no detriment to the firm.

(b) A partner can make a personal profit out of the firm’s business.

(c) A partner cannot make a personal profit out of the firm’s business.

(d) None of the above

  1. A partner has a duty to:

(a) Indemnify the firm for any loss caused to it by his fraud.

(b) indemnify the firm for any loss caused to it by his willful neglect.

(c) Both (a) and (b)

(d) Only (a)

 

  1. A partner cannot be held liable for:

(a) Acting wisely in the honest exercise of the judgment.

(b) Acting unwisely in the honest exercise of the judgment

(c) A mere error of judgment

(d) All of the above

 

 

 

Topic -3

PAHUJA LAW ACADEMY

INDIAN PARTNERSHIP ACT

MAINS QUESTIONS

 

  1. ‘X’ and ‘Y’ are partners in a trading firm. X borrows Rs. 9000from P and executes a pronote in the name of the firm. ‘X’ spends the money in purchasing a plot of land in his own name for his personal purposes. Can P hold Y also liable for debt? Give reasons.

 

  1. ‘A’ executed a promissory note describing himself as ‘Proprietor, M/s Arora and Sons’ in favour of ‘B’. B filed the suit for recovery of amount on the basis of said promissory note against partnership firm M/s Arora and Sons and its two partners including ‘A ’. Plea was taken that the firm and other partner were not liable to pay the amount. Decide.

Relation of partners to third parties

Topic 3

 

What are the Mutual rights and liabilities?

 

 What is the significance of the property of the firm?

 

PARTNERSHIP PROPERTY

 

An association of two or more persons engaged in a business enterprise in which the profits and losses are sharedproportionally. The legal definition of a partnership is generally stated as “an association of two or more persons to carry on as co-owners a business for profit”.

 

A partner may contribute PersonalProperty to the partnership, but the contributed property becomes partnership propertyunless some other arrangement has been negotiated. Similarly, if the partnership purchases property with partnershipassets, such property is presumed to be partnership property and is held in the partnership’s name. The partnership mayconvey or transfer the property but only in the name of the partnership. Without the consent of all the partners, individualpartners may not sell or assign partnership property.

 

 

 

What is the relevance of goodwill as a partnership property?

 

Section 14 and Section-15

 

How an application of the property be made?

 

 

Section-16

 

What is the significance of personal profits earned by the partners?

 

Section-17

 

What are the rights and duties of the partners after the  change in the firm?

 

 

Pre Questions

 

  1. As per Sec. 14 of the Partnership Act, the property of a firm does not include:

(a) All property and rights and interests in property.

(b) Secret profits made by a partner or property acquired by a partner in breach of his duty of good faith.

(c) Property belonging to any partner by use of the same for partnership business

(d) Goodwill of the business

 

  1. Mark the incorrect statement:

(a) What is a partnership property mainly depends on the agreement between partners.

(b) Where a property is purchased with the money of the firm and in the name of the firm, it creates the strongest presumption that it is a property of the firm.

(c) A land purchased with the partnership money but in a partner’s name is not a partnership property.

(d) If two brothers jointly inherit a house and there alter set up a business in the house in partnership, it could not be inferred that they were Intending to transfer their shares in the house to the partnership business.

 

  1. Which of the following is a right of a partner:

 

  1. Right to participate in business
  2. Right to restrain misconduct
  • Right to profit
  1. Right to express opinion or majority powers
  2. Right to interest on the-capital subscribed by him

 

(a) I, III and lV

(b) I, II and III

(c) I. II and V

(d) All of the above

 

  1. Mark the incorrect statement:

(a) A partner is entitled to receive remuneration for taking part in the conduct of the business

(b) The partnership is a fiduciary relation.

(c) The rights are subject to contract between the partners

(d) Every partner has a right to be indemnified in respect of payments made and liabilities (incurred by him.

 

  1. In order to entitle a person to interest on money brought by him into the partnership ‘business, there must be

(a) an express agreement to that effect

(b) practice of the particular partnership or other‘ facts and circumstances from which such an agreement may be implied.

(c) a statutory provision which entitle him to such interest.

(d) all of the above

 

  1. There was a partnership between A and B for the purpose of supplying meat to the State Government. A later engages with other persons in the supply of meat to the same Government.

(a) A is under an obligation to account to B for the profits so made by him.

(b) A is not under an obligation to account to B for the profits so made by him

(c) A’s obligation to B depends upon the contract between them.

(d) Both (a) and (c)

 

  1. Mutual rights and duties of the partners after the changes in a partnership firm:

(a) Remains the same

(b) Does change

(c) Subject to contract between the partners.

(d) Both (a) and (c)

 

  1. Mark the incorrect statement:

(a) According to Sec. 18 of the Partnership Act, each partner is the agent of his co-partners for the purpose of contracting debts and obligations in the usual course of partnership business.

(b) Each partner is praepositus negotis societatis, and may consequently bind all the other partners by his acts in all matters which are within the scope and objects of the partnership.

(c) If a partner borrows money for his daughter’s marriage, the firm will be bound by that on the basis of community of interest in a partnership.

(d) The agency operates against dormant or sleeping partners as well, they too are liable for the acts of acting or ostensible partners.

 

  1. The liability of a partner is:

(a) Joint only.

(b) Several only.

(c) Joint as well as several.

(d) Strict liability.

 

  1. Mark the incorrect statement

(a) A partner can be allowed to -take the plea that between the partners themselves the agreement provides only limited liability for him.

(b) It is the discretion of the third party to bring an action against some or all the partners.

(c) Every partner is liable for all acts of the firm done while he is a partner; it may be a contract or a wrongful act, for example, fraud, negligence or any tort.

(d) None of the above.

 

 

  1. The authority of a partner to bind the firm by his acts done in the usual course of business is called his “implied authority”. Such authority does not include:

(a) Selling the firm’s goods.

(b) To borrow in a trading firm.

(c) Settling accounts with the persons dealing with the firm.

(d) Withdraw a suit or proceeding filed on the firm’s behalf.

 

  1. B and M were carrying on the business of cinematographic theatre proprietors. B was a sleeping partner and M managed the business. The partnership deed provided that no partner should contract any debt on account of the partnership without the consent of the other partner except in/A the usual and regular course of business. M borrowed money from C stating that the money was to be used for the partnership business. But he misappropriated it. C sued B.

(a) B is not liable on the ground that the business of the firm was not a trading one and therefore the firm was not bound by the loan taken by M.

(b) B is liable in view of the implied authority of another partner.

(c) B is liable in view of the joint liability of the partners.

(d) B is not liable for the fraud of M.

 

  1. For an act falling within the implied authority of a partner, the firm will be bound if the act or instrument done or executed by a partner has been done or executed -‘ (i) in the name of the firm, or (ii) in a manner expressing or implying an intention to bind the firm. In view of this, which of the following acts (signatures on an instrument by a partner) will bind a“ firm?

(a) “For M.M. Abbas & Co,”

(b) “Partner of Abbas & Bros.”

(c) Both (a) and (b).

(d) None of the above.

 

  1. Mark the incorrect statement in relation to implied authority of a partner under Sec. 19:

(a) A partner can always enter into partnership on ‘behalf of the firm.

(b) A partner can acquire immovable property on firm’s behalf or transfer immovable property (e.g. sale, mortgage, lease or gift) belonging to the firm.

(c) A partner can admit any liability in a suit or proceeding against the firm.

(d) All are incorrect.

 

  1. In which of the following cases, a partner does have an, implied authority?

(a) To submit a dispute relating to the business of the firm to arbitration.

(b) To assign the debt.

(c) To defend an action brought against the firm.

(d) To submit to an injunction brought against the firm.

 

 

 

RELATIONS OF PARTNERS TO THIRD PARTIES

 

 

(SECTION 18-30)

 

 

  1. Nature and extent of liability of the firm for act of partners (Sec. 18-27)

 

  1. Doctrine of Holding Out (Sec. 28)

 

  • Rights of Transferee of a partner’s interest (Sec. 29)

 

  1. Minor admitted to benefits of partnership (Sec. 30)

 

 

  1.     NATURE AND EXTENT OF LIABILITY OF THE FIRM FOR ACT OF PARTNERS (Sec. 18-27)

 

 

Section-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 purposes of the business of the firm.

 

COMMENTS

 

This section recognises the doctrine that a partner is the agent of the firm for the purpose of the business of the firm.

 

AGENT is a person that has express (oral or written) or implied authority to act for another (the principal) so as to bring the principal into contractual relationships with other parties. An agent is under the control (is obligated to) the principal, and (when acting within the scope of authority delegated by the principal) binds the principal with his or her acts. Additional powers are assigned to agent under the legal concept of ‘apparent authority.’ The agent, however, does not have title to the principal’s goods in his or her possession, except where agent’s lien is applicable. In general, advertising agencies do not fall under this definition of an agent, because they act as principals for the services they buy on behalf of their clients.

 

CASE LAW

 

  1. Manna Ram & Son Vs. Janki Das Om Prakash AIR 1984 All. 267

 

Mere endorsement of a partner acknowledging debt of partnership without any power of attorney to do so is not acknowledgment of debt so as to bind partners or save period of limitation for suit.

 

 

Section-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 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.

 

COMMENTS

This section deals with the implied authority of a partner as an agent of the firm.

Implied authority, also known as “usual authority,” is the authority of an agent acting on behalf of another person or entity. The person acting with implied authority does what is reasonably necessary in order to effectively perform his duties.

A partner’s authority may be express or implied.

Express authority – express authority is an authority of a partner when it is given by words either spoken or written.

Implied authority- implied authority is an authority of a partner where there has been no express agreement between the partners. 

 

JOINT VENTURE

 

A joint venture (JV) is a business entity created by two or more parties, generally characterized by shared ownership, shared returns and risks, and shared governance

It was held in Singleton Dunn & Co., V. Knight 1888,A partner has no implied authority from other partners to enter into a partnership with person in another business.

Section 19 also laid down some restrictions on the implied authority of a partner which are as follows

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.

 

  CASE LAW

 

  1. Partner Ramchand Lekhraj Vs. V.S. Narayanaswammy AIR 1982 Mad. 326

 

A partner cannot compromise any claim by the firm unless there is express authority given by all the parties.

 

  1. Dulichand vs. Mathuradas AIR 1958 Bom 428

 

A payment made to a partner falls within his implied authority, but it is not within the implied authority of a partner to set off his own separate debt against the debt due to his firm

 

Section-20

EXTENSION AND RESTRICTION OF PARTNER’S IMPLIED AUTHORITY.

The partners in a firm may, by contract between the partners, 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.

 

COMMENTS

Section 20 of the act provides that the partners in a firm may by contract between themselves extent or restrict the implied authority of a partner.

 

The section also provides that the act done by any partner of a firm during exercise of his implied authority, shall bind the firm.

 

In State Bank of India Vs M/s.Simko Engineering Works) 2005(1) Civil Court Cases 319 (P&H), it was held that Firm and its partners – Liability – A partnership firm has no independent entity of its own and all the liabilities against the firm or all acts done by any one of its partners for and on behalf of the firm shall bind all the other partners as well – Section 20 is an exception to the implied authority – Partners by contract between themselves extend or restrict the implied authority of any partner – However, 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 – Onus to prove that such authority of partner is restricted is upon the person who claims such a restriction.

 

CASE LAW

  1. Sunil Girdharilal Shah vs Sanjay Navneetdas Shah And Ors. on 5 October, 2001
  2. State Bank Of India vs Simco Engg. Works on 11 August, 2004
  3. Monirul Hasan And Ors. vs Mohd. Iftikar Ahmed And Ors. on 11 January, 2000

 

Section-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.

 

COMMENTS

 

The following are the requirements of the section:

  1. There should be an emergency
  2. The partners should made his efforts to protect the firm from losses
  3. The act of the partner should be reasonable in the circumstances.

 

CASE LAW

 

  1. M/S. Chandrika Enterprise vs G. Vittalla Rao on 17 January, 1996
  2. Akberali Sons Estate vs The Pen Shop on 18 February, 1995
  3. M/S Umesh Goel vs Himachal Pradesh Cooperative … on 29 June, 2016

 

Section-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.

 

COMMENTS

Section 22 of the Act provides that all the acts and instruments executed by a partner on behalf of the firm shall consider to be executed in the name of the firm.

 

In State Bank of India Vs M/s.Simko Engineering Works) 2005(1) Civil Court Cases 319 (P&H), it was held that Firm and its partners – Liability – A partnership firm has no independent entity of its own and all the liabilities against the firm or all acts done by any one of its partners for and on behalf of the firm shall bind all the other partners as well – Section 20 is an exception to the implied authority – Partners by contract between themselves extend or restrict the implied authority of any partner – However, 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 – Onus to prove that such authority of partner is restricted is upon the person who claims such a restriction.

CASE LAW

 

  1. Vattumalli Narayana Rao Vs. Medrarapu Krishna Rao AIR 2003 AP 46

 

Where the managing partner has executed the promissory note with an intention and with a view to bind the firm and signed it with the seal of the firm there it can be said that managing partner has executed the promissory note and hence other partners of firm are also liable.

 

Section-23

EFFECT OF ADMISSION BY A PARTNER.

An admission or representation made by a partner concerning the affairs of the firm is evidence against the firm, it is made in the ordinary course of business.

 

COMMENTS

Section 23 of the Act provides that all the acts and instruments executed by a partner on behalf of the firm shall consider as evidence against the firm.

 

An admission is a statement by which a person acknowledges the existence of a fact against his own interest. If any partner of a firm, admits any fact or make a statement or admits a liability in the course of business of the firm, the firm shall be bind by such admission or statement of it partner.

 

Notice to a partner shall be considered as notice to the firm.

CASE LAW

  1. Deo Sharma vs Commissioner Of Income-Tax, U. P. … on 20 May, 1960
  2. I. Suratwala And Co. vs Mahmud Bidi Works Sholapur And … on 29 April, 1970
  3. Hiralal Jagannath Prasad vs Commissioner Of Income Tax, U.P., … on 1 November, 1966

 

Section-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.

 

COMMENTS

 

Notice to a partner shall be considered as notice to the firm.

 

In order that such a notice may be binding, the following conditions must be satisfied:-

 

  1. The notice must be given to a partner who habitually acts in the business of the firm.
  2. The notice must be a notice of any matter relating to the arrears of the firm,
  3. Fraud should not have been committee with the consent of such partner on the firm.

 

In Usha Gopirathnam V. P.S. Ranganathan AIR 2008 NOC 2137, it was held that a partner gave notice of retirement to a partner who was habitually acting in business of firm,  the said notice was held to be effective.

 

In Shivshanker Shaw Mill vs Addl Collector And Competent … on 21 February, 2006, it was held by Gujarat High Cour that

 

Section 24 of the Indian Partnership Act provides that 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.

 

“ ………..24. 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 the partner……………” 

 

It can thus be seen that Shri Vashrambhai Punjabhai Patel having represented the partnership firm before the Competent Authority at all stages, the partnership-firm cannot contend now before this Court that notices of the proceedings ought to have served on all the remaining partners also. In any case by virtue of provisions contained in Section 24 of the Indian Partnership Act, such notices to the partner is sufficient notice to the partnership-firm itself. By his conduct Shri Vashrambhai Punjabhai Patel had represented before the authorities that he is authorised to represent the partnership firm in the said proceedings. No other partner raised any objection to Shri Vashrambhai Punjabhai Patel representing the firm before the authorities. The question of serving the remaining partners, draft statement under Sub-section (3) of Section 8 of the said Act, or final statement under Section 9 of the said Act or even the notice of taking possession under Sub-section (5) of Section 10 of the said Act does not arise. Even as per the provisions contained under Sub-section (4) of Section 6 of the said Act, declaration required under Sub-section (1) of Section 6 of the said Act could be filed by any partner of a firm. As noted Shri Vashrambhai Punjabhai Patel filed such a declaration for and on behalf of the firm and represented the firm all through out in the proceedings before the Competent Authority as well as before the Urban Land Tribunal. The remaining partners acquiesced in the same. To reiterate, Shri Vashrambhai Punjabhai Patel had sufficiently represented the partnership firm before the authority at all stages and remaining partners were not entitled to insist that separate notice be served on such partners.

 

CASE LAW

 

  1. John Vs. Dodwell & Co. 1918 AC 563

 

Section 24 is based on the principle that as a partner stands as agent in relation to the firm a notice to the agent is tantamount to the principles and vice versa.

 

Section-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

 

COMMENTS

Section 25 of the Act prescribes the liability of all the partners for all acts of the firm.

 

In The Court Of Ms. Neha Paliwal vs M/S Vijay Narayan on 19 April, 2011, it was held that

 

  1. It is the case of the plaintiff that the defendant no. 1 is a partnership firm and defendant no. 2 to 4 are the partners under it. Under the law of partnership the partners are jointly and severally liable for all the acts of the partnership firm done while they are the partners.

 

  1. Section 25of the Indian Partnership Act reads as under:­ “Every partner is liable, jointly with all the other partners and also severally, for all the acts of the firm done while he is a partner”

 

  1. Section 4of the Indian Partnership Act reads as under:­ ‘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’.

 

  1. Thus as per section 18(1)if the acknowledgment is made in writing within the period of limitation signed by the person duly competent to make the said acknowledgment a fresh period of limitation shall be computed from the date of the acknowledgment. Thus reading section 18of the Limitation Act along with Section 181922and 23 of the Indian Partnership Act along with section 25 of the Indian Partnership Act it is clear that a partner can bind the other partners by acknowledging the debt of the partnership concern. Suit no.504/10/96

 

CASE LAW

 

  1. Sahu Rajeshwar Nath Vs. I.TO. Merrut AIR 1969 SC 667

 

As the liability of the partners is joint and several, it is open to a creditor of the firm to recover the debt from anyone or more of the partners.

 

Section-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.

 

COMMENTS

 

This section makes the firm liable for wrong acts of a partner. This section based on the principles of agency.

 

In Brij Trading Co. vs Enforcement Directorate on 31 January, 2014, it was held by Hon’ble Delhi High Court that :

 

 

  1. This Court has heard the submissions of Mr. Pawan Narang, learned counsel for the Appellants and of Mr. Subhash Bansal, learned counsel for the ED.

 

  1. It is first submitted by Mr. Narang, learned counsel for the Appellants that the SD had not complied with the specific directions issued in the order dated 19th May 2003 passed by the ED. In other words, it is submitted that the SD, ED failed to determine whether the alleged illegal acts of BTC were, in fact, performed in the course of its business. It is submitted that the infractions of the law committed by the partners can allegedly result in penalty being imposed on the firm “only if such infractions are committed on behalf of the firm.” In the instant case, the alleged illegal acts could not be said to have been committed on behalf of the firm, and even if there was a violation by the individual partners of Sections 9(1)(b)(d)and (f), such violation remained as one committed by the firm itself. It is submitted that in the entire record of the case, there is nothing to indicate that the infractions were committed by BTC. It is submitted that the finding of the SD which has been affirmed by the AT is contrary to Section 68 of FERA, which applies to companies. It is submitted that, unless it is shown that the individual partners acted illegally on behalf of the firm or in furtherance of its objects, a firm should not be penalized under FERA for the acts of its partners. Section 26of the Indian Partnership Act, 1932 (‘Partnership Act‘) does not apply since it was nobody’s case that in the ordinary course of business, BTC was indulging in hawala transactions. Further, under Section 28 of the Partnership Act, a firm cannot be held liable for the acts of Mr. Niranjan Singh, who was only an employee of the firm and not its partner.

 

CASE LAW

 

  1. Commissioner Of Income-Tax, … vs Shambulal Nathalal And Company on 6 September, 1982
  2. Dahi Laxmi Dal Factory vs Income-Tax Officer And Anr. on 16 September, 1974
  3. Commissioner Of Income-Tax vs Sagar Mal Shambhoo Nath on 16 December, 2005
  4. Commissioner Of Income-Tax vs Visakha Flour Mills on 23 January, 1976

 

Section-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.

 

COMMENTS

In order to make a firm liable under this section, a partner:-

  1. Must be acting with this apparent authority
  2. Must received money from this third party
  3. Has misapplied the money.

The section provides that it is the liability of the firm to compensate of all the losses occurred due to acts of partners while performing their duties as partners of the firm.

 

The liability of the firm arises when the money is received by a partner within his apparent authority or by the firm in the course of business. The firm cannot itself receive any property.

CASE LAW

 

  1. In The Court Of Shri Manish … vs Also At on 4 April, 2016
  2. Gainda Lal Goel vs Rameshwar Das on 15 April, 1937
  3. Poonam Bansal vs State Of Nct Delhi on 15 March, 2016
  4. M/S. Vidya Investment And Trading vs Union Of India on 7 February, 2014

 

Section-28

HOLDINGOUT.

(1) Any one who by words spoken or written or by conduct represent himself or knowingly permits himself to be represented, to be a partner in a firm, is liable as a partner in that firm to any one 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 partner’s death the business 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.

 

COMMENTS

 

Essentials of Doctrine of Holding Out

 

  1. The persons has himself represented or knowingly permitted himself to be represented by somebody as a partner of the firm.

 

  1. The third party must have acted on the faith of representation and given credit to the firm.

 

Section 28 of the Act lays down the following liability

  1. Representation
  2. Knowledge of representation

 

Representation

Representation may be made either by words, written or spoken, or by conduct.  The person must have been represented himself to be partner of the firm when he sought to be charged with liability for holding out.

 

Knowledge of representation

The person had knowledge of the above representation of the person acting as partner of the firm

 

In Scarf V. Jardine it was held that….. the person had lost his right to proceed against the retired partner. He could have sued the old partner because those who have been dealing with the firm before any change took place are entitled to assume that n change has taken place till they have notice to the contrary.

The principle of the holding out does not apply to the following cases.

  1. Deceased partner

The estate of the deceased partner is not liable for any act of the fir done after his death.

  1. Insolvent partner

A person ceases to be a partner from the date of his insolvency and his estate is no more liable for any act of the firm after his insolvency

  1. Dormant partner

The doctrine of holding out shall not apply on dormant or sleeping partner. The dormant partner has never taken part in the conduct of the business of the firm.

 

CASE LAW

 

  1. Commissioner of Income Tax Vs. Sunil J. Kinariwala AIR 2003 SC 668

 

When the partner assigns 50% of his share in a partnership firm in favour of trust, the case of such assignment cannot be treated as one of the sub-partnership.

 

Section-29

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 ascertaining that share, to an account as from the date of the dissolution.

 

COMMENTS

This section deals with the right of a transferee of a partner’s interest in the partnership and provides that a transfer by a partner of his interest in the firm does not entitled the transferee during the continuance of the firm to interfere in the conduct of the firm.

 

Section 29 of the Act provides two rights on the transferee

  1. He is entitled to receive the share of profits of the transferring partner during the continuance of the firm.
  2. He is entitled to receive the transferring partner’s share in the assets of the firm on the dissolution of the firm.

 

In P. Ramachandra Reddiar And P. … vs Commissioner Of Income-Tax on 3 November, 1987, it was held by Hon’ble Kerala High Court that

  1. These rulings, however, have not pointedly considered the position the partners occupy in relation to the property of the firm. The basic ruling in this regard is the decision of the Supreme Court in Addanki Narayanappa v. Bhaskara Krishnappa, AIR 1966 SC 1300. Considering the scheme of the Indian Partnership Act, Mudholkar J., who delivered the judgment, observed that no partner can claim any exclusive right over the the properties which become the assets of the firm from whatever source they may have come ; that, during the subsistence of the partnership, his right is only to claim his share of profits, if any, accruing to the partnership from the realisation of the properties and that, upon dissolution, to a share in the proceeds of sale of the partnership assets, after all such payments contemplated under Section 48of theIndian Partnership Act have been met. Section 29of the Indian Partnership Act, however, provides that, even during the subsistence of the partnership, a partner may assign his share to another but the right of the assignee is only to receive the share of the profits of the transferor and accept the account of profits agreed to by the partners. The observations of the Supreme Court in Narayanappa’s case, AIR 1966 SC 1300, 1304 read :
  2. It is, therefore, clear that the income-fetching assets transferred to the spouse must be the assets that exclusively belonged to the husband who is assessed under the Income-tax Actas an “individual”. Only when these basic requirements are fulfilled, would the further question whether the income sought to be clubbed with the income of the individual, is directly or indirectly received by the spouse, arise. From the facts found by the Tribunal, it is clear that the assets transferred to the spouses are assets over which the assesses had no manner of right except a “shared interest”, the value of which can be determined only on the dissolution of the partnership or on his retirement from the partnership. For that matter, it is not the case of the Revenue that the assets transferred exclusively belonged to the assesses at the time of the transfer. These assets admittedly belonged to the partnership. Again, it is not the case of the Revenue that the partners had transferred their interest in the partnership property. In other words, the Revenue has no case that the transfer in question falls under Section 29of the Indian Partnership Act. For that matter, such a case cannot be put forward because, admittedly, the assesses continued to be the partners of the old firm even after the transfer of the business aforesaid by the firm. A reference in this connection to the finding of the Tribunal is profitable. “We have said that what was transferred was the business itself as a going concern. It is this business, the apparatus, which produced the income to the assesses’ spouses.”

 

CASE LAW

 

  1. Commissioner of Income Tax vs. Sunil J. Kinariwala AIR 2003 SC 668

 

When the partner assigns 50% of his share in a partnership firm in favour of trust, the case of such assignment cannot be treated as one of sub-partnership.

 

  1. Bhola Nath Vs, Mst. Kaso Devi AIR 1951 All. 601

 

After dissolution, a transferee of a partner’s interest cannot claim a share in the property of the firm, in specie.

 

Section-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 access 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 in 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 settling 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 months.

(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 person asserting that fact.

(7) Where such person becomes a partner –

(a) his rights and liabilities as a minor continue upto 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 be to become a partner, –

(a) his rights and liabilities shall continue to be those of a minor under the section upto the date on which he gives public notice;

(b) his share shall not be liable for any acts for 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 accordance with sub-section (4).

(9) Nothing in sub-sections (7) and (8) shall affect the provisions of section 28.


 

COMMENTS

This section deals with the rights and liabilities of minor admitted to the benefits of partnership. The rules laid down in the section may be briefly summarised as follows:-

  • A minor cannot become partner in a firm.
  • A minor may with the consent of all the partners be admitted to the benefits of partnership.
  • A minor admitted to the benefits of partnership will be entitled to his agreed share of the property and the profits and can also inspect books of accounts of the firm.
  • Such minor will not be personally liable for the debts and the obligations of the firm but his share in the property and profits of the firm shall be liable for the same.
  • Such minor cannot sue the other partners for an account or payment of his share of the property or profits of the firm, except when he intends to sever his connection from the firm.
  • Within six months from his attaining majority of his attaining knowledge that he had been admitted to the benefits of partnership, he may give public notice that he has elected to become or not be become a partner in the firm and such notice shall determine the position of such minor as regards the firm. In case he fails to give such notice, he shall be deemed to have become a partner in the firm on the expiry of the said six months,
  • A minor thus becomes a partner in the firm and shall become liable for all debts and obligations of the firm incurred since that date of his admission to the benefits of the partnership.
  • A minor may become liable to other persons to whom he represents as he is a partner in the firm after attaining his majority on the ground of holding out.

A minor has the following rights and liabilities under the Partnership Act:

 

(a) A minor has a right to such share of property and of profits of the firm as may be agreed upon by all the partners.

 

(b) A minor may inspect the accounts of the firm or take note of the accounts.

 

(c) The personal property of the minor is not liable for the debts of the firm. But his share in property of the firm and profits is liable for the debts and obligations of the firm.

 

(d) So long as a minor remains a partner he cannot file a suit against other partners for the accounts or for the payment of his share in the property or profits of the firm. He can do this only when he wants to severe his relations with the partnership firm.

 

(e) At any time within 6 months of his attaining majority (i.e., completing 18 years of age) the minor may give public notice of the fact that he has decided to become or not to become a partner in the firm. In case he does not give any such notice within six months, it shall be presumed that he has opted to become a partner.

 

(f) In case minor decides to become a partner, he will be personally liable to third parties for all acts of the firm, since he was admitted to the benefits of the firm.

 

(g) If a minor decides not to become a partner, his rights and liabilities continue to be those of a minor up to the date on which he gives public notice. His share will not be liable for any acts of the firm done after the date of the notice.

 

If the minor elects not to become a partner in the firm

  1. His rights and liabilities shall continue to be those if minor up to the date of public notice
  2. His share shall not be liable for any acts of the firm done after the date of the notice
  3. He shall be entitled to sue the partners for his share of the property and profits.

In Commissioner Of Income-Tax vs Badri Nath Ganga Ram on 10 November, 2004, it was held by Hon’ble Calcutta High Court that

 

Besides this Shri Lakhan Lal, minor shall get the benefits of partnership as specified in para. 3 and shall also be liable for the loss to the extent to his share according to Section 30 of the Indian Partnership Act.”

 

  1. In the preamble to the partnership deed it is mentioned that Lakhan Lal, the minor son of Sri Badri Prasad, shall continue to get the benefits of partnership according to Section 30of the Indian Partnership Act. Learned counsel for the Department has placed reliance upon the following cases in support of his argument that as in the present case the minor has also been made liable to share the losses to the extent of his share, according to Section 30of the Indian Partnership Act, the firm is not entitled for grant of registration.

 

  1. In order to construe a partnership deed it is well settled that the entire document must be read as a whole and a reasonable construction should be placed on it. In a document where several clauses appear, what clause dominates the document is also to be found out with a view to ascertain the real intention of the parties, Therefore to find out whether Lakhan Lal, the minor, was admitted to the benefits of partnership or he has to share the losses also to the extent of his share, attention is immediately attracted to Clause (5) of the deed. In the opening part of the partnership deed it is provided that the minor has been admitted to the benefits of partnership, but the said preamble is subject to Clause (5) of the deed. It has been specifically mentioned that the minor shall also be liable to share the loss to the extent of his share, according to Section 30of the Indian Partnership Act. The last portion of Clause (5) of the deed that the minor shall also be liable for the loss to the extent of his share is in the nature of an exception to the earlier part of the said clause. The provision to share the loss by the minor being specific will prevail over the general provisions contained in the deed. Thus in the deed in question the minor has been made liable to share the loss to the extent of his share.

 

Section 30 of the Indian Partnership Act clearly lays down that a minor cannot become a partner though with the consent of the adult partners he may be admitted to the benefit of partnership. Any document which goes beyond this section cannot be regarded as valid for the purpose of registration. Registration can only be granted of a document between persons who are parties to it and on the covenant set out in it. If the Income-tax authorities register the partnership as between adults only contrary to the terms of the document, in substance a new contract is made out. It is not open to the income-tax authorities to register a document, which is different from the one actually executed and asked to be registered. In our opinion the Madras view cannot be accepted.”

 

  1. It has been held by the Privy Council in Jafferali Bhalao Lakha v. Standard Bank of South Africa Ltd., AIR 1928 PC 135, that minors who are admitted to the partnership are liable to the extent of their share in partnership deed for the acts of the firm but they are not personally liable. Sub-section (3) of Section 30of the Indian Partnership Act makes the minor’s share liable for the acts of the firm, should be construed accordingly for the debts of the firm in which a minor is admitted to the benefit of partnership. This sub-section in our opinion, has nothing to do with Sub-section (1) of Section 30of the Indian Partnership Act, which provides that a minor can be admitted to the benefits of partnership. Section 2(a) of the Partnership Act defines 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. It will not include sharing of losses by a partner or minor.

CASE LAW

  1. Chotelal Ratanlal Vs. Rajmal Milapchand AIR 1951 Nag. 448

A minor admitted to the benefits of a partnership cannot actively engage in the conduct of the business of the firm.

 

PAHUJA LAW ACADEMY

INDIAN PARTNERSHIP ACT

MAINS QUESTIONS

 

  1. Explain the doctrine of Holding Out.

 

  1. Can a minor be admitted as partner of firm? If so can he subsequently ratify or revoke such partnership? Describe the rights and liabilities of such partner.

 

 

  1. A, B and C are partners in a firm. C retires from the firm under agreement with A and B that all assets and liabilities of the firm will be of A and B. ‘D’ a creditor of the firm sues A, B and C. C refers to the agreement with A and B and denies liability to D. Discuss the liability of C.

 

 

INCOMING AND OUTGOING PARTNERS

Topic 4

 

What are the essentials of sec 31?

 

What is Introduction of a partner?

 newim

 

 

Liability of new partner

 

Explain retirement of a partner with respect to section 32?

 

 newim

newim 

Define expulsion of Partner?

 

Explain insolvency of partner with respect to section 34?

 

 

What is the liability of an estate of a deceased partner ?

 

Section-37

What are the rights of an outgoing partner in certain cases to share subsequent profits?

Section-38

Explain revocation of continuing guarantee by change in firm?

 

CONCLUSIVE REMARKS:

  1. A notice to one partner operates as a notice to the whole firm. However, for that:

(a) The notice must have been given to a partner who habitually acts in the business of the firm.

(b) Notice to a dormant or a sleeping partner would also suffice.

(c) Notice to a partner who commits a fraud on the firm will not be a notice to the firm.

(d) Both (a) and (c) are correct.

 

  1. A partner A, without any authority, borrows Rs. 10,000 from B.

(a) A’s act can be ratified by other partners

(b) A’s act cannot be ratified by other partners.

(c) A will be personally liable.

(d) None of the above.

 

  1. Which section of the Partnership Act lays down that 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, the firm is liable therefore to the same extent as, the partner?

(a) See. 20;

(b) Sec. 24.

(c) Sec. 26.

(d) Sec. 27.

 

  1. In which of the following cases, a firm will not be liable for the wrongful act, or omission of a partner: –

(a) A partner of a firm while acting in the-ordinary course of business colluded with a partner of another firm causing loss to the other firm.

(b) A partner, acting within the scope of his implied authority, raised money by drawing bills in a fictitious name, and he used the money in the firm’s business.

(c) Receipt of money, due to the firm, by one of the partners by way of set off against his personal debt to the other party.

(d) None of the above.

 

  1. A and B are partners of a firm. B, without the knowledge of A, bribed a clerk of the rival firm C to disclose the secrets of that firm’s business. C, as a result, suffered a loss.

(a) Only B is liable for the employment of unlawful means. –

(b) Both A and B are liable for the employment of unlawful means.

(c) A and B are not liable, it is the clerk of the firm C that is liable to C.

(d) None of the above.

 

  1. Liability of firm for misapplication by partners, under Sec. implies:

(a) A partner acting within his apparent authority receives money or property from third party and mis applies it.

(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.

(c) Both (a) and (b).

(d) Only (b)

 

  1. In which of the following cases, a firm will not be liable for misapplication by partners.

(a) A, B and C are members of a banking firm. A receives the payment of a debt due to firm by D and misappropriates it.

(b) One of the partners of a firm obtained a cheque payable to himself and not in the firm’s name, and he misappropriate it. .

(c) One of the partners of a firm of solicitors received money from a client for being invested on a mortgage and misapplied the same;

(d) None of the above.

 

  1. Mark the incorrect matching:

(a) Hamlyn v John Houston & Co.: Employment of unlawful means by a partner.

(b) Rhodes v Mouies: Misappropriation by a partner.

(c) Dalichand v Mathura Das: Implied authority.

(d) None of the above

 

  1. In which of the following cases, a firm will not be liable for misapplication by partners:

(a) B and M were carrying on the business of cinematographic theatre proprietors. B was a sleeping partner and M managed the business. The partnership deed provided, that no partner should contract any debt on account of the partnership without the consent of the other partner except in the usual and regular course of business borrowed money from the plaintiff stating that the money was to be used for the partnership business. But he misappropriated it.

(b) One of the partners, with the intention of cheating the other, goes to a shop and purchases articles such as might be used in the partnership business which he instantly converts to his own separate use.

(c) A borrows money in the name of the firm and spends the whole amount in the marriage of his daughter.

(d) All of the above.

 

  1. A, an active partner, knowing that the goods were stolen ones, purchased and sold them Without the knowledge of -B, the other, partner who was a sleeping partner.

(a) Both A and B are liable for the tort of conversion to the owner of the goods

(b) Only A is liable because he is an active partner

(c) B is not liable because he is a dormant partner.

(d) Both‘(b) and (c)

 

  1. A person who is” not a partner in any firm may, under certain circumstances, be liable for tile debts as if he were a partner on the basis of the doctrine of estoppel’ or ‘holding out’. This is laid down in which section of the Partnership act:

(a) Sec. 26.

(b) Sec. 27.

(c) Sec. 28

(d) Sec. 29

 

  1. Representation under Sec. 28, by a person to be a partner of the firm: –

(a) May be by words, spoken or written, or by conduct.

(b) Should be made by himself or knowingly permitted by him to be made by someone else.

(c) Should be in the knowledge of the person acting on its faith and believed by him to ‘be true

(d) All are correct

 

  1. A firm consists of A, B and C. D, who is not a partner, makes a representation to X that he is also- a partner and on the faith of this representation X gives credit to the firm

(a) X can make D liable on the basis of holding out.

(b) D is estopped from denying that he is a partner in the firm.

(c) A, B and C will be liable for D’s act.

(d) Both (a) and (b).

 

  1. A partnership consisted of A and B which was dissolved by retirement of B and thereafter the business was carried on by A alone. A used an old notepaper of the firm bearing the names of both A and B and placed an order for the purchase .of some furniture from a company, the price for which was never paid. The company sued B to make him liable on the basis of doctrine of holding out

(a) B is not liable

(b) B is liable

(c) B is not liable because A made representation without B’s knowledge and without his authority

(d) Both A and B are liable

 

  1. Which of the following is not a leading case on the doctrine of holding out?

(a) Snow White Food Products (P) Ltd. v Sohan Lal Bagla.

(b) Tower Cabinet C0. v Ingram

(c) Scarf v Jardine

(d) Trimble v Goldberg

 

 

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