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THE INDIAN PARTNERSHIP ACT, 1932
ACT NO. 9 OF 1932
[8th April, 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 – | | CHAPTER I
PRELIMINARY
1. (1) Short title, extent and commencement. This Act may be called the Indian Partnership Act, 1932.
(2) It extends to the whole of India 2 [except the State of Jammu and Kashmir].
(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. 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. |
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Application of provisions of Act 9 of 1872 |
| | 3. The unrepealed provisions of the Indian Contract Act, 1872, (9 of 1872) save in so far as they are inconsistent with the express provisions of this Act, shall continue to apply to firms.
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1. Subs. by the A. O. 1950.
2. Subs. by Act 3 of 1951, s. 3 and Sch., for "except Part B States".
3. Am. in Madras by madras Adaptation of Laws (Central Act) order, 1957.
4. Am. in Madras by Mad. Act 21 of 1959.
5. Am. in Madras by Mad. A.O. 1961
6. Am. in Pondicherry by Pondy. Act 8 of 1969.
7. Am. in Kerala by Kerala Act. 25 of 1973.
8. Amended in Madhya Pradesh by MP Act 14 of 1973.
9. Amended in Uttar Pradesh by Up Act 33 of 1974.
10. Amended in Goa, Daman & Diu by Goa, Daman & Diu Act 6 of 1966.
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The Act comes into force in Pondicherry on 1.10.1963 with modification vide Reg.7 of 2963, s.3 and Sch. I.
Extended to Goa, Daman and Diu by Reg. 11 of 1963, s.3 & sch.) with modification)
Extended to Laccadive, Minilooy and Amindivi Islands (w.e.f. 1.10.1967): vide Reg.8 of 1965, s.3 & Sch.(with modification)
Extended to and brought into force in Dadra and Nagar Haveli(w.e.f. 1-7-65) by Reg. 6 of 1963, s.2 and sch. I.(with modification)
Came into force in the State of Sikkim on 7-4.1984, subject to the some modification, vide Notification No. S.O. 215(E), dated 27.3.1984. |
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The Nature of Partnership |
| | CHAPTER 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 ". |
Partnership not created by status |
| | 5. 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.
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 of 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 per-sons carrying on 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. |
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The Nature of Partnership |
| | CHAPTER 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. |
Duty to indemnify for loss caused by fraud |
| | 10. 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. (1) Determination of rights and duties of partners by contract between the partners. 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 restraint 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. |
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Mutual rights and liabilities |
| | 13. 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 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 the 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. Personal 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 that profit and pay it to the firm;
(b) if a partner carries on any business of the same nature as and competing with that of the firm, he shall account for and pay to the firm all profits made by him in that business. |
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Rights and duties of partners |
| | 17. 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, 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. |
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The Nature of Partnership |
| | CHAPTER 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 purposes of the business of the firm.
19. (1) Implied authority of partner as agent of the firm. 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 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 immoveable property on behalf of the firm,
(g) transfer immoveable property belonging to the firm, or
(h) enter into partnership on behalf of the firm. |
Extension and restriction of partner's implied authority |
| | 20. 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.
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 or representation made by a partner concerning the affairs of the firm is evidence against the firm, if it is 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 therefore 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) Any one 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 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 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. |
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Rights of transferee of a partner's interest |
| | 29. (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.
30. (1) Minors admitted to the benefits of partnership. 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 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 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 gives 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 accordance with sub-section (4).
(9) Nothing in sub-sections (7) and (8) shall affect the provisions of section 28. |
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The Nature of Partnership |
| | CHAPTER V
INCOMING AND OUTGOING PARTNERS
31. Introduction of a partner.
(1) Subject to contract between the partners and to the provisions of section 30, no person shall be introduced as a partner into a firm without the consent of all the existing partners.
(2) Subject to the provisions of section 30, a person who is introduced as a partner into a firm does not thereby become liable for any act of the firm done before he became a partner.
32. Retirement of a partner.
(1) A partner may retire –
(a) with the consent of all the other partners,
(b) in accordance with an express agreement by the partners, or
(c) where the partnership is at will, by giving notice in writing 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) Notwithstanding the retirement of a partner from a firm, he and the partners continue 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 partner.
(4) Notices under sub-section (3) may be given by the retired partner or by any partner of the reconstituted firm. |
| | 33. (1) A partner may not be expelled from a firm by any majority of the partners, save in the exercise in good faith of powers conferred by contract between the partners.
(2) The provisions of sub-sections (2), (3) and (4) of section 32 shall apply to an expelled partner as if he were a retired partner.
34. Insolvency of a partner.
(1) Where a partner in a firm is adjudicated an insolvent he ceases to be a partner on the date on which the order of adjudication is made, whether or not the firm is thereby dissolved.
(2) Where under a contract between the partners the firm is not dissolved by the adjudication of a partner as an insolvent, the estate of a partner so adjudicated is not liable for any act of the firm and the firm is not liable for any act of the insolvent, done after the date on which the order of adjudication is made.
35. Liability of estate of deceased partner.
Where under a contract between the partners the firm is not dissolved by the death of a partner, the estate of a deceased partner is not liable for any act of the firm done after his death.
36. 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) Agreements 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 within a specified period or within specified local limits; and, notwithstanding anything contained in section 27 of the Indian Contract Act, 1872,(9 of 1872). such agreement shall be valid if the restrictions imposed are reasonable. |
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Right of outgoing partner in certain cases to share subsequent profits |
| | 37. 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 or 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.
38. Revocation of continuing guarantee by change in firm.
A continuing guarantee given to a firm, or to a third party in respect of the transactions of a firm, is, in the absence of agreement to the contrary, revoked as to future transactions from the date of any change in the constitution of the firm. |
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