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CA.B.A.

SHANKAR, ACA, ACMA


THE INDIAN PARTNERSHIP ACT, 1932 GENERAL NATURE, RIGHTS AND DUTIES OF A PARTNER General Introduction: Extent: Extends to the whole of India, except Jammu and Kashmir, Effective date: W.e.f. 1-10-1932 and section 69 came into force w.e.f. 1-10-1933 Chapters: The Partnership Act, 1932 has 8 chapters. Objective of the Partnership Act, 1932 is to define and amend the law relating to Partnerships. A word will take its from the Indian Contract Act, 1872, if it is not defined in the Indian Partnership Act, 1932. Definitions Sec. 2(a): 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. Sec. 2(b): Business includes every trade, occupation and profession. Sec. 2(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. What is Partnership? Partnership is - a relation - between two persons - who have agreed to share the profits of a business, -carried on by all or any of them acting for all. Essential characteristics of a partnership: 1) Relationship/partnership agreement: Relationship between partners is created by an Agreement. (i.e.) Partnership Deed. It may be express (i.e.) oral or written or implied. 2) Relation of two or more persons: a) Minimum Numbers: Two Persons. b) Maximum Numbers: Banking Business 10 Other Business 20 (Sec. 11 Companies Act)) If the number of partners exceeds above limits, the partnership will become an illegal association. 3) Partnership can be formed to carry on business., not for social activity. 4) There must be sharing of profits.

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CA.B.A.SHANKAR, ACA, ACMA


5) Mutual agency Cardinal principle: In the business of partnership may be carried on by all the partners or any of them acting for all. In case of Cox v Hickman, the honourable court absorbed that a partner assumes a two-fold character 1) He is agent of the firm, so he can bind the firm by his act, provided a) The act is within the scope of his authority, b) The act is done in the firms name, and c) The act is done for the purpose of the firm. 2) He is the principal for the acts of other partners. WHO MAY BE A PARTNER? A person, who is competent to enter into a contract, can be a partner [Sec. 11 of the Indian Contract Act, 1872] Company : Yes Foreigner : Yes, if alien friend. Minor : A minor can be ADMITTED for the benefit of a partnership firm. The following persons are not deemed to be partners: 1) Members of HUF, carrying on family business 2) A Burmese Buddhist husband and wife carrying on a business TRUE TEST OF PARTNERSHIP Sec. 4 contains five basic conditions. These conditions are a True Test of partnership Intention cannot change the character. CASES WHERE NO PARTNERSHIP EXISTS [Sec. 6] Joint owners, sharing gross returns [Explanation I of Sec.6]: Sharing of Profits [Explanation-II of Sec.6] PARTNERSHIP AT WILL [Sec.7] Meaning (Sec 7): A partnership is said to be at will, when no provision is made in the Deed i. For the duration of their partnership, or ii. For the determination of their partnership Retirement[32(1)]: Where the partnership is at will, by giving notice to all the other partners of ones intention to retire. Examples of Partnership at will: a) When the partners of a particular Partnership decide to continue the Partnership after completion of the adventure b) When a Partnership is entered into fixed term, but the Partners carry on business even after such period c) When the duration of Partnership is not fixed

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CA.B.A.SHANKAR, ACA, ACMA


PARTICULAR PARTNERSHIP [Sec.8] This partnership is formed for a specific venture and is dissolved automatically on the completion of that venture. ILLEGAL PARTNERSHIP When the rules of Partnership Act are violated, then the partnership is called illegal partnership. For example a) Less than two partners b) More than maximum permissible partners (i.e. 10 or 20, as the case may be) c) Object becoming illegal d) Business against government policies e) Any partner is alien enemy f) Carrying over the business even after the order of dissolution by court. Effect: Illegal Partnership cannot sue against the third party, but the third party can sue against the illegal association or any of its members. RELATIONS OF A PARTNER The mutual rights and duties of the partners shall be governed by the agreement among the partners. Such agreement may be express or implied. However, where the agreement is silent, the following provisions of the Act shall apply: RIGHTS OF PARTNERS Right to take part in business [Sec. 12(a)] Right to share profit equally [Sec. 12(b)] Right to be consulted [Sec. 12(c)] Right to access the books of account [Sec. 12(d)] Right to interest on capital [Sec. 13(c)] Right to interest on loans/advance [Sec. 13(d)]: @6% p.a. Rights to be indemnified [Secs. 13(e) & 21]: Right to use the firms Property for the firms business [Sec. 15] Right of outgoing partner [Sec. 37]

1. 2. 3. 4. 5. 6. 7. 8. 9.

DUTIES OF PARTNERS a) General Duties [Sec. 9] a) To carry on the business of the firm to the greatest common advantage, b) To be just and faithful to each other, and c) To render the true accounts and full information of all thighs relating to the firm to any partner or his legal representative. 2. To Indemnify for fraud [Sec. 10]: This duty cannot be changed by contract 3. To attend his duties diligently [Sec. 12 (b) & 13(f)] 4. To share losses equally [Sec. 13(b)] 5. To hold and use the property of the firm only for the firm [Sec. 15] 6. To account for personal profits [Sec. 16(a)] 7. To account for profits in competing business [Sec. 16(b)] 8. To act within authority [Sec. 19] 9. To be Liable Jointly and Severally [Sec. 25].
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CA.B.A.SHANKAR, ACA, ACMA

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