Rights and liabilities of partners – Indian Partnership Act 1932

“Rights and liabilities of partners under indian partnership act,1932”

Introduction

A partner is taken into account to be an agent of the firm as per Section 18 of the Indian Partnership Act, 1932, that partner is permitted a true or apparent authority to act on behalf of the firm and hence he represents the firm through his actions. A partner is allowed permission to form moves, conduct business as was common with certain limitations being put in some ordinary or extraordinary situations. this might be talked about later within the article.

Partners to be an agent of the firms

As wriiten in Section 18 of the Partnership Act, 1932, a partner are becoming to be an agent of the firm for point aim of the business of the firm. A partnership in business means it’s a connection during which all the partners wear the edge of share the dividend of the business and thus the business are often operated by all or by one who will act on behalf of all. Going by the meaning of the definition it are often taken away  that a partner is additionally an agent of the firm.

Implied authority of partner as agent of the firm

Acts done by the partner of the firm within the calibre course of business binds the firm but this implied authority halt to exist when there’s already a contrary agreement alive . Section 19(2) of the Indian Partnership Act, 1932, puts forth an inventory of things which a partner cannot do on behalf of the firm:

  • Submit a dispute regarding the business of the firm to arbitration,
  • Open a bank account on place of the firm in his own name,
  • Settlement or relinquish any claim or part of a claim by the firm,
  • Withdraw a suit or affairs filed on behalf of the firm,
  • Admit any liability during a suit or affairs against the firm,
  • Obtain immovable property on behalf of the firm,
  • Enter into partnership on behalf of the firm,
  • Transfer immovable property belonging to the firm.
  • Extension and restriction of partner’s implied authority
  • The extension and restriction of the authority of a partner depends on the induce contract between the parties within the firm. However, a partner can still perform actions on his own power if he has an express authority of a partner which is either by an agreement or if the usage or support of the trade permits him to.

Partner’s authority in an emergency

In cases of emergency, a partner possesses to handle  to all or any such acts to guard the firm from occurring any loss which a personal of ordinary wisdom will do under the similar situations which action are becoming to be binding on the firm. the requirements of the section are:

  • There was an emergency circumstances.
  • The partner acted in light of that circumstances.
  • The partner did that to protect the firm from mislaying.

The act was reasonable under those situations.

Mode of doing the act to bind the firm

Mentioned in Section 22 of the Indian Partnership Act, 1932, the act is completed or accomplished by the partner within the firm should be worn-out the name of the firm or should be exhausted a fashion which expresses or implies an intention to bind the firm.

Effect of admissions by a partner

As talked about in Section 23 of the Indian Partnership Act, 1932, acknowledgement made by a partner about the affairs of the firms if made within the special course of the partnership business are proof  against the firm. Such startings made by the partners will bind the firm. However, the thing that has got to be noticed here is that if the admission made by a private of the firm was before the time he became a partner then it cannot be contemplated to be evidence against the firm.

 

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Effect of notice to acting partner

Notice to a minimum of 1 partner regarding the business of the firm works as a notice to the firm. The partners to whom such notice is given must be acting within the business at that point So notice to a slumbering or a silent partner wouldn’t operate as a notice to the firm. A slumbering or silent partner is someone who takes his share of the profit and of losses but isn’t a celebration to the active share of the business or partnership.

Contemplate a situation where the firm has appointed a personal to manage its work and thus the person does that. what’s getting to happen if a notice is shipped to such a person? this is often often throw light on under Section 24 of the Indian Partnership Act, 1932, Section 24 explains what is the effect of the notice sent to an existing partner. It first explains what an acting partner means. An acting partner could even be a one that perpetually acts within the business of the firm of any matter regarding the affairs of the firm works as notice to the firm. If a notice is expressed to such a personal , it’ll be said as a notice sent to a firm.

The section also provides for an deviation whereby a fraud is done on the firm by or with the consent of that partner.

 

Liability of a partner for acts of the firm

The hindrence  of all the partners of a firm jointly or together is mentioned under Section 25 of the Indian Partnership Act. It lays down the particular indisputable fact that every partner of the firm are often held liable jointly or severally for all acts done by the firm while he or she could also be a partner of the firm. Such acts must be made within the name of the firm and under a representative course of business of the firm. Partners are often held liable jointly or individually believing on the act that has been accomplished and thus the alternative made by the third party. this means that allowing a partner had no role to play while deciding the act on behalf of the firm. The firm is here to be assumed as a separate entity with powers and can be sued for the loss sustained by a third party. It establishes a relationship between the partner, the firm and the third party.

 

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For misapplication by partners 

Under Section 27 of the Act, a firm can also be responsible for any misapplication made by the partner. If any partner acts under relevant authority while receiving money or property from the third party and if such money or property is further misapplied by the partner, then the liability for the same can be put on the firm if the loss is sustained by the third party.

Moreover, if the firm receives such money or property and while having custody of the same a partner having authority misapplies it, then under this situation too the firm can be made liable for such misapplication by any other third party.

 

Holding out 

Section 28 deals with the concept of holding out. The first part deals with anyone who (irrespective of whether he is a partner of the firm) conducts himself in a way as to represent himself as a partner of the firm and on the basis of such representation, the third party in good faith gives credit to such person, then such person shall be liable as if he were a partner of the firm under Section 25 of the Act for his conduct. It does not matter whether such a person is aware that the third party gave credit on the basis of having good faith in the representation made by him.

The second part of the section deals with a person who was a partner of the firm and after his death, his partnership has been automatically cancelled. In such a situation if the firm still continues under the old name consisting of the deceased partner’s name and if the business is done under such name, then this act of the firm does not make the legal representatives of the deceased partner liable to any third party which sustained losses due to such act of the firm on the grounds that the deceased partner is no longer holding any responsibility or liability to the firm after his death. Hence, all acts after his death shall not hold out his legal representatives or his estate to be liable to any extent either jointly or severally.

 

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Conclusion

This article talks about different aspects of a partnership firm by taking references from the Indian Partnership Act, 1932. This article discusses how partners are liable for the third parties, under what circumstances can partners be granted permission to act on behalf of the firm, what limitations are put forth by the said act while the partners act on behalf of the firm, what is implied authority in a partnership setup, what are the options available to the partners in case of emergency; the article also discusses the partners’ authority under emergency situations and how the partner is supposed to act in those situations. This article also talks about how minors can be included in a partnership setup and what stages they have to go through in order to avail their benefits and what happens when a minor accepts or rejects being a partner to the firm.

 

Author: Pragya Sinha,
Symbiosis law college,nagpur . 1st year

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