AGNEL SCHOOL OF LAW 2023 – 2024

SY.LL.B ( 3 YEARS )

CONTRACT II ASSIGMENT

SECTION 25 TO 36 OF INDIAN PARTNERSHIP ACT, 1932

Submitted to :

Name : Khushboo Gupta

Roll.No : 22327
Class : SY. LL.B SEM IV
Subject : Contract II
Date :
Sign :
 INDEX

Sr.No Title Page.No

1. Introduction 03 – 04

 What is Partnership ? 03
 Indian Partnership Act, 1932 03
 Definition pf Partnership Act, 1932 03
 Nature of Business 03 – 04
 Essential Requirements of a Partnership 04

2. Section 25 to Section 36 : Indian Partnership Act, 1932 05 - 13

 Section 25 : Liability of a partner for acts of the firm 05

 Section 26 : Liability of the firm for wrongful acts of a 05
partner
 Section 27 : Liability of firm for misapplication by 05 – 06
partners.
 Section 28 : Holding out. 06
 Section 29 : Rights of transferee of a partner's interest. 06 - 07
 Section 30 : Minors admitted to the benefits of 07
partnership.
 Section 31 : Introduction of a partner. 07 – 08
 Section 32 : Retirement of a partner. 08 – 10
 Section 33 : Expulsion of a partner. 10 – 11
 Section 34 : Insolvency of a partner. 11 – 12
 Section 35 : Liability of estate of deceased partner. 12 - 13
 Section 36 : Right of outgoing partner to carry on 13 – 14
competing business.

3. Case Law 15 – 16

 Section 25 : In M/s Glorious Plastics Ltd v Laghate 15

Enterprises
 Section 26 : In Hurruck Chand v Gobind Lal 15
 Section 28 : In the case of Martyn v. Gray 15
 Section 28 : Bevan V. National Bank Of Ltd. 15 – 16
 Section 29 : In Bharat Dyeing and Manufacturing Co. 16
Ltd. v. CCE [(2005) 183 ELT 481 SC]
 Section 30 : In the case of Nagindas Ramdas v. 16
Dalpatram Ichharam (1974 SCR (2) 544),
4. Conclusion & Suggestion 17
 Introduction

Partnership results from a contract and is governed by the Partnership Act 1932. The
partnership is also governed by the general provision of the Indian Contract Act on such
matters where the Partnership Act is silent. It is expressly mentioned that the provision of
India Contract Act which is not repealed will be applicable on Partnership until and unless
such provision is in contrary to any provision of Partnership Act, 1932. The rules of contract
regarding the capacity to contract, offer, acceptance etc will also be applicable to the
partnership. But the rules regarding the status of minor will be governed by the Partnership
Act, 1932 since Section 30 of the Act talks about the position of the minor

What is Partnership?

A partnership is a kind of business where a formal agreement between two or more people is
made who agree to be the co-owners, distribute responsibilities for running an organization
and share the income or losses that the business generates.

In India, all the aspects and functions of the partnership are administered under ‘The Indian
Partnership Act 1932’. This specific law explains that partnership is an association between
two or more individuals or parties who have accepted to share the profits generated from the
business under the supervision of all the members or behalf of other members.

Indian Partnership Act 1932

Most of the businesses in India adopt a partnership business, so to monitor and govern such
partnership The Indian Partnership Act was established on the 1st October 1932. Under this
partnership act, an agreement is made between two or more persons who agrees to operate
the business together and distribute the profits they gain from this business.

Definition of Partnership Act, 1932

According to L.H. Haney "Partnership may be defined as the relation between the persons
who agree to carry on a business in common with a view to private gain"
Nature of Business

It is a business organization where two or more persons agreed to join together to carry out
the business for the purpose of earning the profits. It is an extension of a sole proprietorship.
It is better than sole proprietorship because in sole proprietorship the business is carried out
by the individual with limited capital and limited skill. Due to the limited resources of a
single individual carrying a sole proprietorship, a larger business requiring more resources

and investment than available to the sole proprietor cannot be thought of such business. On
the other hand in partnership, a number of partners join together with their capital to form an
agreement and carry out a business jointly.

Meaning

According to Section 4 of the Partnership Act,1932

“Partnership is the relation between persons who have agreed to share the profits of a
business carried on by all or any one of them acting for all”.

Essential requirements of a partnership

 It must be an association of two or more persons.

 There must exist an agreement between the partners.

 There must be a business undertaking or a commercial activity that is lawful.

 The motive must be to earn the profit and share between the partners.

 The agreement must be to carry out the business jointly or by any of them acting on
the behalf of all i.e., there must be mutual agency.

Examples:

A and B buy 100 tons of oil which they agree to sell for their joint account. This forms a
partnership and A and B are considered as partners.

A and B buy 100 tons of oil and agreed to share it among them. It does not form a
partnership as they had no intention to carry out business.
 Section 25 to Section 36 of Indian Partnership Act, 1932

Section 25 contains the following provision to explain the nature of liability

of the partners of a firm:

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. A principal is liable for the act of his agent done by him on
his behalf. According to s 18, it has been noted above, a partner is an agent of the firm for
the purpose of the business of the firm. Obviously, therefore, the whole of the firm, which
means all the partners of the firm become liable for an act of the firm done by any partner.
As regards the nature of liability of the partners, S 25 states that every partner is jointly and
severally liable for all acts of the firm done while he is a partner.

Liability for torts and wrongful acts (S 26)

A principal is vicariously liable for the torts and other wrongful acts committed by his agent
in the course of the business of agency.25 Every partner being an agent of the firm for the
business of the firm, the same principle has been recognised by the Indian Partnership Act
also. S 26 contains the following provision in this regard: 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 there for to the
same extent as the partner.

Liability for misapplication of money or property by a partner (S 27)

Section 27 recognizes the liability of the firm for a particular kind of wrong done by a
partner, i.e., misapplication of money or property. The provision is as follows: 27. Liability
of the 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 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.

THE DOCTRINE OF HOLDING OUT (Section 28):

Every partner is liable for all acts of the firm done while he is a partner. Therefore, generally
a person who is not a partner in the firm cannot be made liable for an act of the firm. In
certain cases, however, a person who is not a partner in the firm may be deemed to be a
partner for the purpose of his liability towards a third party. The basis of liability of such a
person is not that he was himself a partner or was sharing the profits or was taking part in the
management of the business, but the basis is the application of the law of estoppel because of
which he is held out to be a partner or is deemed to be a partner by holding out.

RIGHTS OF TRANSFEREE OF PARTNER’S INTEREST (S 29)

The relation of partners is based upon mutual confidence and trust and obviously, therefore,
no person may be introduced as a partner in the firm without the consent of all the existing
partners.It follows that no partner can assign his share in a way which may substitute an
outsider in his place. If any partner transfers the whole of his interest in the firm to a third
party, the other partners may apply to the court for the dissolution of the firm. It is, however,
possible that a partner may transfer his interest in the business in favour of a third person. S
29 contains the following provision with regard to the rights of the transferee of a partner’s
interest:

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 of 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 accounts 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 dissolution. Section 29 (1) deals with the position during the
continuance of the firm whereas the position of the dissolution of the firm or the transferring
partner ceasing to be a partner is contained in s 29 (2).

During the continuance of the firm, the transferee of a partner’s interest does not become
entitled to interfere in the conduct of the business of the firm. Nor can such a transferee
require accounts, nor can he inspect the books of the firm. He is bound to accept the account
of profits agreed to by the partners. His only right is to receive the share of profits of the
transferring partner. The reason why the transferee is not entitled to interfere in the conduct
of the business is that partnership being based on mutual confidence and trust between the
partners, there should be no interference by any outsider.

Position of a minor admitted to the benefits of partnership (S 30) 30. Minors

admitted to the benefits of partnership:

(1) As already noted, in order to create a partnership between a number of persons, they
must have entered into a contract to that effect, and that the relation of partnership
arises from contract and not from status. That obviously implies that all the essentials
of a valid contract are to be satisfied and, therefore, all the partners must be competent
to contract. A minor is incompetent to contract, his agreement is void and, therefore,
he is incapable of becoming a partner in any partnership firm. If, while creating
partnership, a minor is made a full-fledged partner in a partnership firm, the deed
would be invalid and the document cannot be enforced even vis-a-vis other partners.

Section 31 of The Indian Partnership Act, 1932: Introduction of a partner

Bare Act

(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.

Simplified Act
(1) Unless the partners have agreed otherwise, and keeping in mind the rules for minors
becoming partners (as mentioned in section 30), a new partner can't join the business unless
every current partner agrees.

(2) Following the rules mentioned in section 30, when a new partner joins the business, they
are not responsible for anything the business did before they joined.

Explanation using Example

Imagine a partnership firm called 'Tech Innovators' which specializes in developing

software. The firm originally has three partners: Aarav, Bella, and Carlos. They have agreed
in their partnership deed that any new partner can only be added with the unanimous consent
of all existing partners.

One day, they meet Deepika, who has expertise in marketing and a wide network of potential
clients. They all agree that her skills would be valuable to the firm. According to Section
31(1) of The Indian Partnership Act, 1932, they can only introduce Deepika as a partner if
Aarav, Bella, and Carlos all consent to her joining.

After discussing, all three agree and Deepika is introduced as a new partner. However, a
week before Deepika joined, 'Tech Innovators' had entered into a contract which resulted in a
dispute. As per Section 31(2), Deepika would not be liable for this dispute because it
occurred before she became a partner.

Section 32 of The Indian Partnership Act, 1932: Retirement of a partner

Bare Act

(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.

Simplified Act

(1) A partner can leave the partnership if:

 (a) all other partners agree,

 (b) there's a written agreement that allows it, or

 (c) the partnership doesn't have a fixed duration and the partner tells the others in
writing that they want to leave.

(2) A partner who leaves can agree with the remaining partners and any third party to not be
responsible for things the partnership did before they left. This agreement can also be
assumed if the third party keeps working with the partnership after knowing about the
departure.

(3) Even after a partner leaves, they can still be responsible for partnership actions taken
after they leave, unless the public is told about the retirement. However, if a third party didn't
know the person was ever a partner, then the retired partner isn't responsible for the
partnership's actions.

(4) Either the partner who is leaving or the remaining partners can tell the public about the
retirement.

Explanation using Example

Imagine Rita, Sanjay, and Alok are partners in a firm called 'QuickTech Solutions'. Rita
decides to retire from the partnership. According to Section 32 of The Indian Partnership
Act, 1932, she can do so in the following ways:

 Rita can retire with the consent of Sanjay and Alok.

 If there is an existing agreement that outlines the procedure for retirement, Rita can
retire in accordance with those terms.

 If 'QuickTech Solutions' is a partnership at will, Rita can simply provide a written

notice to Sanjay and Alok expressing her intention to retire.

After her retirement, Rita wants to ensure that she is not liable for any future debts or
obligations incurred by the firm. She can do so by:

 Entering into an agreement with Sanjay, Alok, and any third party that QuickTech
Solutions does business with, stating that she is no longer liable for actions taken by
the firm after her retirement.

 Third parties can imply her retirement if they continue to deal with QuickTech
Solutions after knowing of her departure.

However, Rita will still be liable for any acts of the firm done before her retirement unless
she gives public notice of her retirement. This notice can be given by her or any partner from
the reconstituted firm, which now consists of only Sanjay and Alok.

If a third party, unaware of Rita's retirement, enters into a transaction with QuickTech
Solutions, Rita will not be liable to that third party.

Section 33 of The Indian Partnership Act, 1932: Expulsion of a partner

Bare Act

(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.
Simplified Act

(1) A partner in a business cannot be kicked out by the other partners unless they are
following rules that were agreed upon by everyone in the partnership, and they must be
acting honestly and fairly when doing so.

(2) The rules that apply to a partner who leaves the business on their own will also apply to a
partner who has been expelled, as if they had retired voluntarily.

Explanation using Example

Imagine a partnership firm where there are five partners. Four of them decide that the fifth
partner is not contributing enough and should be expelled. However, their partnership
agreement does not include any clause that allows expelling a partner by a majority vote.
According to Section 33 of the Indian Partnership Act, 1932, they cannot expel the fifth
partner unless they are exercising powers in good faith that are specifically mentioned in
their partnership contract. Since there is no such clause, the expulsion would not be valid
under the law.

Section 34 of The Indian Partnership Act, 1932: Insolvency of a partner

Bare Act

(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.

Simplified Act

(1) If a partner in a business partnership is declared bankrupt by a court, that person stops
being a partner from the moment the court makes that decision. This is true whether or not
the partnership ends because of the bankruptcy.
(2) If the partners have agreed in their contract that the partnership will not end when one of
them goes bankrupt, then the bankrupt partner's share in the partnership isn't responsible for
anything the business does after the bankruptcy decision, and the business isn't responsible
for anything the bankrupt partner does after that point.

Explanation using Example

Imagine a partnership firm named 'Creative Solutions' with three partners: Arjun, Bhavna,
and Chetan. On June 1st, Chetan faces severe financial difficulties and is declared insolvent
by a court order. According to Section 34(1) of The Indian Partnership Act, 1932, Chetan
automatically ceases to be a partner in 'Creative Solutions' from June 1st, the date of the
adjudication.

Furthermore, the partnership agreement between Arjun, Bhavna, and Chetan specifies that
the firm will not dissolve in the event of any partner's insolvency. Hence, as per Section
34(2), after June 1st, Chetan's personal estate is not responsible for any business liabilities
incurred by 'Creative Solutions', and likewise, the firm is not responsible for any personal
liabilities Chetan incurs following his insolvency. This means that if Chetan incurs personal
debts on June 2nd, 'Creative Solutions' will not be held liable for those debts.

Section 35 of The Indian Partnership Act, 1932: Liability of estate of

deceased partner

Bare Act

35. 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.

Simplified Act

If the agreement between business partners says that the business does not have to end when
one partner dies, then the deceased partner's personal assets and property (estate) cannot be
held responsible for anything the business does after that partner has passed away.

Explanation using Example

Imagine a partnership firm consisting of three partners: A, B, and C. They have a contract
that states the partnership will not dissolve upon the death of any partner. Unfortunately,
Partner A passes away. After A's death, Partners B and C continue to run the business and
incur some debts in the process of expansion. According to Section 35 of The Indian
Partnership Act, 1932, A's estate (which includes assets and liabilities left by A to his heirs)
would not be held liable for these new debts incurred by the firm after A's death. This means
A's family will not have to pay for the debts that B and C took on after A was no longer a
partner.

Section 36 of The Indian Partnership Act, 1932: Rights of outgoing partner to carry on
competing business.

Bare Act

(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) 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.

Simplified Act

(1) When a partner leaves a partnership, they can start a business that competes with the old
one and they can promote it. However, unless they have an agreement saying otherwise, they
cannot:

 (a) use the name of the old partnership for their new business,
  (b) claim to be continuing the old partnership's business, or

 (c) actively seek out the former partnership's customers to get them to switch to the
new business.

(2) A partner can agree with the remaining partners that after they leave, they won't start a
similar business for a certain time or in a certain area. This kind of agreement is okay and
won't be considered invalid under the Indian Contract Act of 1872, as long as the limits it
sets on time and area are fair.

Explanation using Example

Imagine a scenario where Raj, Meena, and Anil are partners in a firm called 'QuickTech
Solutions'. Raj decides to leave the partnership to start his own venture. According to Section
36 of The Indian Partnership Act, 1932:

 Raj can start a competing tech business, but he cannot use the name 'QuickTech
Solutions' for his new venture.

 He cannot claim that his new business is associated with 'QuickTech Solutions' or is a
continuation of it.

 He is also prohibited from approaching the existing clients of 'QuickTech Solutions' to

divert their business to his new company.

However, if Raj had an agreement with Meena and Anil that he would not start a similar
business within the same city for 2 years after leaving the firm, this agreement would be
valid and enforceable, provided that the terms are reasonable and not excessively restrictive.
 Case Law

Section 25 : In M/s Glorious Plastics Ltd v Laghate Enterprises, it was held that if a
partner retires on 1st April 1982 and the act of the firm is done on 1st March 1985, s 25
cannot be applied to make such retiring partner liable for an act done after he has retired. The
liability of all the partners is joint and several even though the act of the firm may have been
done by one of them. Thus a third party, if he so likes, can bring an action against any one of
them severally or against any two or more of them jointly.

Section 26 : In Hurruck Chand v Gobind Lal, one of the partners, who was an active
partner in a firm, knowing that the goods were stolen ones, purchased and sold them without
the knowledge of the other partner who was a sleeping partner. It was held that both the
partners were liable for the tort of conversion to the owner of the goods.

Section 28 : In the case of Martyn v. Gray, the defendant was held liable by holding out as
he let the third party believe that he was a partner by remaining silent when the business/firm
itself misrepresented the defendant as a partner.

Section 28 : Bevan V. National Bank Of Ltd.

Facts:
Mr. B had a business running with the name MW and Co. and the manager of the business
was Mr. MW. He looked after all the business documents and cheques of the payments from
the banks. The plaintiff sued the company to recover the money for the goods he had
supplied and for the suit he charged both Mr. B and Mr. MW. Mr. MW contended that the
name of company was MW but he was not a partner and hence should not be held liable.

Judgment:
The court held the defendant (Mr. MW and Mr. B) both liable. Mr. MW was held liable by
holding out as a partner as the court said, when the name of the company has the name of the
manager and the manager is active and plays key role, it can be implied that he is a partner
and hence in the current case, he too is liable for the credit given by the plaintiff in faith of
Mr. MW as partner for he had let the public representation be made (even if unintentionally)
that made the plaintiff believe that he is the partner. Mr. B contended that for the same
reason Mr. MW should be held as sole owner and he should not be held liable but the court
said that Mr. MW can only be held liable as a partner by holding out having name in the
company title does not give the proprietorship of whole business but a position of partner of
the company.

Section 29 :

In Bharat Dyeing and Manufacturing Co. Ltd. v. CCE [(2005) 183 ELT 481 SC], the
court held that a transferee of a partner's interest is not entitled to interfere in the
management of the firm's business, but he is entitled to his share of profits as agreed upon

Section 30 :

In the case of Nagindas Ramdas v. Dalpatram Ichharam (1974 SCR (2) 544), the court
held that a minor admitted to the benefits of partnership cannot sue the partners for an
account or payment of his share of the property or profits of the firm, except when severing
his connection with the firm.
Conclusion & Suggestion
In my opinion Partnership is very important because in day to day activities we enter into
partnership agreements and by making partners big goals are achieved with the help of joint
and more number of people. The joint efforts of all the member results in successful
accomplishment of tasks and that task or job can be easily afforded. Division of work leads
to increase in efficiency at work among different partners.

When some job is done by consent of all the members and if some profit is earned then it is
shared among the different partners. And similar is the case when some loss occurs then that
is also beard among all the members and its not that only one has to take responsibility or
give compensation. So in my view Partnership is a good form of doing business than a
company which is owned by a single person.

Partnership is one of the oldest forms of business relationships. Though limited liability
companies have replaced partnership firms in complex businesses, partnerships are still
preferred by professionals and small trading and business enterprises in India and abroad.

The Indian partnership act of 1932 provides for a general form of partnership which is the
most prevalent form in India, but, over time the general form of partnership has lost its
charm because of the inherent disadvantages in it, the most important is the unlimited
liability of all partners for business debts and legal consequences, regardless of their holding,
as the firm is not a legal entity.

General partners are also jointly and severally liable for tortuous acts of co-partners. Each
partner has the exposure of their personal assets being appropriated and liquidated to meet
partnership dues. These are statutory position, which cannot be altered by contract inter-se,
though at times subterfuges are resorted to by unscrupulous partners to avoid personal
liability.

General partnership holdings are not easy to transfer; typically all other partners have to
agree. Yet partnership is preferred in India, because of the ease of formation and lack of
compliances involved.