Law of Partnership

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THE INDIAN PARTNERSHIP ACT 1932.

CONTENTS

CHAPTER- I PRELIMINARY

Sections Pages
1. Short title, extent and commencement
2. Definitions
3 Application of provisions of Act 9 of 1872

CHAPTER – II  THE NATURE OF PARTNERSHIP

4. Definition of ” Partnership”, “Partner”, “Firm” and “firm name”
5. Partnership not created by status
6. Mode of determining existence of partnership
7. Partnership at will
8. Particular partnership

CHAPTER – III RELATIONS OF PARTNERS TO ONE ANOTHER

9. General duties of partners
10. Duty to indemnify for loss caused by fraud
11. Determination of rights and duties of partners by contract between the partners.
12. The conduct of the business
13. Mutual rights and liabilities
14. The property of the firm.
15. Application of the property of the firm
16. Personal profits named by partners
17. Rights and duties of partners

CHAPTER – IV RELATION OF PARTNERS TO THIRD PARTIES

18. Partners to be agent of the firms
19. Implied authority of partner as agent of the firm
20. Extension and restriction of partner’s implied  authority.
21. Partner’s authority in an emergency
22. Mode of doing act to bind firm
23. Effect of admissions by a partner
24 Effect of notice to acting partner
25. Liability of a partner for acts of the firm
26. Liability of the firm for wrongful acts of a partner.
27. Liability of firm for misapplication by partners
28. Holding out
29. Rights of transferee of a partner’s interest
30. Minors admitted to the benefits of partnership.

CHAPTER – V INCOMING AND OUTGOING PARTNERS.

31. Introduction of a partner
32. Retirement of a partner
33. Expulsion of a partner
34. Insolvency a partner
35. Liability of estate of deceased partner
36. Rights of outgoing partner to carry on competing business
37. Right of outgoing partner in certain cases to share subsequent profits
38. Revocation of continuing guarantee by change in firm

CHAPTER -VI DISSOLUTION OF A FIRM

39. Dissolution of firm
40 Dissolution by agreement
41. Compulsory dissolution
42. Dissolution on the happening of certain contingencies
43. Dissolution by notice of partnership at will
44. Dissolution by the
45. Liability for acts of partners done after dissolution
46. Right of partners to have business wound up after dissolution.
47. Continuing authority of partners for purposes of winding up
48. Mode of settlement of accounts between partners
49. Payment of firm debts and of separate debts.
50. Personal profits earned after dissolution
51. Return of premium on premature dissolution
52. Rights where partnership contract is rescinded for fraud or misrepresentation
53. Rights to restrain from use of firm name or firm property
54. Agreements in restraint of trade
55. Sale of good will after dissolution

CHAPTER – VII REGISTRATION OF FIRMS

56. Power to exempt from application of this Chapter
57. Appointment of Registrar
58. Application of registration
59. Registration
60. Recording of alterations in firm name and principal place of business.
61. Noting of closing and opening of branches
62. Noting of changes in names and addresses of partners
63. Recording of changes in and dissolution of a firm
64. Rectification of mistakes
65. Amendment of Register by order of court
66. Inspection of Register and filed documents
67. Grant of copies
68. Rules of evidence
69. Effect of non- registration
70. Penalty for furnishing of false particulars
71. Power to make rules

CHAPTER – VIII SUPPLEMENTAL

72. Mode of giving public notice
73. [Repeals]
74. Saving
Devider

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 an acted as follows:

CHAPTER – I- PRELIMINARY
1. Short title extend and commencement – (1) This Act may be called the Indian partnership Act. 1932.
2. It extends to the whole of India except the State of Jammu & Kashmir.
3. It shall come int0 force on the Ist day of October , 1932, except Sec. 69 which shall come into force on the Ist day October, 1933.


2. Definitions – 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) “Thirdy party ” used in relation to a firm or to a partner therein means any person who is not a partner in the firms” and
e) expression used but not defined in this Act and defined in the Indian
3. Application of provisions of Act 9 of 1872 – The unrepealed provisions of the Indian contract Act, 1872 , save in so far as they are inconsistent with the express provision of this act, shall continue to apply to firms

Devider

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”

Short Note’
-Sec.4- Partnership is an association of persons carrying business & in law the firm name is compendious method of describing partners Deoha F.Guzdar Bombay us C.I.T. Air, 955 SC 74.

5- Partnership not created by status- 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 extence of partnership – In determining
whether a group of persons is or is not a firm, or whether a person is or
is not 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 i, 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 persons
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 undertaking

Devider

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.

SHORT NOTE
-sec.9- Sleeping partner can file a suit for rendition of account – Sita Ram vs. Radha Rai, AIR 1968 SC 534.

10. Duty to indemnify for loss caused by fraud- 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. Determination of rights and duties of partners by contract
between the partners: (1) Subject to the provisions of this Act, the
mutual rights and duties of the partners of a firm may be determined by
contraft 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 co0nsent may be expressed or may be implied by a course of
dealing.
2) Agreements in restraints of trade- Notwithstanding any
thing contained in Sec. 27 of the Indian Contract Act, 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
partnersa)
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 any 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 .

13) Mutual rights and liabilities – 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 willful neglect in the conduct of the business of the
firm.

Short note
-Sec 13- All the partners are entitled & liable for equal share in loss & profit in absence of any agreement – Mandyala Govindu vs. C.I.T., AIR 1975 SC 2284

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.

SHORT – NOTE
-SEC- 15 – Partner can not transfer any part of the property of firm till the continuation of the partnership – Addanki Narayanappa vs. Bhaskara Krishnappa.AIR 1966 SC 1300.

16. Personal profits named 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.
17. Right and duties of partners – 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 – 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
undertaking.

Devider

CHAPTER IV – RELATION OF PARTNERS TO THIRD PARTIES

18. Partners 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. Implied authority of partner as agent of the firm- (1) subject
to the provisions of Sec. 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 contract,
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.

20) Extension and restriction of partner’s implied authorityThe
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 on
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 therefor 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 thirty 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
the 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 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.

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.

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 minors 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 Sec. 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 month.
(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 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 to become a partner.
a) his rights and liabilities shall continue to be those of a
minor under this section upto 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 effect then provisions of
Sec. 28.

Devider

CHAPTER V- INCOMING AND OUTGOING PARTNERS

31. Introduction of a partner – (1) Subject to contract between the
partners and to the provisions of Sec. 30 m 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 Sec. 30, a person who is introduced
as a partner into a firm does not there by 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 (23)_ 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 after he
had knowledge of the retirement. (3) Not withstanding 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. Expulsion of a partner – (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 section(2), (3) and (4) of Sec. 32
shall apply to an expelled partner as if he were a retired partner.

34.` Insolvency 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
c) Olicit the custom of persons who were dealing with the
firms before he ceased to be a partner.
2) Agreement 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 Sec. 27 of the Indian
Contract Act, 1872, such agreement shall be valid if the
restrictions imposed are reasonable.

37. Right of outgoing partner in certain cases to share subsequent profits –
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 a 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 constitutions of the firm

Devider

CHAPTER VI – DISSOLUTION OF A FIRM

39. Dissolution of firm – The dissolution of partnership between all the partners of a firm is called ” dissolution of the firm”

40. Dissolution by agreement : A firm may be dissolved with the consent of all the partners or in accordance with a contract between the partners.

short notes
-Sec 40 – Firm can be dissolved with consent of all the partners or according to contract between the partners – AI 1971 SC 1653 : (1970) 2 SCC 724, AIR 1990 All. 171. Sec. 40 – Suit filed after 3 years of execution of dissolution deed for rendition of account is barred by limitation – Madan Lal vs. Shiv Narain, 1986 (1) CCC 464.

41. Compulsory Dissolution – A firm is dissolved

a) by the adjudication of all the partners or of all partners but
one as insolvent or,
b) By the happening of any event which makes it unlawful
for the business of the firm to be carried on or for the
partners to carry it on in partnership.
Provided that : Where more than one separate adventure or
undertaking is carried on by the firm, the illegality of one or more shall
not of itself cause the dissolution of the firm in respect of its lawful
adventures and undertakings.

42. Dissolution on the happening of certain contingencies -Subject to contract between the partners a firm is dissolved –
a) If constituted for a fixed term, by the expiry of that term
b) If constituted to carry out one or more adventures or
undertakings by the completion thereof.
c) by the death of a partner.
d) by the adjudication of a partner as an insolvent.

43. Dissolution by notice of partnership at will – (1) Where thepartnership is at will the firm may be dissolved by any partner givingnotice in writing to all the other partners of his intention to dissolve the firm.
(2) The firm is dissolved as from the date mentioned in the `notice as the date of dissolution or, if no date is so mentioned, as from the date of the communication of the
notice.

44. Dissolution by the Court. At the suit of a partner, the
Court may dissolve a firm on any of the following grounds, namely :
a) That a partner has become of unsound mind, in which
case the suit may be brought as well by the next friend of
the partner who has become of unsound mind as by any
other partner.
b) That a partner, other than the partner suing, has become
in any way permanently incapable of performing his
duties as partner.
c) that a partner, other than the partner suing, is guilty of
conduct which is likely to affect prejudicially the carrying
on of the business, regard being had to the nature of the
business.
d) that a partner, other than the partner suing, willfully or
persistently commits breach of agreement relating to the
management of the affairs of the firm or the conduct of its
business, or otherwise so conducts himself in matter
relating to the business that it is not reasonably
practicable for the other partners to carry on the business
in partnership with him.
e) That a partner, other than the partner suing has in any
way transferred the whole of his interest in the firm to a
third party, or has allowed his share to be charged under
the provisions of rule 49 of Order XXI of the First
Schedule to the Code of Civil Procedure, 1908 or has
allowed it to be sold in the recovery of arrears, of land
revenue or of any dues recoverable as arrears of land
revenue due by the partner.
f) That the business of the firm cannot be carried on save at
a loss.
g) On any other ground which renders it just and equitable
that the firm should be dissolved.

45. Liability for acts of partners done after dissolution
(1) Not withstanding the dissolution of a firm the partners
continue to be liable as such to third parties for any act
done by any of them which would have been an act of the
firm if done before the dissolution unit public notice is
given of the dissolution.
Provided that: The estate of a partner who dies, or who is
adjudicated an insolvent or of a partner who not having been
known to the person dealing with the firm to be a partner, retires
from the firm, is not liable under this section for acts done after
the date on which he ceases to be a partner.
(2) Notices under such- Section 91) may be given by any partner

46. Right of partners to have business wound by after
dissolution – On the dissolution of a firm every partner or his
representative is entitled, as against all the other partners or
their representatives, to have the property of the firm applied in
payment of the debts and liabilities of the firm and to have the
surplus distributed among the partners or their representatives
according to their rights.

47. Continuing authority of partners for purposes of winding up
– After the dissolution of a firm the authority of each partner to
bind the firm, and the other mutual rights and obligations of the
partners, continue not withstanding the dissolution, so far as
may be necessary to wind up the affairs of the firm and to
complete transactions begun but unfinished at the time of the
dissolution, but not otherwise.
Provided that the firm is no case bound by the acts of a partner who
has been adjudicated insolvent, but this proviso does not affect
the liability of any person who has after the adjudication
represented himself or knowingly permitted himself to be
represented as a partner of the insolvent.

48. Mode of settlement of accounts between partners – In
setting the accounts of a firm after dissolution, the following
rules shall, subject to agreement by the partners , be observed.
a) Losses, including deficiencies of capital, shall be paid first
out of profits, next out of capital and, lastly, if necessary,
by the partners individually in the proportion in which they
were entitled to share profits.
b) The assets of the firm, including any sums contributed by
the partners to make up deficiencies of capital, shall be
applied in the following manner and order:-
i) In paying the debts of the firm to third parties.
ii) In paying to each partner rateably what is due to
him from the firm for advances as distinguished
from capital:
iii) in paying to each partner rateably what is due to
him on account of capital and.
iv) The residue, if any shall be divided among the
partners in the proportions in which they were
entitled to share profits.

49. Payment of firm debts and of separate debts- Where there
are joint debts due from the firm, and also separate debts due
from any partner, the property of the firm shall be applied in the
first instance in payment of the debts of the firm, and if there is
any surplus, him. The separate property of any partner shall be
applied first in the payment of his separate debts and the
surplus ( if any) in the payment of the debts of the firm.
50 Personal profits earned after dissolution – Subject to contract
between the partners, the provisions of clause (a) of section 16
shall apply to transactions by any surviving partner or by the
representatives of a deceased partner, undertaken after the firm
is dissolved on account of the death of a partner and before its
affairs have been completely wound up.
Provided that Where any partner or his representative has bought the
good will of the firm nothing in this section shall affect his right to
use the firm name.

51. Return of premium on premature dissolution- Where a
partner has paid a premium on entering into partnership for a
fixed term, and the firm is dissolved before the expiration of that
term otherwise than by the death of a partner, he shall be
entitled to repayment of the premium or of such part thereof as
may be reasonable, regard being had to the terms upon which
he became a partner and to the length of time during which he
was a partner unless –
a)) The dissolution is mainly due to his own misconduct or
b) The dissolution is in pursuance of an agreement
containing no provision for the return of the premium or
any part of it.

52. Rights where partnership contract is rescinded for fraud or misrepresentation –
Where a contract creating partnership is rescinded on the ground of fraud or misrepresentation of any of the parties thereto, the party entitled rescind is, without prejudice to any other right entitled –
a) To a lien on or a right of retention of, the surplus of the
assets of the firm remaining after the debts of the firm
have been paid for any sum paid by him for the purchase
of a share in the firm and for any capital contributed by
him.
b) to rank as a creditor of the firm in respect of any payment
made by him to wards the debts of the firm and
c) To be indemnified by the partner or partners guilty of the
fraud or misrepresentation against all the debts of the
firm.

53. Right to restrain from use of firm name or firm property –
After a firm is dissolved, every partner or his representative may
in the absence of a contract between the partners to the
contrary, restrain and other partner or his representative from
carrying on a similar business in the firm name or from using
any of the property of the firm for his own benefit, until the affairs
of the firm have been completely wound up ;
Provided that Where any partner or his representative has bought the
goodwill of the firm, nothing in this section shall affect his right to use
the firm name.

54. Agreement in restraint of trade –
Partners may upon or in anticipation of the dissolution of the
firm, make an agreement that some or all of them will not carry
on a business similar to that of the firm within a specific period
or within specified local limits and notwithstanding anything
contained in section 27 of the Indian Contract Act 1872 such
agreement shall be valid if the restrictions imposed are
reasonable.

55. Sale of good will after dissolution

(1) In settling the accounts
of a firm after dissolution the goodwill shall, subject to contract between
the partners, be included in the assets, and it may be sold either
separately or along with other property of the firm.
2) Right of buyer and seller of good will – Where the goodwill of
a firm is sold after dissolution, a partner may carry on a business
competing with that of the buyer and he may advertise such business,
but subject to agreement between him and the buyer, 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 its dissolution.
3) Agreement in restraint of trade- Any partner may, upon the
sale of the goodwill of a firm, make an agreement with the buyer that
such partner will not carry on any business similar to that of the firm
within a specified period or within specified local limits and not
withstanding any thing contained in section 27 of the Indian Contract
Act, 1872, such agreement shall be valid if the restrictions imposed
are reasonable.

Short Note
-Sec 55- Goodwill is a part of assets of the partnership firm – Khusal Khemgal shah vs. Mrs. Khurshed Banu, AIR 1970 SC 1147 : (1970) 1 SCC 415 AIR 1964 SC 11.

Devider

CHAPTER VII – REGISTRATION OF FIRMS

56. Power to exempt from application of this chapter – The State Government of any State may, by notification in the Official Gazette, direct that the provisions of this chapter shall not apply to that state or to any part there of specified in the notification.

57. Appointment of Registrars (1) The State Government may appoint Registrar of firm for the purposes of this Act, and may define the areas within which they shall exercise their powers and perform their duties (2) Every Registrar shall bedeemed to be a public servant within the meaning of section 21 of the Indian Penal Code.

58. Application for registration (1) The registration of a firm may
be effected at any time by sending by post or delivering to the registrar
of the area in which any place of business of the firm is situated or
proposed to be situated, a statement in the prescribed form and
accompanied by the prescribed fee stating –
a) The firm name,
b) The place or principal place of business of the firm.
c) The names of any other places where the firm carries on
business
d) The date when each partner joined the firm
e) The names in full and permanent addresses of the
partners and
f) The duration of the firm
The statement shall be signed by all the partners, or by their
agents specially authorised in his behalf
2) Each person signing the statement shall be also verify it in the
manner prescribed
3) A firm name shall not contain any of the following words –
namely –
“Crown”, “Emperor”, “Empress”, “Empire”, “Imperial”, “King”,
“Queen”, “Rayal”, or words expressing or implying the sanction,
approval or patronage of Government, except when the State
Government signifies its consent to the use of such words as part of
the firm name by order in writing.

59. Registration- When the Registrar is satisfied that the provision of section 58 have been duly complied with he shall record an entry of the statement in a register called the Register of firms, and shall file the statement.

Short Note
Sec. 59. Registration of firm takes effect from the date of entry in register of firm CIT AP vs. Jaya Laxmi Rice Mills, AIR 1971 SC 1015 :(1971) 1 SCC 280-

60. Recording of alterations in firm name and principal place of
business – (1) when an alteration is made in the firm name or in the
location of the principal place of business of a registered firm, a
statement may be sent to the Registrar accompanied by the prescribed
fee specifying the alteration, and signed and verified in the manner
required under section 58.
2) When the registrar, is satisfied that the provisions of sub –
section 91) have been duly complied with he shall amend the entry
relating to the firm in the Register in firms accordance with the
statement, and shall file it along with the statement relating to the firms
filed under section 59.

61. Noting of closing and opening of branches — When a
registered firm discontinues business at any place or begins to carry on
business at any place, such place not being its principal place of
business, any partner or agent of the firm may send intimation thereof
to the Registrar, who shall make a note of such intimation in the entry
relating to the firm in the Register of firms, and shall file the intimation
along with the statement relating to the firm filed under section 59.

62. Noting of changes in names and addresses of partners —
When any partners in a registered firms alters his name or permanent
address, an intimation of the alteration may be sent by any partner or
agent of the firm to the Registrar, who shall deal with it in the manner
provided in Section 61.

63. Recording of changes in and dissolution of a firm -(1) When
a change occurs in the constitution of a registered firm any incoming
continuing or outgoing partners and when a registered firm is dissolved
any person who was a partner immediately before the dissolution or
the agent of any such partner or person specially authorised in this
behalf may give notice to the Registrar of such change or dissolution
specifying the date thereof and the Registrar shall make a record of
the notice in the entry relating to the firms in the Register of Firms, and
shall file the notice in along with the statement relating to the firms files
under section 59.
2) Recording of withdrawal of a minor – When a minor who has
been admitted to the benefits of partnership in a firm attains majority
and elects to become or not to become a partner, and the firm is then
registered firm, he, or his agent specially authorised in this behalf, may
give notice to the Registrar that he has or has not become a partner,
and the Registrar shall deal with the notice in the manner provided in
sub section (1).

Short Note
Sec 63 – Application for recording change in the register of firm can be sent by post – M/s Harijan Book House vs Registrar of firms, AIR 1988 Guj. 188 1988 Guj L.R. 11:” 1988 (1) GLH 1

64. Rectification of mistakes — (1) The Registrar shall have power at all times to rectify any mistake in order to bring the entry in the Register of firms relating to any firm into conformity with the documents relating to that firm filed under this chapter.
2) On application made by all the parties who have signed any
document relating to a firm filed under this Chapter, the Registrar may
rectify any mistake in such documents or in the records or note thereof
made in the Register of firms,

Short Note
Sec 64 – Registration of firm is not affected by omission & error can be rectified – AIR 1954 HP 52.

65. Amendment of Register by order of Court — A court deciding
any matter relating to a registered firm may direct that the Registrar
shall make any amendment in the entry in the Register of firms relating
to such firm which is consequential upon its decision and the Registrar
shall amend the entry accordingly.
66. Inspection of Register and filed documents (1) The Register
of firms shall be open to inspection by any person on payment of such
fee as may be prescribed.
2) All statements, notices and intimations filed under this Chapter
shall be open to inspection, subject to such conditions and on payment
of such fee as may be prescribed.
67. Grant of copies — The Registrar shall on application furnish to
any person, on payment of such fee as may be prescribed, a copy,
certified under his hand, of and entry of portion thereof in the Register
of firms.
68. Rules of evidence (1) Any statement, intimation or notice
recorded or noted in the Register of firm shall, as against any persons
by whom or on whose behalf such statement, intimation or notice was
signed, be conclusive proof of any fact there in stated (2) A certified
copy of any entry relating to a firm in the Registrar of firms may be
produced in proof of the fact of the registration of such firm, and of the
contents of any statements intimation or notice recorded or noted
therein

Short Note
Sec 68- When necessary entry is made in the register of firm, thereafter registration of firm takes place AIR 1971, SC 1015: 1971 TAx LR 421.

69. Effect of non– registration (1) No suit to enforce a right arising
from a contract of or conferred by this Act shall be instituted in any
court by or on behalf of any person suing as a partner ina firm against
the firm or any person alleged to be or to have been a partner in the
firm unless the firm is registered and the person suing is or has been
shown in the Register of firms as a partner in the firm.
2) No suit to enforce a right arising from a contract shall be
instituted in any court by or on behalf of a firm against any third party
unless the firm is registered and the person suing are or have been
shown in the Register of firm as partners in the firm
3) The provisions of sub section (1) and (2) shall apply also to a
claim of Set – off or other proceeding to enforce a right arising from a
contract, but shall not affect –
a) The enforcement of any right to sue for the dissolution of
a firm or for accounts of a dissolved firm, or any right or
power to realise the property of a dissolved firm or
b) The powers of an official assignee, receiver of Court
under the Presidency, towns insolvency Act 1909, or the
Provincial insolvency Act, 1920, to realise the property of
an insolvent partner.
4( This section shall not apply
a) To firms or to partners in firms which have no place of
business in the territories to which this Act extends, or
whose places of business in the said territories are
situated in areas to which by notification under section
56, this chapter does not apply, or
b) to any suit or claim of set off not exceeding one hundred
rupees in value which in the presidency towns, is not of a
kind specified in section 19 of the Presidency shall cause
Court Act, 1882 or outside the Presidency towns, is not of
a kind specified in the Second Schedule to the
Provisional small cause Courts Act 1887. or to any
proceeding or execution in other proceeding incidental to
or arising from any such suit or claim.

Short Note
-Sec 69- In case of unregistered firm, arbitration clause can be invoked for dissolution of firm & renditioin of accounts -AIR 1995 SC 715, AIR 1996, SC 2209: 1996 AIRT (SCW ) 2696.

70- Penalty for furnishing of false particulars – Any person who signs
any statement, amending statement, notice or intimation under this
Chapter containing any particulars which he knows to be false or does
not believe to be true or containing particulars which he knows to be
incomplete or does not believe to be complete, shall be punishable with
imprisonment which may extend to three months, or with fine or with
both.
71. Power to make rule (1) The Statement may be notification in the
official Gazettee make rules prescribing the fees which shall
accompany documents sent to the Registrar, of firms, or which shall be
payable for the inspection of documents in the custody of the Registrar
of firms or for copies from the Register of firms.
Provided that- Such fees shall not exceed the maximum fees specified
in Schedule -I
2) The State Government may also make rulesa)
Prescribing the form of statement submitted under
section 58 and of the verification thereof.
b) Requiring statements, intimations and notices under
Section60, 61, 62 and 63 to be in prescribed form and
prescribing the form thereof.
c) Prescribing the form of the Register of firms, and the
mode in which entries relating to firms are to be made
therein, and the mode in which such entries are to be
amended or notes made therein.
d) regulating the procedure of the registrar when disputes
arise.
e) Regulating the filling of documents received by the
Registrar.
f) Prescribing conditions for the inspection of original
documents.
g) regulating the grant of copies.
h) regulating the elimination of registers and documents.
i) Providing for the maintenance and form of an index to the
Register of firms, and
j) Generally, to carry out the purposes of this chapter.
3) All rules made under this section shall be subject to the
condition of previous publication.
4) Every rule made by the State Government under this section
shall be laid as soon as it is made, before the State Legislature.

Devider

CHAPTER VIII SUPPLEMENTAL

72. Mode of giving public notice — A public notice under this Act is given.

a) Where it relates to the retirement or expulsion of a partner from a registered firm, or to the dissolution of a registered firm, or to the election to become or not to become a partner in a registered firm by a -person attaining majority who was admitted as a minor to the benefits of partnership, by notice to Registrar of firms under section 63,. and by publication in the Official Gazette and in at least one vernacular newspaper circulating in the district where the firm to which it relates has its place or principal place of business and.

b) In any other case, by publication in the Official Gazette and in at least one vernacular newspaper circulating in the district where the firm to which it relates has its place or principal place of business.

73. (Repeals) Rep. by the repealing Act, 1938 ( 1, of 1938) s. 2 and Sch.

74. Saving: Nothing in this Act or any repeal effected thereby shall affect or be deemed to affect –
a) Any right title interest, obligation or liability already acquired, accrued or incurred before the commencement of this Act, or.
b) Any legal proceeding or remedy in respect of any such right, title interest, obligation or liability or any thing done or suffered before the commencement of this Act, or
c) Any thing done or suffered before the commencement of this Act
or
d) any enactment relating to partnership not expressly repealed by this Act, or
e) Any rule of insolvency relating to partnership or
f) Any rule of law not inconsistent with this Act.

Devider

THE LIMITED LIABILITY PARTNERSHIP ACT, 2008

Devider