RELATION OF PARTNERS TO THIRD PARTIES

Table of Contents

Chapter IV of the Indian Partnership act, 1932 deals with the relation of partners to third parties. This chapter contains Section 18 to 30 of the Indian Partnership act, 1932. This chapter mainly focuses on the relations between partners and the third party from which they are dealing. This article explains Chapter IV as follows:

Section 18: Partner as Agent

Section 18 provides that a partner is considered the agent of the firm for all activities carried out in the ordinary course of the firm’s business. This means any act done by one partner is treated as an act by the firm.

Section 19: Implied Authority of a Partner

Section 19 provides that the act by the partner which is done to carry on business of the kind of the firm , binds the firm. The implied authority of a partner does not empower him to-

• Submit disputes to arbitration
• Open bank account in their name for the firm
• Compromise or relinquish any claim
• Withdraw legal proceedings
• Admit liability in court proceedings
• Acquire or transfer immovable property
• Enter into another partnership on the firm’s behalf

Sections 20 to 22: Scope of Authority

1. Extension and restriction- As per section 20 the implied authority of the partners may be restricted or extended by an agreement.
2. Partner`s authority in emergency- As per section 21 partner has authority to do any such act which an ordinary prudent man doesto save his firm from losses
3. Mode to Bind firm- As per section 22 a partner can bind the firm on doing act in behalf of the firm.

Section 25: Joint and Several Liability

As per section 25, all the partners are jointly and severally liable for acts of the firm carried out by any partner.

Case: Hamlyn v. Houston (1903) 1 K.B. 81

In this case it was held that for the tort committed by one partner all the partners are also liable.

Section 26: Liability for Wrongful Acts

As per section 26, if a partner’s act during the course of business causes loss to a third party, both the firm and the partner are liable.

Section 27: Misapplication of Money

As per section 27, there are two kinds of cases of misapplication of money

• When a partner under authority acting for the firm receives the money or property from a third party and misapplies it, then the firm is liable
• When a partner under ordinary course or business acting for the firm receives the money or property from a third party and misapplies it, then the firm is liable.

Section 28: Doctrine of Holding Out

Section 28 of the Indian Partnership act, 1932 deals with the doctrine of holding out. This doctrine basically refers to an act or omission of the act which led others to believe that the person is a partner of the company and has authority and hence in this faith they made an agreement but in reality the said person does not have any authority.

In simple words Section 28 states that if a person has represented himself as a partner of the business and the other party had made some transaction in this faith, he cannot now go back and hence is estopped to be liable as a member as he presented himself.

Section 28 also provides that when any firm uses the deceased partner`s name , then any act done by the firm does not make the deceased partner`s representative liable for the act committed by them.

Case: Snow White Food Products Pvt. Ltd. v. Sohan Lal Bagla (AIR 1964 Cal 209)

In this case it was held that by verbal negotiations and subsequent correspondence, sohan lal represented as a partner of firm and is hence liable by the doctrine of holding out.

Section 30: Minor and Partnership

Section 30(1) of the Indian Partnership Act, 1932 states that:

A person who is a minor (as per applicable personal law) cannot be a full partner in a firm. However, with the consent of all existing partners, a minor may be admitted to the benefits of partnership.

Rights of a Minor Partner:

• Right to share in the profits and property of the firm
• Right to inspect and access copies of the firm’s accounts
• No personal liability for acts of the firm or other partners

Section 30(5) – After Attaining Majority:

Within 6 months of attaining majority or obtaining knowledge that they were admitted to the benefits of partnership, the minor must:

• Give a public notice of whether they choose to become a partner or not

If the Minor Chooses to Become a Partner:

• He becomes personally liable to third parties for all acts done by the firm after the notice
• He continues to have the same share in the firm’s property and profits as before

If the Minor Elects NOT to Become a Partner:

• He retains the rights and protections they had as a minor
• He is not liable for any act of the firm done after the date of the notice
• He can sue the firm or partners for their share in the firm’s property and profits

References:

1. Indian Partnership Act, 1932- Bare Act
2. Contract Law-II by R.K. Bangia