The Indian Partnership Act, 1932 contains provisions that govern the relation of partners to one another. The partners of a partnership firm can draft their terms and conditions with respect to their duties, roles and responsibilities in a partnership deed. In the absence of a partnership deed, the provisions given under the Indian Partnership Act are applicable. Let’s understand the duties and responsibilities of the partners in a partnership firm. There are certain duties and rights of partners given under the Indian Partnership Act, 1932, that cannot be altered by the partners entering into an agreement to the contrary (Section 11). Since all the partners are agents in a partnership firm, they must act in good faith with each other. Section 9 to section 17 of the Indian Partnership Act, 1932 lays down the provisions governing the mutual relations of the partners.

Duties of Partners:

• Partnership is based upon mutual confidence and trust. It is, therefore, necessary that no partner should gain any personal advantage at the cost of others. (s. 9)
• The partners must be just and faithful to each other. (s. 9)
• Partners should render true accounts. (s. 9)
• Partner should give full information of all things affecting the firm to concerned persons mentioned in the section. (s. 9)
• Duty to indemnify for loss caused by fraud (s. 10)
• Duty to be diligent (s. 12(b))
• Duty to indemnify firm (s. 13(f))
• Duty to properly use the firm’s property (s. 15)
• Duty not to earn personal profits or to compete (S. 16)

Rights of Partners:

• Every partner has a right to take part in the conduct of the business (S. 12(a));
• Every partner is bound to attend diligently to his duties in the conduct of the business (S. 12(b));
• Any difference arising as to ordinary matters connected with the business may be decided by a majority of the partners (S. 12(c));
• Every partner shall have the right to express his opinion before the matter is decided (S. 12(c));
• No change may be made in the nature of the business without the consent of all the partners (S. 12(c));
• Every partner has a right to have access to and to inspect and copy any of the books of the firm (S. 12(d));
• In the event of the death of a partner, his heirs or legal representatives or their duly authorised agents shall have a right of access to and to inspect and copy any of the books of the firm (S. 12(e)).
• Right to remuneration (S. 13(a))
• Right to share profit (S. 13 (b))
• Right to get interest on capital invested (S. 13(c))
• Right to get interest on advances (S. 13(d))
• Right to indemnity(S. 13(e))
• Rights and duties of partners. – Subject to contract between the partners (S. 17)
• Right to stop admission of a new partner (S. 31(1))
• Right to retire (S. 32(1))
• Right not to be expelled (S. 33)
• Rights of outgoing partner to carry on competing business (S. 36)
• Right of an outgoing partner in share of subsequent profits (S. 37)
• Right to dissolve the firm (S. 40)

General Duties of Partners:

Section9:

General Duties of Partners:

Partners are bound to carry on the business of the firm to 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, his heir or legal representative.

This section is of vital importance and subsequent sections dealing with relation of partners to one another are no more than amplifications and illustrations of principles contained in Section 9. Thus, the section is based on the general tradition of good faith and honour on which the whole law of partnership and the whole duty of partners are founded. There is mutual agency between partners and every partner is the agent of all others and he can bind them to an unlimited extent. Every partner is, therefore, expected to be just and faithful to his co-partners.

This provision is to be read with Section 16 (a) of the Act according to which 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.

Duties Mentioned in Section 9:

• Partnership is based upon mutual confidence and trust. It is, therefore, necessary that no partner should gain any personal advantage at the cost of others.
• The partners must be just and faithful to each other.
• Partners should render true accounts.
• Partner should give full information of all things affecting the firm to concerned persons mentioned in the section.

In Bentley v Craven, (1853) 18 Beav. 75 case, where a firm which had been established for refining sugar consisted of four partners. One of the partners, who was considered to be expert in the job, was authorized to purchase sugar for the firm for refining. Instead of purchasing sugar from the market, he supplied his own sugar which he had purchased earlier at much lower price and thus made considerable profit. He did not disclose this fact to other partners that he was making profit in this particular transaction. It was held that the firm was entitled to recover the profit thus made by this partner.

In Gardener v McCutcheon, (1842) 4 Beav. 543 case, where a number of persons were the joint owners of a ship which was to be employed for their common benefit. One of them, who was the master of the ship, traded on his own account and made considerable profit. It was held that the defendant was not entitled to use the partnership property for his private benefit and, therefore, he was bound to account for the profit to the other co-partners.

Duty to Indemnify for Loss Caused by Fraud:

Section10:

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.

The firm is liable not only for the contract made by one of them on behalf of other but also for wrongful act or omission of a partner acting in the ordinary course of business of the firm. If a partner commits a fraud against a third party while acting in the ordinary course of business of the firm, the third party can make the firm liable for the same. S 10 entitles the firm to recover indemnity from the partner guilty of fraud because of which the firm had to suffer the loss.

Rights and Duties of Partners by Contract Between the Partners:

Section11:

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 contract between the partners, and such contract may be express or may be implied by a course of dealing.

Such contract may be varied by consent of all the partners, and such consent may be express or may be implied by a course of dealing.

(2) Agreements in Restraint of Trade:

Notwithstanding anything contained in section 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.

S 11 (1) provides that, subject to the provisions of the Act, the mutual rights and duties of the partners of a firm may be determined by contract between the partners and such contract may be express or may be implied by a course of dealing. It further provides that the mutual rights and duties which may have been agreed upon between the partners may be subsequently varied by the consent of all the partners and such consent may be expressed or may be implied by a course of dealing. This section incorporates the general principle that the mutual rights and duties of the partners may be determined by a contract between themselves. They may themselves decide that how much investment or labour is to be put by whom, or whether a partner will be entitled to any remuneration, apart from sharing the profits, or what will be the profit-sharing ratio, etc.

Sub-section (2) clearly provides that, notwithstanding anything contained in s 27 of the Indian Contract Act, the contract between the partners may provide that a partner shall not carry on any business other than that of a firm while he is a partner. Although according to s 27 of the Indian Contract Act, agreement in restraint of trade is void, but such an agreement entered into between the partners as stated above will be valid.

Rights in the Conduct of Business:

Section12:

The Conduct of the Business:

Subject to contract between the partners –

(a) 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 the consent of all the partners;

(d) every partner has a right to have access to and to inspect and copy any of the books of the firm;

(e) in the event of the death of a partner, his heirs or legal representatives or their duly authorised agents shall have a right of access to and to inspect and copy any of the books of the firm.

Right to Take Part in the Conduct of the Business:

According to Section 12 (a), every partner has a right to take part in the conduct of the business. Since the business of partnership belongs to all the partners, every partner is entitled to take part in the conduct of the business. The partners are free to provide in their agreement that only some of them will take part in the conduct of the business and certain other partners will not. If such a right is wrongfully denied to a partner, he can seek the enforcement of the right through a court of law. If the right to manage the business has been conferred on only some of the partners, they alone will be entitled to this right.

Duty to be Diligent:

According to s 12 (b), every partner is bound to attend diligently to his duties in the conduct of the business of the firm. If a partner is negligent in the performance of his duties, this may cause loss not to that partner alone but to the whole firm.

Right to be Consulted and Express Opinion:

The difference of opinion between the partners may be either (i) as to ordinary matters connected with the business, or (ii) matters of fundamental importance concerning the nature of the business. When the difference of opinion pertains to an ordinary or routine matter connected with the business, the same may be resolved by a decision of the majority of partners. But before the matter is decided every partner must be provided with an opportunity to express his opinion.

When the matter is not an ordinary or a routine matter but is of fundamental importance concerning the nature of the business, consent of all partners is needed. For instance, admission of a new partner to the firm is a change in the nature of the business. This provision being subject to contract between the partners, they may decide that in all matters it is the decision of the majority which will prevail.

Right to have Access to Books of the Firm:

According to Section 12(d) of the act, every partner has a right to have access to and to inspect and copy any of the books of the firm. This right is available to both active and dormant partners. This right is not only in respect of books of accounts but in respect of any book of the firm. A partner could exercise this right either personally or by engaging an agent for the purpose.

Mutual Rights and Duties:

Section13:

Mutual Right 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.

Right of Remuneration:

No partner is entitled to receive any remuneration in addition to his share in the profits of the firm for taking part in the business of the firm. It is not uncommon for partners in actual practice to agree that a managing partner will receive over and above his share salary or commission for the trouble that he will take while conducting the business of the firm.

According to Section 13(a) of the Act, by an express agreement, or by a course of dealings, in which even the partner will be entitled to remuneration. Thus, a partner can claim remuneration even in the absence of a contract when such remuneration is payable under the continued usage of the firm. In other words, where it is customary to pay remuneration to a partner for conducting the business of the firm he can claim it even in the absence of a contract for the payment of the same.

Right to Share Profits:

According to section 13 (b) of the Act, every partner has a right to share the profits. Generally, the partners provide in their agreement as to what will be the proportion in which they will share the profits. According to s 13 (b), in the absence of any such agreement, the partners are to share the profits equally and also to contribute equally to the losses sustained by the firm and not in the proportion in which various partners contribute capital. Since every partner is entitled to share the profits, no other remuneration, as a general rule, is to be paid to a partner for the management of the firm’s business.

Right to Get Interest on Capital Invested:

Generally, no interest on capital subscribed by the partners is to be given because the partners share the profits of the business of the firm. But according to Section 13 (c) of the Act, in case the partners agree that interest on capital is to be given, such interest shall be payable only out of profits. The principle underlying this provision of law is that with regards to the capital brought by a partner in the business, he is not a creditor of the firm.

The following elements must be before a partner can be entitled to interest on money brought by him in the partnership business:

(i) An express agreement to that effect, or practice of the particular partnership or

(ii) any trade custom to that effect or

(iii)A statutory provision which entitles him to such interest.

Right to Get Interest on Advances:

Sometimes over and above the capital subscribed by the partners, the firm may need extra money. According to Section 13 (d) of the act, in case a partner makes any payment or advance beyond the amount of capital he has agreed to subscribe, he is entitled to interest thereon at the rate of six percent per annum.

While interest on capital account ceases to run on dissolution, the interest on advances keeps running after dissolution and up to the date of repayment.

Right to indemnity:

A partner while acting on behalf of the firm may make certain payments and also incur some liabilities. According to s 13 (e) of the Act, he is entitled to claim indemnity for the same. The indemnity can be claimed for the acts done by a partner in the ordinary and proper conduct of the business and also for doing some act in an emergency for the purpose of protecting the firm from the loss.

Duty to Indemnify Firm:

According Section 13 (f) of the Act, if the firm suffers any loss by the wilful neglect of a partner, he shall indemnify the firm for the same. The expression “wilful neglect” means an act done intentionally and deliberately rather than by inadvertence or an accident. An act done in good faith and bona fide cannot be termed a wilful neglect. The partners are, however, free to make a contract that they will not be liable for the wilful neglect because this provision is subject to contract between the partners.

In Cragg v Ford, (1842) 1 Y&C Ch. Cas. 280 case,  where a partner who was made in charge for winding up the business of the firm made some delay in disposing of some bales of cotton, ignoring the suggestion of a fellow partner. The prices of cotton fell considerably and loss was caused due to the delayed sale. It was held that the defendant was not liable for the loss as there was no wilful neglect on the part of the partner concerned because he was acting bona fide and did not anticipate the sudden fall in the prices.

Property of Firm and its Use:

Section14:

The Property of the Firm:

Subject to contract between the partners, the property of the firm includes all property and rights and interest in property originally brought into the stock of the firm, or acquired, by purchase or otherwise, by or for the firm for the purposes and in the course of the business of the firm, and includes also the goodwill of the business.

According to Section 14 of the Act, the property of the firm not only includes what is originally brought into the stock of the firm but also whatever is subsequently acquired, by purchase or otherwise. Partners may bring in immovable property also into the common stock and that becomes the property of the firm.

The ultimate test to determine the property of the firm is the real intention of the partners and the Court can take into consideration the following facts:

• The source of the purchase money.
• The reason due to which the property was purchased or acquired.
• The object for which the property was purchased or acquired.
• The mode in which the property was obtained.
• The use of the property.

In Shivraj fine Art Litho Works v Purushottam AIR 1993 Bom 30 case, the Court held that when a partner brings in his personal asset into partnership firm as his contribution to the capital, an asset which originally was subject to his entire ownership, becomes now subject to the rights of other partners in it. What was his exclusive right in the asset becomes reduced to the shared right in it with other partners of the firm.

In Forster v Halle 5 Ves 308 case, the Court held that if a partner purchases some property with partnership money in his own name, it is deemed to be the partnership property being held by the partner on behalf of the firm.

In re Adarji AIR 1929 Bom 67 case, the Court held that shares purchased by a partner with the firm’s money in a partner’s name, or insurance policies taken on the lives of the partners the premium for which is paid by the firm, are deemed to be the property of the firm.

In Mohan Lal Bahri v K.L. Bahri AIR 1998 All 247 case, the Court held that when the property was purchased by a partner with the funds of the firm and the property was required by the firm, it was held to be the property of the firm rather than that of partner purchasing it. In such a case it was immaterial that the partner purchasing the property had not obtained the consent of the other partners as required by the partnership deed. The fact that the property was not shown in the assessment register of the firm did not per se prove that it was not purchased for the interest and profit of the firm.

Property of the firm also includes goodwill. Goodwill is an advantage acquired in the course of business. It is acquired by a business beyond the mere value of the capital, stock, fund and property employed therein, in consequence of the general public patronage and encouragement which it receives from constant or habitual customers. It is an advantage which a business acquires by its reputation.

In Mehruy Belgum Vala v G. Bell & Co., AIR 1983 Mad. 351 case, the Court held that goodwill is composed of a variety of elements. It is a composite thing referable in part to its locality, in part to the way in which it is conducted and the personality of those who conduct it, and in part to the likelihood of competition, etc.

Section15:

Application of the Property of the Firm:

Subject to the contract between the partners, the property of the firm shall be held and used by the partners exclusively for the purposes of the business.

Unless the contrary intention appears, property and rights and interest in property acquired with money belonging to the firm are deemed to have been acquired for the firm.

According to Section 15 of the Act, the property of the firm is to be used by the partners exclusively for the purposes of the firm’s business rather than the private and personal use of a partner. Although every partner has an interest in the property but no one can deal with any specific item of property as his own.

In Addanki Narayanappa v Bhaskara Krishnappa, AIR 1966 SC 1300 case,  the Supreme Court explained the nature of the rights of the partners in the following words: ”… whatever may be the character of a property which is brought in by the partners when the partnership is formed or which may be acquired in the course of the business of the partnership, it becomes the property of the firm and what a partner is entitled to is his share of profits, if any, accruing to the partnership from the realisation of this property, and upon dissolution of the partnership to a share in the money representing the value of the property. No doubt, since a firm has no legal existence, the partnership property will vest in all the partners and in that sense every partner has an interest in the property of the partnership. During the subsistence of the partnership, however, no partner can deal with any portion of the property as his own. Nor can he assign his interest in a specific item of the partnership property to anyone. His right is to obtain such profits, if any, as fall to his share from time to time and upon the dissolution of the firm to a share in the assets of the firm which remain after satisfying the liabilities.”

Duty to Disclose Personal Profit:

Section16:

Personal Profits Earned by Partners:

Subject to the contract between the partners, –

(a) if a partner derives any profits 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.

The partnership business belongs to all the partners jointly. It is, therefore, expected of every partner that he will act to the greatest common advantage rather than acting for personal profit at the cost of other partners. He should also not engage in a competing business.

A partner is the agent of the firm for the purpose of the business of the firm. According to the rules of the law of agency (S. 215, Indian Contract Act), no agent can deal on his own account in the business of agency without the consent of the principal.

If an agent, without the consent of his principal, deals in the business of agency on his own account instead of on account of his principal, the principal is entitled to claim from the agent any benefit which may have resulted to him from the transaction.

S 16 (a) makes every partner accountable to the firm for any personal profit made by him:

• from any transaction of the firm,
• from the use of the property or business connection of the firm, or
• from the use of the firm name.

In Bentley v Craven, (1853) 18 Beav 75 case, where one of the partners in a firm of sugar refiners, who was considered an expert in the job, was entrusted with the duty of purchasing sugar for the firm for being refined. He himself was a whole-sale dealer in sugar. He supplied his own sugar, which he had purchased at a lower price, to the firm at the prevailing market rates and thereby made considerable profit. He did not let his co-partners know that he was selling his own sugar to the firm and thereby making profit out of this transaction of the firm. It was held that he was bound to account to the firm for the profit thus made by him.

In Gordon v Holland, 9 (1913) 108 L.T. Rep. 385 case, where a partner sold the land belonging to the firm to a bona fide purchaser and then repurchased that land himself, it was held that all the benefits made by this partner on re-purchase of the land had to be given to the firm.

Rights and Duties of Partners After a Change in the Firm:

Section17:

Rights and Duties of Partners After a Change in the Firm:

Subject to contract between the partners, –

(a) 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, and 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 undertakings.

This section contemplates three kinds of changes in a partnership firm:

• Change in the Constitution of the Firm: A change in the constitution of the firm occurs either when a new partner is admitted or a partner ceases to be a partner by retirement, expulsion, insolvency or death.
• Business Continued After the Expiry of the Term: Partners may have originally agreed to carry on the business only for a fixed term, e.g., they become partners for a term of 5 years. It is possible that in spite of the completion of the term of 5 years, partners do not close down the business, but continue to run the same.
• Carrying Out Additional Undertakings: A firm may have been constituted to carry out one or more adventures or undertakings but subsequently the partners may decide to carry out some more adventures or undertakings.

In spite of these changes, the mutual rights and duties of the partners continue to be the same as they were existing earlier. This rule is, however, subject to contract, between the partners. The partners may, by a contract vary their rights and duties when one or the other of the changes stated above take place.

Right to Stop Admission of a New Partner:

Section31:

Introduction of a Partner:

(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 80, 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.

Under Section 31(1) of the Act, every partner has the right to prevent the introduction of a new partner in the firm without the consent of all the existing partners.

Right to Retire:

Section32:

(1) A partner may retire –

Retirement of a Partner:

(a) with the consent of all the otter 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.

According to Section 32(1) of the Act, every partner has the right to retire with the consent of all the other partners and in the case of a partnership being at will by giving notice to that effect to all the other partners.

Right Not to be Expelled:

Section33:

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 or powers conferred by contract between the partners.

According to Section 33 of the Act, every partner has the right to continue in the partnership. He cannot be expelled from the firm by any majority of the partners unless conferred by the partnership agreement and exercised in good faith and for the benefit of the firm.

Right of the Outgoing Partner to Carry on a Competing Business:

Section36:

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

According to Section 36(1) of the Act, an outgoing partner may carry on a business competing with that of the firm and he may advertise such business, but without using the firm name and without representing himself as a as carrying on the business of the firm or soliciting the customers to dealing with the him before he ceased to be a partner.

Right of an Outgoing Partner in Share of Subsequent Profits:

Section37:

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 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

According to Section 37 of the Act, where any partner has died or ceased to be a partner and the surviving or continuing partners carry on the business of the firm with the property of the film without any final settlement of accounts as between them and the outgoing partner or his estate the outgoing partner or his estate has at his or his representative’s option, the right to such share of the profit made since he ceased to be a partner as may be attributable to the used of his share of the property of the firm or to interest 6% per annum on the amount of his share in the property of the firm.

Right to Dissolve the Firm:

Section40:

Dissolution by Agreement:

A firm may be dissolved with the consent of all the partners or in accordance with a contract between the partners.

According to Section 40, a partner has the right to dissolve the partnership with the consent of all the partners. But where the partnership is at will, the firm may be dissolved by any partner giving notice in writing to all other partners of his intention to dissolve the firm.