18. Partner 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.

Section-18 lays down that a partner is the agent of the firm for the purpose of the business of the firm.

A Partner Principal as well as an Agent.- This is one of the most important tests of partnership as agency is the essence of the relationship of partnership. Therefore, a partner is both a principal and an agent. While the relation between partners interse is that of principals, they are agents of the firm and of one another in relation to third parties for the purposes of the business of the firm. Thus, each partner is regarded as an agent of the other partners, and as such, a partner, acting in the course of the business of the firm, can bind his co-partners. But, in order to bind his co-partners, it is necessary for the partner acting on behalf of the firm to contract in the firms name or in any other manner expressing or implying an intention to bind his co-partners. A partner contracting in his own name incurs only a personal liability, and not the collective liability of the firm. The mere fact that money borrowed by a partner in his own name on security belonging to him personally has been used for the purpose of the firm with the knowledge of partners, does not render them liable.

19. Implied authority of partner as agent of the firm:
(1) Subject to the provisions of section 22, the act of 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 contrary, 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 immoveable property on behalf of the firm,
(g) transfer immoveable property belonging to the firm, or
(h) enter into partnership on behalf of the firm.

S.19, which is one of the most important sections of the Act, lays down that subject to the provisions of section-22 (which deals with the mode of doing an act to bind the firm) 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 is called his "implied authority".

This implied authority of a partner is often referred to as his ordinary or his apparent or ostensible authority. Lindley (the learned English author on partnership) prefers the term implied authority and the same has been accepted by the Indian Act also.

In Bank of Australia V Breillet (1847) 6 MPC 193, the Privy Council adopted a passage from story on Agency, in which the general powers of partners as Agents of the firm have been well summed up in the following words.

"Every partner is, in contemplation of law, the general and accredited agent of the partnership, or as it is sometimes expressed, each partner is praepositus negotils societatis, and may consequently bind all the other partners by his acts, in all matter which are within the scope and object of the partnership.

Hence, if the partnership be of a general commercial nature-he may buy goods on account of the partnership, he may borrow money, contract debts and pay debts on account of the partnership, he may draw, make, sign, indorse, accept transfer, negotiate and procure to be discounted, promissory notes, bills of exchange, cheques and other negotiable paper, in the name and on account of the partnership."

In order to bind the firm an act of a partner done within the scope of his implied authority, there conditions must exist-

1. The act must be done in the conduct of the business of the kind carried on by the firm.
2. The act must be done in the way which is usual in such business.
3. Finally, the act must be done in the firm name or in any other manner expressing or implying an intention to bind the firm.

The question whether a given act can or cannot be said to be done in carrying on a business in the way in which it is usually carried on must evidently be determined (a) by the nature of the business, and (b) by the practice of persons engaged in it. Evidence on both of these points is necessarily admissible. (Lindley on partnership).

Thus, it may be usual for a partner of a banker's firm to draw or accept a bill of Exchange on behalf of the firm. However, it would not be usual for a partner in a solicitor's firm to do so.

Examples of Implied authority of a partner.-
1. A partner can buy on the credit of the firm any goods of a kind used in its business.

2. Similarly, a partner may hire on the credit of the firm, any goods of a kind used in its business.

Case.- A partner of firm, whose business it was to trap wild elephants, hired an elephant to be used for trapping wild elephants, and one of the terms of hire was that the hirer should pay Rs. 5,000/- if the elephant died during the period of hire. It was held that other partners also were bound by this term. (Mathura Nath V Sreejukta Bageshwari - 1927 4 Cal. L.J.362).

3. A partner may engage servants or agents, and he may also discharge such persons, although he can not discharge them against the will of his co-partners.

4. A Partner can institute and defend suits in the name of the firm. It has been held in England that a partner, who attends to the affairs of the firm has an implied authority to employ a solicitor to defend a suit filed against the firm.

Problem.- A and B carry on business in partnership as bankers. A sum of money is received by A on behalf the firm. B does not know of the receipt. A appropriate the money to his own use. The partnership is liable to make good the money. This is an act done by a partner in the usual course of business. Therefore the firm is liable.

It must be clearly observed that the implied authority does not come into existence unless the act is done in the usual way, and in the conduct of business of the kind carried on by the firm. Thus while a partner in a mercantile firm has an implied authority to draw, accept, & endorse bill of exchange on behalf of the firm, a partner in a firm of a solicitors has no such implied authority for it is not part of the ordinary business of a solicitor to draw, accept or endorse bills of exchange. (Karishanji V Abdul, (1941) 43 Bom. L.R. 888).

A, a partner in a trading firm consisting of A, B, and C deposits title deeds of firm's property by way of security with a bank without B's and C's authority. The question as whether the firm is liable to the bank.- A partner in a trading firm has an implied authority to borrow money on the credit of the firm. A partner having power to borrow on the credit of the firm, may give a valid, equitable security, by deposit or otherwise over any estate of the partnership. Therefore the firm, is liable to the bank.

In March 1988 A and B entered in to a partnership for carrying on business of buying and selling copper. On 23rd May 1988 A borrowed Rs 6,000/- from C on a promissory note passed by him in the name of the firm. The partnership business came to an end on 31st May 1988. In October 1988. C sued A and B on the promissory note. B contended that the loan was not utilised by the firm. Is B liable? Answer- As a partner of a trading firm has an implied authority to borrow, B is bound by the promissory note of A. B is therefor, liable.

FRAUDULENT ACT OF A PARTNER.- An interesting question that arises in this connections whether a firm would be liable for the act of its partner, which though within his authority, has in fact been done in fraud upon his other partners. Now, it is a well established rule of law that a principal is answerable for the acts of his agent, including the agent's fraudulent acts, provided that they fall within the scope of his authority. The same principle approves to partners, and for the same reason, a firm can not escape liability sharing that a partners act (which falls within the scope of his authority) was actually a fraud on the firm. However, this rule does not apply to a case where there is collusion between such a partner and the third party. The rule presumes that the third party is acting bona fide, and has no knowledge of the fraud.

19(2) Acts which fall outside the implied authority of a partner.- Sub-section 19(2) enumerates eight acts of a partner which will not bind the firm. These are acts which do not fall within his authority.

Thus, in the absence of any usage or custom of trade to the contrary, the implied authority of a partner does not empower him to:-

1. submit a dispute relating to the business of the firm to arbitrations.
2. open a banking account on behalf of the firm in his name.
3. compromise or relinquish any claim or portion of a claim by the firm.
4. withdraw a suit or proceeding filed on behalf of the firm.
5. admit any liability in a suit or proceeding against the firm.
6. acquire immovable property on behalf of the firm.
7. transfer immovable property belonging to the firm.
8. enter into partnership on behalf of the firm.

It has been held that though in the absence of a specific agreement, usage or custom, a partner has no authority to refer a dispute to arbitration, nevertheless an award in such an arbitration will be binding on such partner though it may not bind the other partner of the firm.

It may also be noted that the above enumeration of acts which falls outside the scope of a partners implied authority is not exhaustive but merely exclusive. To these may be added the following four to be found in the case law on this point.

(a) A partner has no implied authority to bind the firm by giving a guarantee in respect of debts of third parties.
(b) A partner has no Implied authority to set off his own personal debts against debts due to the firm.
(c) A partner has no implied authority to set off a decree obtained by the firm for less than the decretal amount.
(d) A partner has no implied authority to accept fully paid up shares in a company in satisfaction of a debts due to the firm.

S. 19(2)- Authority of partner to make reference to arbitration can be challenged only by other partners and not by strangers. (Premier Insurance Co. (Pak) Ltd. V Ejaz Ahmed Khawaja 1981 CLC 311).

S.19(2)- Implied authority of partner:-Authority of one of partners to make a reference to arbitration on behalf of other partners, held need not be in writing or in express terms, such authority may be implied and can be inferred by conduct of other partners before and after making such reference. (1981 CLC 311).

20. Extension and restriction of partner's implied authority:
The 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.

Restriction of authority.- A third party is not affected by a secret limitation of a partner's implied authority, unless he has actual notice of it. The reason for this rule is that a third party is entitled to assume that all the partners have full implied authority.

Thus, A and B are partners in a grocery business. The partnership deed provides that A shall not buy any thing on behalf of the firm. But A nevertheless enters into contracts to buy groceries. What is the liability of B? Following the provisions of S.20, it will be seen that B will be liable only if the person or persons with whom A had entered into such contracts had no notice of the articles of partnership which provides that A shall not buy any thing on behalf of the firm, or if the third party did not know or believe A to be B's 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.

Under s.21 a partner has authority in an emergency, to do all such acts for purpose of protecting the firm from loss. A similar authority to act in an emergency is given to an agent by S.189 of the contract Act. It is submitted that even in the absence of S.21 a partner would be able to claim protection of said S. 189, in view of the fact that the Act expressly declares a partner to be agent of 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.

Act binding firm.- A firm can only be bound by what is done on behalf of the firm, even if the firm has the use of money borrowed by a partner in his own name, this is at most an evidence, but not conclusive, to show that the borrowing was in fact on account of the firm. Where a partner took some premises on lease in his own name, it was held that he did not intend to act on behalf of the firm nor to act as its benamider nor did he intend to bind the firm.

A, one of the two partners in the Punjab Alliance Auction rooms, executed a promote in favour of the Plaintiff. The note was Signed by A describing himself as proprietor, Punjab Alliance Auction Rooms. It was held That A's description as a proprietor of the firm was not sufficient to justify the finn being held liable on the note - (Punjab Bank V Muhammad, m 15 Lah 625)

23. Effect of admissions by a partner:
An admission or 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.

The rule contained in s. 23 is based on the corresponding provision of S.15 of the English Partnership Act.

If a partner makes an admission regarding the partnership affairs, and such admission is made in the ordinary course of business, it will be evidence against the firm. But the rule will not apply where such representation refers to The extent of the partner's authority to bind The firm. (Ex parte Agace, 1792, 30 E.R. 145).

It may also be noted that such an admission, though relevant is not conclusive against the firm, unless it operates by way of an estoppel. (In Re Coasters Ltd. 1911 1 ch. 86).

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.

This rule is based on the principle of agency, that notice to an agent is equivalent to a notice to the principal. Since partnership is form of agency, this rule applies to a partnership firm also.

A question arose in a English case as to whether notice acquired by a partner before he became a partner would operate as a notice to the firm. The Court held that such knowledge of a partner would not operate as notice to the firm. (Williamson V Barbour 1877 9ch. 535).

An exception is made by S.24 in cases of fraud. This is based on common sense, and when a partner is committing a fraud on his other partners, notice to him will not be notice to the firm. In Biguold v Waterhouse (1813 105 E.R.; 95), a partner of a firm of a carrier, acting in fraud of his co-partners, agreed to transport valuable parcels free of charge. The other partners were held not liable for the loss of the parcels. The fact that some clerks in the firm were aware of the fraud was not to affect the innocent partners.

Likewise, if a partner who is also a trustee of a trust, employs trust funds in the partnership business his guilty knowledge can not be imputed to the firm. (Mare V Browne 1896 1ch. 199)

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.

Sec. 25 of the Act lays down that all the partners of a firm, jointly and severally, share liabilities of the firm therefore, even where a partner has signed in his own name a promissory note for the benefit of the firm, all partners are liable on it as members of the partnership. (AIR-1930 Mad 168 (BE).

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.

Torts of Partner. The word injury in Sec. 26 implies a Tort The liability of a firm for the torts of a partner rests on precisely the, same principles as the liability of a master for the tort of his servant, in as much as both are merely branches of the law of principal and agent.

Both under English and Indian law of Courts, partners are liable jointly and severally for wrongful act committed by a partner acting in the ordinary course of the partnership business. The principle underlying this is that the other members hold him out to the world as a person for whom they are responsible.

Thus in Hamlyn V Houston & Co., (1903) I K B. 81) one of two partners without the knowledge of his co-partner, bribed a clerk of the plaintiff, a competitor in trade, and induced him, in broach of his duly to his employer, to divulge confidential information in regard to the plaintiff's business. It was in the ordinary course of business of the firm to obtain such information by legitimate methods, and the partner acted in the interest of the firm. Both partners, were, held liable to the plaintiff.

But a wrongful act or default of a partner when not acting in the ordinary course of business of the firm, does not render the other partners responsible for the same.

Venkat v Nafesa (1939) 1. M.L.J. 905,. In This case, N and K entered into a partnership to supply goods to jails. K provided finance for the partnership business and N did the work. K. paid bribes to officials and entered the amounts in the account books of the partnership as items of expenditure. N. in his turn also spent partnership funds in paying bribes. In a suit filed by N against K for the dissolution of partnership and taking of account objected to the amounts spent in bribery by K. The Court held that neither N nor K was entitled to debit the partnership with moneys spent for an illegal purpose.

Problem.- A customer of a banking firm deposits with the firm a box containing securities. He afterwards authorises one of the partners to take out some of these and replace them by certain others. The partner not only makes the changes he is authorised to make in the contents of the box, but makes other changes without authority, and converts the customer's securities to his own use. Discuss the liability of the firm for the loss.

Ans.- Here it is evident; that the firm is not liable to make good the loss, as the separate authority given to one partner by the customer shows that he elected to deal with that partner personally, and not as agent of the firm. (Exparte Eyre, (1842) 1 ph 227.).

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 third party, and the money or properly 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.

Problems.- (1) X, Y and Z were partners in a firm of Bankers, of whom Z was not an active Partner. C, a customer of the firm deposited his ornaments with the Bank for safe custody, X and y sold the ornaments without authority from C what are the rights of C against the Bank? What is the liability of Z.?

Ans.- In this case, it will be seen that the ornaments of C were received by the firm of Bankers in there Course of business for safe custody. X and Y active partners of the firm, had sold ornaments without any authority form C, the owner. Hence the firm is liable to make good the loss, C can recover the amount from the firm (S.27). Though Z is a dormant partner, he is also liable along with X and Y to make good the loss (S25). But Z is entitled to be indemnified by X and Y under Sec. 10 of the Act. (Deraynes V Noble (1816) 1 Mer 572).

(2) X end Y, solicitors, carry on their business in partnership. Z. a client of the arm, hands over some of money to X to be invested in a specific security. X does not Invest this money, but applies it to his own use. Y does not receive any part of the money, and does not even know of this transaction can Y be made liable to make good this loss? would it make any difference if Z had given the money to X with general directions to invest the same?

Ans.- In the former case, Y would be liable to make good the loss because it is part of the ordinary course of business of solicitors (in England) to receive money from clients for investing the same in specific securities (Blair V Bromley, 1837 2 P2. 534).

If, however, Z had given the money to X with general instructions to invest the same. Y would not be liable, as it is no part of the ordinary business of solicitors to receive money to be invested at their discretion. (Harman V Johnson, 1853 Z E & B.61).

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 that 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 is 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.

Liability by Holding out. S.28 of the Act deals with what is known as liability by "holding out". Where a person represents himself or knowingly permits himself to be represented as a partner in a firm, he will be liable as a partner in that firm, to any one who, on the faith of any such representation, has given credit to the firm. The person so representing himself, or permitting himself to be so re-presented is known as a partner by holding out or a partner by estoppel. Even want of knowledge on his part of the effects of his acts and conduct would not absolve him from liability.

In otherwords where a man holds himself out as a partner, or a allows others to do it, he is then estopped from denying the character he has assumed upon the faith of which creditors may be presumed to have acted. A man so acting may be rightly held liable as a partner by estoppel. In other words, the doctrine of "holding out" is a part of the principle of estoppel, which lays down that where one person, by words or conduct induces another to believe him and act upon the existence of a particular state or facts, he can not afterwards, as regards that person, deny the existence of such facts.

Thus A is in the habit of representing himself to be a partner of a particular firm. B on the strength of such representation, and without giving any notice to A supplies goods on credit to the firm. A would be liable as a partner to B for the price of the goods.

It will thus be seen that liability by holding out is merely a special application of the principle of estoppel enunciated by S-154 of the Indian Evidence Act, 1872.

ESSENTIALS OF S. 28.- In order to estop a person from denying that he is a partner on the doctrine of "Holding out", the following two important elements must co-exist.

1. A person must represent himself to be a partner in a firm, or knowingly permit himself to be represented and

2. Another person must have given credit to the firm on the faith of such representation.

The following seven additional points may also be noted in connection with the doctrine of holding outs.

(i) The representation may be express or implied it need not necessarily be by words spoken or written, it need not be made by the person himself, but may be made by others.
(ii) There will be no representation by conduct if the acts relied upon are ambiguous.
(iii) A general representation to the, world at large is not sufficient, unless the person who gives credit can satisfy the court that he was aware of, and acted upon it to his prejudice.
(iv) To establish liability, it is not essential to show that the party making the representation (or permitting it to be made) has acted fraudulently or negligently. Even want of knowledge on his part, of the effects of his acts and conduct, would not absolve him from liability, if his acts and conduct were such as would induce a reasonable man to believe that he was a partner, and to act upon such belief. The main thing is whether the representation has caused the person to whom it was made to act on the faith of it so as to alter his position.
(v) A former owner does not become a partner by estoppel merely because the firm has continued to use its old name of which his own name forms a component part. The rule of estoppel is binding on a former partner who has retired without giving proper notice of his retirement.
(vi) There is no liability in tort on the ground of holding out, because the injured person can not claim that he was led to suffer the injury by his belief in any representation. Thus, B allowed his name to appear on a traction engine. A hired the engine, and through his negligence, injured C C sued B on the ground of "holding out". It was hold that B was not liable.
(vii) There can be no holding out to a person who is aware of the actual facts e.g. a person who has Inspected the register of a firm which has been registered under the Act.

EFFECTS OF HOLDING OUT.- If a person holds himself out to be a partner of a firm, he becomes personally liable, he does not thereby become a partner in the firm and he is also not entitled to any rights as against those who are in fact partners in the firm. By holding out to be a partner, he does not become an agent of the firm. He merely makes himself personally liable for the credit given to the firm on the faith of his representation.

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 n 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.

Can a partner transfer his interest in the firm?- The wording of S. 29 clearly suggests that he can. A transfer by a partner of his interest in the firm may be either absolute, or by mortgage, or by creation by him of a change on such interest. However the fundamental principle underlying the law of partnership is that a stranger can not be foisted upon the remaining partners against their will. Consequently, even when a partner transfers his interest in firm, the transferor does not cease to be a partner; nor does the transferee become one S. 29 of the act deals with such transferee's rights, both during continuance of partnership, and after its dissolution.

S29 (1) can be analysed Thus-

During the continuance of the partnership, the transferee of a partner's interest is not entitled to.

(1) interfere in the conduct; or
(2) inspect accounts; or
(3) inspect the books of the firm.

Rights of a transferee of partner's Interest.- S.29(2) lays down that if the firm is dissolved or if the transferring partner ceases to be a partner, the transferee is entitled to receive the transferring partner's share of the assets of the firm, and for this purpose, is also entitled to an account as from the date of dissolution.- (1980 CLC 1283 = LLJ 1980 Lah 603).

30. Minors admitted to the benefits of partnership:
(1) A person who is 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 minor's 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 section 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 months.

(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 up to 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-section (7) and (8) shall affect the provisions of section 28.

S.30 of the Act deals with the right liabilities and disabilities of a minor in a partnership.

At the very outset S.30 lays down that a minor can not be a partner in a firm but, with the consent of all the partners, he may be admitted to the benefits of partnership.

Minor Cannot be a partner. A minor is not a partner but is only entitled to the benefits of partnership therefore the respondents who are shown as minors in the plaint are not entitled to declaration that they are partners but only to a declaration that they are entitled to the benefits of partnership under S.30 of the Partnership Act - (Muhammad Ishaque V Erose Theatre-PLD-1973 kar. 522)

A minor not Competent to Contract. Since a minor is not competent to contract (S. 11 of contract Act), and, therefore cannot be a partner of a firm. (Sanyasi Charan Mandal V Krishnadhan Banerji, 1922 LR.49) Needless to say, there cannot be a partnership wholly of minors (Shivaram V Gaurishankar NR 1961 Bom 136). The Punjab High Court has laid down that if a minor is made full fledged partner, the entire partnership deed is invalid not only Vis-a-Vis the minor, but also with respect to the other partners who are not minors.

The Act does not lay down as to which are the acts which would amount to admitting a minor to the benefits of a partnership No doubt there must be some definite act on the part of the partners, such as the allotment of a sham or a distribution of a part of the profits, or any other similar act.

Such a minor has a right to a share of the property and 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.

Rights of a minor. The following seven fights of a minor are to be deduced from S.30 viz.

1. He may be admitted to the benefit of a partnership.
2. He may have access and inspect and copy of the accounts of the firm.
3. He has right to share the property and profits of the firm.
4. He may sue for accounts on severing the connection with the firm.
5. On attaining majority, he has the option of becoming a partner in the firm in which case he will be entitled to the share to which he was entitled as a minor.
6. On attaining majority, he also has the option of severing his connection with the firm, in which case his share is not liable for any act of the firm done after the date of public notice that he has elected not to become a partner. He is also entitled to sue the partners for his share of the property and profits.
7. Lastly, he is not personally liable for any acts of the firm during his minority, he cannot be adjudged insolvent if the debts of the firm cannot be satisfied out of the property of the firm.

S.30(3) Liabilities of a Minor. The following are three liabilities of a minor admitted to benefits of a partnership-

1. His share is liable for the acts of the firm, but he has an option of severing his connection with the firm within six months of his attaining majority or of his obtaining knowledge that he had been admitted to the benefit of partnership, whichever date is later.
2. If, on attaining majority, he elects to become a partner, he becomes personally liable to third parties for all acts of the firm done since he was admitted to the benefits of the partnership.
3. After attaining majority and before giving public notice, he may be liable for holding himself out as a partner.

S.30(5)- In view of sub-section (5) of S.30 of the Act a minor can not become a partner of a firm automatically on attaining majority, he can become a partner only by electing to join the firm with manner prescribed in the sub-section. (PLD-1973 Kar 522).

In case such person, on attaining majority, fails to give public notice within six months of majority, that he has elected to become or that he has elected not to become a partner in the firm, than he becomes a partner in the firm on the expiry of the period of six months.

Where such person elects not to become a partner.

(a) his rights and liabilities continue to be those of minor under this section upto the date on which he gives public notice.
(b) his share is not liable for any acts of the firm done after the date of the notice, and
(c) he is entitled to sue the partners for his share of the property and profits.

31. 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 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.

S.31 provides that no person can be introduced as a partner into a firm without the consent of
all the existing partners. Where one of the partners of a firm transfers his share in the firm without the consent of the other partners the transferee does not get the status of a partner in view of S. 31, Partnership Act. He has only limited rights and can claim only a share of the profits to which the transferor partner was entitled. (AIR-1963 Pat. 149 (DB).

It may be noted that there is nothing to prevent an incoming partner agreeing with his co-partners to make himself liable for the debts incurred by the firm prior to his admission therein. But, even where he has so agreed the agreement does not confer any right on creditors of the old firm to impose the old debts on the new partner. They can acquire such a right only by entering into an agreement between themselves and the new partner, either expressly or by implication.

The only way in which a new partner can be made liable to the creditors of the firm in respect; of past debts is by proving:-

(1) That the re-constituted firm has assumed the liability to pay the debt, and
(2) That the creditor concerned has agreed to accept the re-constituted firm as his debtors, and discharge the old firm from its liability.

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.

(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.

S.32(1)- Lays down three rules as to how a partner can retire. It says that a partner may retire-
(1) with the consent of all the other partners, or
(2) in accordance with an express agreement by the partners, or
(3) where the partnership at will, by giving notice in writing to all the other partners of his intention to retire.

S.32(2)- Thus A, B and C are partners. A retires, and a new partner X is introduced into the firm. X agrees to take over the liability of A. D, the creditor agrees with A and the reconstituted firm of B, C and X that he will look only to the new firm for the payment of debt A, the retiring partner, is discharged from liability to D.

Problem- A, B and C are partners in a firm X & Co., C retires from the partnership, and all the assets and liabilities are taken over by the two partners, A & B who carry on the firm after the retirement of C. A creditor of the firm before the retirement of C files a suit against A, B and C for the recovery of his debt after the retirement of C. Is C liable?

Ans- Yes he is liable u/s 32(2).

Moreover, notwithstanding the retirement of a partner from a firm, such a person and the remaining 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.

However, a retired partner is not liable to any third party who deals with the firm without knowing that he was a partner. S.32(3). The notice may be given by the retired partner or by any partner of the reconstituted firm S.32(4).

Thus A, B and C are partners, C, who is an active partner retires without giving public notice of retirement. A and B in carrying on the old business incur a liability towards X. C is also liable to X.

Liability of partners to third parties. Public notice of dissolution of firm not given. Actual and individual notice given by a partner to parties concerned held, on a better footing and affords higher protection to such partner. (Tariq Mohsin Siddiqui V Province of Sind: PLD 1976 Kar 728).

Mode of Public Notice- S.72 of the Act lays down the rules relating to giving of public notice.

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-sections (2), (3) and (4) of section 32 shall apply to an expelled partner as if he were a retired partner.

S.33 deals with expulsion of a partner. It lays down that a partner cannot be expelled from a firm by any majority of the partners, save in the exercise, in good faith of partners conferred by contract between the parties.

All the provisions which apply to a retired partner also apply to an expelled partner.

Power of Expulsion how exercised. A power to expell a partner can only be conferred by an express agreement between the partners. Even where such a power is conferred by the terms of the partnership agreement, it can only be exercised by a majority of the partners and it must be exercised in utmost good faith. Reasonable warning and opportunity of explanation must be given. An irregular expulsion, being wholly in-operative, the parson against whom it is directed does not cease to be a partner, he may claim reinstatement in his rights as a partner, but he cannot recover damages for wrongful expulsion. (It is indeed difficult to understand as to why a partner who has been infact wrongfully expelled and demnified should not have the right of action of damages).

Short note on Expulsion of a partner. As stated above, S.33 provides that all the rules which govern the liability of a retired partner to third parties will apply in the case of an expelled partner. It places an expelled partner on precisely the same footing as a retired partner, as regards his liabilities for existing and future debts of the firm. S.33 regard expulsion in the same way as sec-32 regards retirement, that is, it makes the assumption that the firm continues after expulsion without a dissolution of partnership as between the remaining partners.

34. Insolvency of 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 alter the date on which the order of adjudication is made.

Effects of Insolvency of a Partner- The insolvency of a partner does not invariably result in dissolution of the firm, for it is open to the partners to agree that the adjudication of a partner as an insolvent will not dissolve the firm as regards the continuing partners. Sec.34, 41 (a), 42 (d) and 47 may conveniently be read together when dealing with the effect of insolvency of one or more partners in a firm.

The effects of the insolvency may be summed up as follows:

(i) The partner adjudicated an insolvent ceases to be a partner on the date on which the order of adjudication is made.
(ii) The firm is dissolved on the date of the order of adjudication, unless there is a contract to the contrary. (S.42).
(iii) If all the partners, or all the partners but one are adjudicated insolvent, the firm is automatically dissolved. S.41(a).
(iv) The estate of the insolvent is not liable for any act of the firm after the date of the order of adjudication. Adjudication as an insolvent is a notorious event, and no further notice thereof is required to old or new customers of the firm. S.34.

(v) After the dissolution of the firm, the firm is not bound by the acts of a partner who has been adjudicated insolvent. However, this would not affect the liability of any person who has, after such adjudication, represented himself or knowingly permitted himself to be represented, as a partner of the insolvent. (S.47)

35. Liability of estate of deceased partner:
Where under a contract between the partners the farm 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.

Death of a partner. S.35 deals with the liability of the estate of a deceased partner. It provides that where by virtue of contract, a farm is not dissolved on the death of a partner, the estate of the deceased partner is not liable for any act of a firm 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, or
(c) solicit the custom of persons who were dealing with the firm before he ceased to be a partner.

(2) Agreements 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 o that of the firm within a specified period or within specified local limits; and, notwithstanding anything contained in section 27 of the Contract Act, 1872, IX of 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 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.

The provisions of S.37 comes into play only in the absence of a contract to the contrary. Where the agreement of partnership leads to the conclusion that the heirs and legal representatives of a deceased partner were to become partners of the firm, and the accounts of the deceased partner shall be made up only if those heirs were not willing to continue as partners, this section does not apply (PLJ-1977 SC 104 = PLD-1977 SC 109).

"Contract to the Contrary"- Words "contract to the contrary" as they occur in this section relate only to the option of the alternatives prescribed in the section and not to the entitlement of outgoing partner to the profits. Statutory right created by provisions of this section can be waived by agreement between parties. (Shamshuddin v Inamuddin, PLD-1982 KAR 327).

Right of outgoing partner.- A and B are partners. The partnership is dissolved by consent, and it is agreed that the assets and business of the firm would be sold in auction. A, nevertheless, continues to carry on the business on the partnership premises, and with partnership property and capital, and on his own account. What are B's rights? A must account to B for the profits thus made, alternately, B may claim 6% interest on his share.

Rights of minor heir and purchaser of interest of outgoing partner- A firm consisted of four partners A, B, C and D. A died leaving a minor son X. B sold his interest in the firm to Y. The remaining partners thereupon continued the firm as they were entitled to do. What are the rights of X and Y? Can they insist on being admitted as partners? X and Y cannot insist on being admitted as partners, for a partnership can only arise as a result of a voluntary agreement, express or implied between two or more persons. But each of them can claim a share in subsequent profits under S.37.

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 constitution of the firm.

Thus A becomes a surely to the firm of "N.C Mookerji" for B's conduct as cashier to the firm. The constitution of the firm is subsequently changed and its name is altered to "N Mookerji & Sons". A is not liable for B's defalcation subsequent to the change. (Neel Comul Mookerjee V Bipro Das Mookerjee- 1901 28 Cal. 597).