FACULTY OF SCHOOL OF LAW

AURO UNIVERSITY, SURAT

GUJARAT

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Topic Name:
Mutual Rights and Duties of partners
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NAME: Esrar Shaikh

COURSE: BBA-LLB (SEMESTER-3)

BATCH: 2018 - 23

SUBJECT: CONTRACT- II

FACULTY: MS. NANDA PARDHEY

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 INDEX

1. Abbreviations……………………………………………………………………….……3
2. Table of Cases…………………………………………………………………………….4
3. Research Methodology…………………………………………………………...……….5
4. Evolution and development…………………………………………………………..........6
5. Analysis in Jurisprudential Context with applicable theories……………………..………7
6. Analysis of Indian legal provision with judicial…………………………………………..12
7. Comparison of Indian Partnership act with other countries……………………….....……13
8. Conclusion……………………..……………………………………………..…..…..........14
9. Suggestions …………………..………………………………………………..…...………15
10.Bibliography………………………………………………………………..………………16

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 ABBREVIATION

V./ Vs Versus

Art. Article

Sec. Section

& And

Ors. Others

AIR All India Report

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 Tables Of Cases
1. Sharad Vasant Kotak & Ors vs Ramniklal Mohanlal Chawda & Anr on 17 December,
1997.

STATUTES
 Indian Partnership Act 1932
 Bangladesh partnership act
 US partnership act

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CHAPTER: 1

RESEARCH METHODOLOGY
“For this project titled, “Rights and duties of Indian partnership act 1932”the doctrinal method
was judged to be most appropriate. Primary resources referred to in the course of research
include books, journals, law reports and cases, most of them accessed from the AURO law
library.”

AIM AND OBJECTIVE

“A partnership deed, or partnership agreement, is a legal document that lays out the terms and
arrangements of a particular business partnership. Its objective is to explicitly state the
understandings and agreements that form the basis of your partnership so you can refer back to
them as needed. Partnership deeds protect the parties they cover in case of discord. They also
offer opportunities to envision potential difficulties and proactively present solutions. A
partnership deed should cover the division of work between partners, as well as how profits will
be shared. It should also provide an exit strategy, laying out a plan for proceeding if the
collaboration turns out to not be mutually advantageous.”1

SCOPE AND LIMITATION

“The scope of a partnership is primarily a matter of partners’ intentions. The application of the
powers it chooses to exercise at any time is not restricted except prohibition on illegal, immoral
or fraudulent behavior that applies equally to individuals.2

1. If consent is given by the constituent company’s partners, a partner may itself be a member
of another company.
2. If the contract appears to be authorized or ratified by all partners, there usually is no further
question as to its validity.”

1
https://bizfluent.com/info-8109706-aims-objectives-partnership.html
2
https://blog.ipleaders.in/scope-and-nature-the-indian-partnership-act-1932/

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CHAPTER: 2

EVOLUTION AND DEVELOPMENT

3
“At its most basic level a partnership requires no formalities or registration and is the simplest
manner in which to carry on a business. Partnerships have been used for many centuries and
were initially governed by common law rules that evolved to regulate both the dealings of the
partnership with third parties, and the dealings of the partners with one another. These rules were
largely codified in England by the Partnership Act 1890 (the "1890 Act").

“In addition to simple partnerships ("General Partnerships") other forms of partnership have
evolved; the limited partnership was established in England by the Limited Partnership Act 1907
(the "1907 Act") and more recently the limited liability partnership has become common in
various jurisdictions including the UK. Although the names are confusingly similar, the limited
partnership ("Limited Partnership") and limited liability partnership ("LLP") are very different
vehicles, as explained in more detail below. The 1890 Act is still in force in England and Wales
in relation to General Partnerships and, where not specifically amended by the 1907 Act, in
relation to limited partnerships.”

Problems may arise if the goods exchanged are later found to be defective, but these problems
will be handled through property law—with its penalties for taking or spoiling the property of
another—rather than through contract law.4

By the middle of the ninetheenth century, partnership were used for all types of business
enterprises in Ireland, ranging from the building of railway lines from Enfield to Edenderry to
the Beamish and Crawford brewing partnership in Cork Indeed until the Advent of the joint
stock company, with the passing of the joint Stock companies with the passing of the joint stock
companies Acts of 1844 and 1856 partnership were for all intents and purposes the only vehicle
in which two or more persons could pool their expertise and finances to pursue a common
business .”

3
http://www.mondaq.com/caymanislands/x/43990/Operational+Performance+Management/The+Evolution+Of+The
+Partnership+As+A+Business+Vehicle
4
https://www.britannica.com/topic/contract-law,10:59 12-09-2019

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CHAPTER: 3

Analysis in Jurisprudential Context with applicable theories

Rights And Duties Of Partners

Meaning of partnership – “Partnership is an association of persons with the object of jointly

doing something to make a profit. In other words, when two or more persons, with the object of
making a profit, agree to do business jointly it is deemed that a partnership has come into
existence.”

Definitions of Partnership

 “Partnership is an agreement between persons having contractual capacity to carry on a

business in common with a view to private gain.” – L.H. Haney
 According to John A. Shubin, “Two or more individuals may form a partnership by making
a written or oral agreement that they will jointly assume full responsibility for the conduct of
a business.”
 The US Partnership Act defines partnership as “an association of two or more persons to
carry on, as co-owners, a business for profit.”
 According to Section 4 of the Indian Partnership Act, “Partnership is a relation between
persons who have agreed to share the profits of a business carried on by all, or any of them
acting for all.”

5
On the basis of the above definitions, it can said that a partnership is a group of two or more
person who make a contract among themselves to do some activity, invest money and provide
personal services and share the profit or loss resulting from such activity.

5
https://www.pdffiles.in/rights-and-duties-of-partners/

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Rights of Partners

(1) Right to take part in the conduct of business: “Each partner has the right to participate in
the conduct of the business of partnership. It is also possible that a partner might only invest
money in the business and give the right to conduct the business to other partners. It does not, in
this case, imply that, once the partner gives the right to conduct the business to other partners, he
cannot later take part in the conduct of business himself. It is essential that a partner has the right
to participate in the conduct of his business, whether or not he exercise such right.” -Section
12(a)

(2) Right to express opinion: “In case there is a disagreement on a business-related issue in the
normal course of business, it is settled by a consensus among the partners. But, before a
consensus is reached, each partner has the right to express his opinion. If the matter is important
and is likely to affect the policy or profitability of the business, a consensus amongst partners
assumes added importance, and their agreement.” -Section 12(c)

(3) Right of access to accounts: Every partner has the right to access the books of account of
the firm, examine the books and take a copy of any account.

(4) Right to share in profit: Every partner is entitled to share in the profit of the firm
equally. Different proportions can be stipulated in the partnership deed. -Section 13(b)

(5) Interest on capital: No partner has the right to get interest on the capital invested by him in
the firm. But if any interest is paid to the partners by agreement, it is only payable out of the
profits of the firm -Section 13(c)

(6) Right to interest on additional capital or loan: If a partner has invested more than his share
of the capital, or has advanced any money as a loan to the firm, he has the right to get interest on
the additional capital or loan to the firm at the rate agreed upon. If no rate of interest has been
agreed upon, the partner has a right to receive interest at the rate of six percent. -Section 13(d)

(7) Right to indemnity: If a partner, in the normal course of business, or in an emergency with
the intention of protecting the firm from any loss, has done some act that a person of normal

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intelligence would do to protect his interest, and has incurred some expense or taken on some
obligation, he has the right to be indemnified by the firm for such act. Section 13(e)

(8) Right in the firm’s property: As a rule, each partner is a joint owner of the firm’s property
and, unless there is an agreement to the contrary, each partner is presumed to have an equal
share. Such property includes all property purchased with firm’s money, and is used exclusively
for the conduct of the firm’s business.

(9) Right to leave the firm: Every partner has the right to leave the firm with the consent of
other partners. In a partnership at will, a partner has only to give a notice of his intention and
leave the firm.

(10) Right not to be expelled: Every partner has the right to continue to be in the partnership
and not to be expelled from it by the consensus of other partners unless there is no charge of his
having committed a breach of good faith.

(11) Right to do competitive business: Except in circumstance listed in Section 36(1), an

outgoing partner has the right to carry on a competing business. -Section (36)

(12) Right to share in profits after retirement: If the outgoing partner’s account with the firm
has not been cleared and the firm owes him money or is using his assets in its business, the
outgoing partner or his legal representative is entitled to a share in the profit earned with the aid
of such assets, or interest at the rate of six percent. -Section (37)

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Duties of Partners

(1) To work for maximum common interest: Mutual interest is the cornerstone of a
partnership. It, therefore, becomes the duty of a partner to conduct the business of partnership for
the maximum common interest of the partners. -Section 9

(2) To be faithful to other partners: Every partner owes it to himself to be just and faithful to
other partners. –Section 9

(3) To give correct accounts: It is the duty of partners to render true or correct account to the
partnership firm. It is also his duty to let the other partners inspect such accounts and take copies,
if they so desire. -Section9

(4) To give correct information: Each partner is an agent of the other, and as such, is obliged to
give correct and full information to the other partners about the conduct of the firm’s business. –
Section9

(5) To indemnify for fraud: If the firm or any partner thereof is put to a loss on account of fraud
by a partner in the conduct of the firm’s business, the liability of the partner who has committed
such fraud is absolute, and he is bound by law to compensate the firm or the partner for such
loss. -Section 10

Besides Sections 9 and 10, according to Section 11, all the partners of a firm are free to sort out
their relations by mutual agreement. The Partnership Act also defines some additional
obligations of a partner which are briefly discussed in what follows.

(a) To work diligently: Each partner is expected to work diligently in the conduct of the firm’s
business. -Section 12

(b) To work without remuneration: Unless there is an agreement to the contrary, a partner is
duty-bound to work without remuneration in conducting the business of the partnership firm. –
Section 13(a)

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(c) To share the loss: Just as the partners have a right to share the profit of a business they also
have an obligation to share the loss equally or as defined in the partnership agreement. –Section
13(b)

(d) To compensate for wilful negligence: If a partner has been wilfully or deliberating
negligent in the conduct of the firm’s business as a result of which the firm has been put to loss,
it is the duty of the partner to compensate the firm for such loss. Section 13(f)

(e) To use firm’s property for the firm: It is duty of every partner to use the firm’s property
only for such acts that he performs on behalf of the firm, and not make use of the firm, the
property for his personal benefit. . -Section 15

(f) To give account of personal profit: If a partner has earned any secret profit by using the
name of the firm, it is his duty to return such profit to the firm. Section 16

(g) To give an account of profit from a competing business: According to the Indian Contract
Act, all contracts that aim to distrupt a business are void, and the partners are committed not to
enter into a competing business so long as they are in the firm as partners But a partner has the
right to do such business on the termination or expiry of the partnership. If a partner does
competing business while being a partner, it is his duty to give an account of the profit from such
business to the firm. -Section 16(b)

(h) Not to transfer rights and interests: Partnership is based on trust and good faith and a
partner is selected on that criterion. A partner, therefore, does not have the right to transfer his
rights and interests to another person without the consent of other partners. -Section 29(b)

(i) To work within his authority: Every partner must do such acts that are within his authority.
He must not go beyond his authority to do any act.

(j) To maintain secrecy: It is the duty of the partner to keep the trade secrets of the firm intact
so that the competitors do not take advantage of the firm’s potential capacity to do business.

(k) To act in an emergency: It is the duty of a partner to act in an emergency to protect the
interest of the firm as a person of normal intelligence would act to protect his interests.

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CHAPTER: 4
Analysis of Indian legal provision with judicial
Sharad Vasant Kotak & Ors vs Ramniklal Mohanlal Chawda & Anr on 17 December, 1997 6

The appellants are the partners of a suit firm called 'M/s. Paramount Builders' . The partnership
was entered into on 29.11.1976 with the following individuals as partners:
S.NO. Name of Partners Share
1. Shri Sharad Vasant Kotak 15%
2. Shri Dilip Vasant Kotak 15%
3. Shri Anil Dhirendra Kotak 15%
4. Smt. Hemkuver Vasant Kotak 15%
5. Smt. Lilavati Dhirendra Kotak 15%
6. Shri. Mohanlal Hinji Chawda 12 1/2%
7. Shri Ramniklal Mohanlal Chawda 12 1/2%
“The said partnership firm was registered on 15.12.1980 under Registration no, 158675 with the
Registrar of Firm. On 6.5.1986, Shri Mohanlal Hinji Chawda, a partner of the firm (Sr. No. 6
above) died and in his place, his widow Smt. Jijiben Mohanlal Chawda was admitted as a partner
in the fir. After the admission of the said Smt. Jijiben Mohanlal Chawda, another deed on
partnership was made consisting of the old six partner and the newly admitted partner Smt.
Jijiben Mohanlal Chawda. As a matter of fact,. the induction of the new partner was not brought
to the notice of the registrar of Firms by forwarding the required particulars. It is on record that
still latter on 3.11.1992 another partnership deed was brought into existence consisting of the
same partners. It is also on record that yet another partner Smt. Hemkuver B. Kotak (S.NO.4
above) died in September, 1994. The fact of death of this partner also was not intimated to the
Registrar of Firms. While, so the 1st respondent gave a notice of dissolution of the firm to the
appellants and also filed a suit for the dissolution of the partnership firm bearing Suit no.,
5016/94 on 15.12.94 in the High Court of Judicature at Bombay on the original side. Initially in
the plant, the constitutional validity of Section 69(2A) of the Indian Partnership Act (hereinafter
called the "Act"), as amended by Maharashtra Act, was not raised. The 1st respondent moved a
Chamber Summons No, 301/97 seeking permission of the Court to carry out certain amendments
to the plaint. Briefly, the amendments sought were that subsequent changes and/or modifications

6
Sharad Vasant Kotak & Ors vs Ramniklal Mohanlal Chawda & Anr on 17 December, 1997

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in the partnership deed of M/s. Paramount Builders under the deed of partnership dated
20.10.1986 and also in the deed of partnership dated 3.11.1992 are merely in the nature of
changes and/or modifications which do not affect registration of the said firm of M/s. Paramount
Builders, as required under the Act , for entitling a partner to institute a suit for reliefs against the
partners on dissolution of firms and alternatively, the other amendment sought was to challenges
the vires of section 69 (2A) of the Act as in force in State of Maharashtra.
The amendment sought was seriously opposed by the appellants inter alia, contending that the
suit as filed was not maintainable, and, therefore, the amendment cannot be allowed, In other
words, according to the appellants on and from 20.10.1986 when a new partnership deed was
made, the registration already given to the firm ceased to have validity and the partnership as at
present must be deemed to be an unregistered one and, therefore, the suit was hit by Section 69
(2A) of the Act creates a bar on the threshold of the filing of the suit for the relief covered in the
suit and the very suit filed by the plaintiff was incompetent. That being the position, the
application for amendment could not be permitted. Consequently, the application was rejected.7”

7
https://indiankanoon.org/doc/1771880/

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CHAPTER: 5

COMPARISION OF INDIAN PARTNERSHIP ACT WITH OTHER COUNTRY

I compare rights and duties of Indian partnership act with cayman island, US and Bangladesh.

“In the Cayman jurisdiction partnerships are regulated by the Partnership Law (2002 Revision)
(the "Partnership Law") and the Exempted Limited Partnership Law (2003 Revision) (the "ELP
Law"). As well as General Partnerships, which are governed by the Partnership Law, the
Cayman jurisdiction has two types of limited partnership: the "ordinary" limited partnership
("OLP") which is similar to a UK limited partnership and is regulated by the Partnership Law;
and the exempted limited partnership ("ELP"), which is designed to be more appropriate for the
Cayman jurisdiction. ELPs are regulated by the ELP Law.”

In US: The US Partnership Act defines partnership as “an association of two or more persons to
carry on, as co-owners, a business for profit.”

In Bangladesh :

Determination of rights and duties of partners by contract between the partners

11 (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.”

Mutual rights and liabilities

13. 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 profit.

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CHAPTER: 6

CONCLUSION

“In my opinion Partnership is very important because in day to day activities we enter into
partnership agreements and by making partners big goals are achieved with the help of joint and
more number of people. The joint efforts of all the member results in successful accomplishment
of tasks and that task or job can be easily afforded. Division of work leads to increase in
efficiency at work among different partners.”

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

“Partnership is one of the oldest forms of business relationships. Though limited liability
companies have replaced partnership firms in complex businesses, partnerships are still preferred
by professionals and small trading and business enterprises in India and abroad.8”

8
http://www.legalservicesindia.com/article/158/Indian-Partnership-Act,1932.html

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 CHAPTER: 7

SUGGESTIONS

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

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

9
General partnership holdings are not easy to transfer; typically all other partners have to agree.
Yet partnership is preferred in India, because of the ease of formation and lack of compliances
involved.

9
http://www.legalservicesindia.com/article/158/Indian-Partnership-Act,1932.html

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Bibliography:

 Michael Twomey, butterworths irish law library

Webliography:

 www.manupatra.com
 http://www.legalservicesindia.com/article/158/Indian-Partnership-Act,1932.html
 www.lexisnexis.com/academics
 https://www.pdffiles.in/rights-and-duties-of-partners/
 https://indiankanoon.org/doc/1771880/

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