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THE INDIAN PARTNERSHIP ACT, 1932
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| Q.23. |
Can a
partner transfer his interest in the firm, either absolutely or by
mortgage or by creation by him of a charge on such interest and if so,
what are the rights of the transferee?
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| A: |
There is no bar as
such to the transfer of interest by the partner in favour of a stranger
but, in case of any such transfer the rights that the transferee gets are
provided in section 29 of the Partnership Act. This of course applies in
cases of transfer without the consent of the other partner or partners,
because if there is consent of all the partners to an absolute transfer
than the constitution of the firm itself may be altered.
Section 29 of the Act provides with regard to the rights of transferee of
a partners interest which is as follows:- |
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(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 change 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.
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(2) |
If the firm is
dissolved or if the transferring partner ceases to be a partner, the
transferee is entitled as against the remaining partners to receive the
share of the assets of the firm to which the transferring partner is
entitled, and, for the purpose of ascertaining that share, to an account
as from the date of the dissolution.
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| Q.24. |
What is the
position of the minors admitted to the benefits of partnership?
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| A: |
(1) |
A person
who is a minor according to the law to which he is subject may not be a
partner in a firm, but, with the consent of all the partners for the time
being, he may be admitted to the benefits of partnership. |
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(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. |
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(3) |
Such
minor’s share is liable for the acts of the firm, but the minor is not
personally liable for any such act. |
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(4) |
Such
minor’s 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 share of the partners. |
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(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 of the firm :
Provided that, if he fails to give such notice, he shall become a partner
in the firm on expiry of the said six months. |
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(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 person asserting that fact.
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(7) |
Where
such person becomes a partner - |
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(a) |
his
rights and liabilities as a minor continue upto 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
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(b) |
his share in the
property and profits of the firm shall be the share to which he was
entitled as a minor.
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(8) |
Where such person
elects not to become a partner - |
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(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,
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(b) |
his share shall not be
liable for any acts of the firm done after the date of notice, and
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(c) |
he shall be entitled to sue the
partners for his share of the property and profits in accordance with
sub-section (4)
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(9) |
Nothing in sub-section (7) and (8) shall affect
the provisions of section 28.
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| Q.25. |
How a new partner
or partners can be introduced in a firm?
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| A: |
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.
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.
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| Q.26. |
How
a partner can retire and what are the incidences of such retirement?
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| A: |
(1) |
A partner may retire - |
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(a) |
with the consent of all the
partners |
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(b) |
in accordance with an express
agreement by the partners, or |
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(c) |
where the partnership is at will,
by giving notice in writing to all the other partners of his intention to
retire. |
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(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.
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(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. |
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(4) |
Notices
under sub-section (3) may be given by the retires partner or by any
partner of the reconstituted firm.
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| Q.27. |
Can
a partner be expelled from the partnership? If so, under what
circumstances and to what effect?
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| A: |
(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. |
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(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.
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| Q.28. |
What is the
position that follows if a partner is adjudicated and insolvent?
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| A: |
(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 hereby
dissolved. |
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(2) |
Where under a contract between the
partners the firm is not dissolved by the adjudication of the partner as
an insolvent, the estate of a partner so adjudicated is not liable for any
act of the firm and the firm is not liable for any act of the insolvent,
done after the date on which the order of adjudication is made.
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| Q.29. |
What is
the liability of estate of deceased partner?
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| A: |
Where under a contract
between the partners the firm is not dissolved by the death of a partner,
the estate of a deceased partner is not liable for any act of the firm
done after his death.
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| Q.30. |
What are the rights of
outgoing partner to carry out competing business?
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| A: |
(1) |
An outgoing
partner may carry on a business competing with that of the firm and he may
advertise such business, nut, subject to contract to the contrary, he may
not -
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(a) |
use the firm name |
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(b) |
represent himself as
carrying on the business of the firm, or |
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(c) |
solicit the custom of
persons who were dealing with the firm before he ceased to be a partner. |
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(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 to that of the
firm within a specified period or within specified local limits; and,
notwithstanding anything contained in section 27 of the Indian Contract
Act, 1872 (9 of 1872), such agreement shall be valid if the restrictions
imposed are reasonable.
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Q.31.
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Does an outgoing partner have
any rights against the firm to share subsequent profits? If so, under what
circumstances? |
| A: |
Where any member of a firm has
died or otherwise ceased to be 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 of 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 the interest at the rate of six per cent per
annum on the amount of his share in the property of the firm:
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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 of 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.
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| Q.32. |
What happens to the continuing
guarantee given to a firm or to a third party in respect of the
transactions of a firm in case of change in firm?
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| A: |
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.
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DISSOLUTION
OF A FIRM
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| Q.33. |
What is dissolution of
a firm?
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| A: |
The dissolution
of a partnership between all the partners of a firm is called the
dissolution of the firm.
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