GOPALDAS JHAMATMAL ADVANI LAW COLLEGE

BANDRA (W), MUMBAI–400050

ASSIGNMENT

Rights of the Partners under Partnership Act,1932

SUBMITTED BY: Manali Nagendra Jain

S.Y.LL.B ACADEMIC YEAR: 2020–2021

DIVISION: A

ROLL NO: 59

SUBJECT: Contract II

SEMESTER: IV

SUMBITTED TO: Dr. Darshana Palwanka

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Introduction

In Indian Partnership Act 1932 came into force on 1st Oct 1932 it extends to whole of India.

The Act also defines a partnership as "the relation

between two or more persons who have agreed to share
the profits from a business carried on by either all of them
or any of them on behalf of/acting for all"

Rights of the partners are contained in section 12 & 13

which are subjected to contract between the partners.
Each partner has an equal right to take part in the conduct
of their business. This right is applicable equally to active
and dormant partners. Every partner has right to inspect and take a copy of accounts and
financial statements of business in a timely manner. Each partner is also authorized to claim
over a profit of a business. Every partner also has right to interest, right to indemnity etc are
the rights of the partners which are discussed in detail below.

Object

The mutual relations between the partners of a firm comes into existence through an agreement.
As partners have invested in the firm the partners are given rights to take part in the conduct of
the business. For better understanding the rights of the partners are stated in the Partnership
Act, 1932

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What is Partnership?
Section 4 of Indian Partnership Act, 1932 defines partnership as "partnership is the relation
between persons who have agreed to share the profits of a business carried on by all or any of
them acting for all"

In story on Partnership, the term is defined as a

voluntary contract between two or more competent
persons, to place their money, effects, labor and skills,
or some or all of them, in lawful commerce or
business, with the understanding that there shall be a
communion of profits thereof between them.

The person who has entered into the partnership agreement with one another is individually
called partners and collectively of a firm.

Essentials Elements of Partnership

There are some essential elements of partnership are as follows

1. Association of two or more persons - When a partnership is been formed there should be
at least two competent parties to form a partnership. Hence any person who is not a minor, of
sound mind and is not disqualified by law can become a partner.

2. Agreement - There must be an agreement to form a partnership. This agreement may be

express or implied. Partnership is created by contract and not arises by operation of law. If
suppose one of the partners is expired, his son or daughter will not automatically become
partners unless there is an agreement between them to carry on the business as a partner.

3. Business - A patronship can be formed only for the purpose of carrying on some business.
Where there is no business to be done there can be no question of partnerships. The business
to be carried on by the firm must be legal.

4. Sharing of profit - The sharing of profits is an essential feature of partnership. Profits must
be distributed among the partners in an agreed ratio. It is at partners will to share profits in any
manner they like. They may share it equally or in any proportion.

5. Mutual agency - The business of partnership may be carried on by all the partners or any of
them acting for all. In a firm each partner is a representative of the other partners. Each of the

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partner is an agent as he can bind the other partners by his act and he is a principal in the sense
that he is bound by the act of the other partners.

6. Restriction on the transfer of shares - No partners can sell or transfer his shares to the
third party without the consent of all the partners.

7. Extent of liability - Liability of each partner for the firm is unlimited. The creditors have
the right to recover the firm debt from the private property of any or all the partners.

8. No separate entity - Partnership is an association of person who are individually called as

partners and collectively called firm. Legally a partnership firm is not a separate entity from
the partners.

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Provisions

Section 4 of Indian Partnership Act, 1932 defines partnership as "partnership is the relation
between persons who have agreed to share the profits of a business carried on by all or any of
them acting for all"

Following are some of the provisions for rights of the partners in a partnership firm.

 every partner has a right to take part in the conduct of the business. Sec 12(a)

 every partner has a right to have access to and to inspect and copy any of the books of
the firm. Sec 12(d)

 the partners are entitled to share equally in the profits earned, and shall contribute
equally to the losses sustained by the firm. Sec 13(b)

 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. Sec 12(c)

 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. Sec 13(d)

 a partner is not entitled to receive remuneration for taking part in the conduct of the
business. Sec 13(a)

 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. Sec 13(e)

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Subject to contract between the partners, the Indian partnership act confers the following
rights upon all the partners.

Right to take part in the conduct of the Business

Section 12(a) Partnership Act 1932, provides that every

partner has a right to take part in the conduct to the
business of the firm. All the partners of a partner
company have the right to participate in the business
conducted by the company, because the partnership
business is the business of partners and their management
powers are generally coexisting. If the management
power of a particular partner is interfered with and the
individual has been wrongfully precluded from participating, the court of law can intervene
under such circumstances. The court can, will restrain the other partner from doing so by
injunction. Other remedies are a suit for dissolution a suit for accounts without seeking
dissolution and so on for a partner who has been wrongfully deprived of the right to participate
in the management.

However, this right is subjected to contract between the partners. Thus, it is quite usual to
provide, in the partnership deed, for an exclusion of this right as regards some of the partners.

However right to take part in the conduction of business should be used by the partners for
promoting the business of the firm and not to damaging the business. In case of Suresh Kumar
1
Sanghi v. Amrit Kumar Sanghi 1983 (4) DRJ 186 a partner in order to undermine the
position of the managing partner wrote to the principals to not supply motor vehicles to the
firm and to the banker's to not to honour the cheques of the firm. In this case Delhi High Court
provided an injunction against the partner saying that the partners Act was to damage the
business of the firm.

1
1983 (4) DRJ 186

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Right to have access to the books.

Section 12(d) Partnership Act 1932, provides the right to partners to access, inspect and copy
account books. However, this right must be exercised Bonafede.

A partner need not exercise this right personally, but may have the accounts inspected by his
agent. For Example: If a dormant partner wants to sell his shares to a partner and hires an
expert to examine the account and his stake in the company, the partners will not object the
same. Partners must provide reasonable grounds such as trade protection to object.

In case of Bevan v. Webb, 1900-3 All E.R.Rep.206 2 in this case a sleeping partner wished to
sell his interest to the other partners. He, therefore authorised a valuer to inspect the accounts
and to ascertain the value of his interest. The other partners objected, unless of course there
was reasonable ground for objecting as for instance for the protection of Trade secrets

Right to profit.

Section 13(b) Partnership Act 1932, provides that the partners are entitled to share the profits
and losses equally. Subject to a contract to the contrary between the partners, partners are
entitled to share equally in the profits earned by the firm. In such case, they are likewise also
liable to contribute equally to the losses sustained by the firm.

Generally, the partners provide in their agreement as to what will be the proportion in which
they will share the profits. For example - in a firm of three partners, it may be agreed that the
profit-sharing proportion will be 2/4: 1/4: / 1/4.

According to the section 13(b) in absence of such agreement the partners shall share profit in
equal ratio. If in case if any partner alleges that their shares are unequal, he has to prove an
agreement to that effect.

Mansha Ram v. Tej Bhan AIR 1958 P H 5 3In this case, there is no satisfactory evidence to
show what proportion the partners are in to divide the wage. The Haryana and Punjab High
Courts are entitled to share equally benefits even if the partners are paid separately and do
unequal work. However, the right to share profits equally can be changed by concluding an
agreement against the partners. Therefore, the partners can settle the share of the profits or
agree to pay through the salary rather than the p

2
1900-3 All E.R.Rep.206
3
AIR 1958 P H 5

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Right to be consulted

Section 12(c) Partnership Act 1932, as every partner has a right to take part in the business of
the firm this could give rise to a difference of opinion between the partners. Such difference of
opinion may relate to - an ordinary matter or fundamental matter.

Section 12(c) provides for resolving dispute relating to the ordinary course of business between
the partners by majority it states that every partner has the right to express his or her opinion
for the matter which is being decided. For example, if there is a difference in the opinion
among the partners for introducing the son of one of the partners for the purpose of learning
business then the majority decision will prevail.

However, if there is any dispute between the partners related to the fundamental matters of the
business then the consent of every partner is required. For example, if a minor is included in
a partnership firm then the consent of all the partners is required.

If there is no majority because the partners are equally divided those who are against the change
will prevail that is the status quo would be maintained this was held in the case of
Donaldson v. Wilson, 1833, 149 E.R. 4324

Right to interest

Section 13(c) of partnership Act ,1932 states that generally partners are not entitled to claim
on the capital but if there is an express agreement between partners that allows interest which
will be paid only out of the profit of the firm.

Section 13(d) of partnership Act 1932 states that partner is entitled to interest at the rate of 6%
per annum for the advances made by him to the firm beyond the capital he had agreed to
subscribe. For example, A person X, invests ₹50,000 in a partnership firm and provides
₹60,000 to the firm as advance. In this case, X will receive interest from the profits of the firm
for ₹50,000 which he had invested in the firm and will get 6% interest on the advances made
by him to the firm.

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1833, 149 E.R. 432

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Right to remuneration

Section 13(a) of partnership Act,1932 states that no partner in the firm is entitled to claim
remuneration for taking part in the conduct of the business in other words it may be presumed
that the work done by him for the firm is gratuitous. However, the remuneration can be
provided to certain partners along with the share in profits if they have entered into an
agreement to that effect or when such remuneration is payable under the continued usage of
the firm. For Example, there is a firm consisting of Activ and Dormant partners. In such a
case, the partners can form an agreement entitling the active partners to receive a particular
sum as remuneration. The court have some time carved out exceptions to this rule thus one
partner is guilty of wilful neglect and entire burden of work is shouldered by the other partner
the latter may make a valid claim to be compensated for the extra work done by him in the case
of Airey v. Bahram 1861 54 E.R. 768 5 following the quarrel between the two partners only
one of them attended to the business of the firm and the court held that he was entitled to an
extra allowance for having managed the business without any assistance from the partner.

Right to indemnity

Section 13(e) of partnership Act,1932 provides a dual indemnity to a partner. It lays down that
the firm must indemnify a partner in respect of payments made and liabilities incurred by him

 A partner is entitled to recover for any expenses incurred by him in the ordinary and
proper conduct of the business. For example, there was a partnership between A, B,
C, and D. The firm has incurred a debt of Rs 2,00,000 from the bank. A paid the debt
in the name of the firm. In this case, B is entitled to be indemnified from his co-
partners.
 When the partner has incurred any expenses during the emergency in order to protect
the firm from the loss provided that the partner has acted as ordinary prudence in his
own case, and under similar circumstances.

5
1861 54 E.R. 768

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Minors Rights in a Firm.

Section 30 of Partnership Act, 1932 deals with the rights of minors who are entitled for the
benefit of a partnership. Generally, with the consent of other existing partners a minor is added
into a partnership firm as a beneficiary. The rights of a minor in a partnership is been discussed
in detail below: -

1. A minor is added for the benefits of a

partnership. Such minor is only entitled to the
profits of the firm. Such minor is not personally
liable to the third party for the debts of the firm,
but his liability is limited only up to his shares in
the partnership assets and profits.

2. Right of Inspection

Section 30(2) states that minor in a partnership firm can inspect the books of accounts of the
firm. He also has the right to demand copies of the books. However, his rights are limited to
inspection and he cannot have access to those books which contains trade secrets. In the case
Oswal Fertilizer v. Commissioner (2005) 196 CTR Del 545, 119 6 of Income tax in this case
court held that it is permissible in law to authorise guardians of the minor for inspection of
accounts of the firm and exercising certain rights to protect minor’s interest.

3.Right to receive his share or profit

Sub-section 2 of the section 30, a minor is entitled to receive his agreed share of the property
and the profits of the partnership firm. At the time of admitting the minor it is decided that
minor is entitled to the benefits of the partnership only. A minor cannot be a full partner who
is liable for the losses. In case of Commissioner of Income tax v. Dwarkadas Khetan 1961
SCR (2) 8217it was been held that a minor can only be admitted to the benefits of a partnership.
In other words, he is only entitled to profits and not losses.

4. Rights after attaining the age of majority

On attaining majority, minor partner has the option of becoming a partner in the firm in which
case he is entitled to the share to which he was entitled as a minor. Minor partner has a choice

6
196 CTR Del 545, 119
7
1961 SCR (2) 821

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to make whether he wants to continue as a partner or not. This choice has to be made within 6
months attaining majority. Public notice is to be given whether he elects to be the partner in
the firm. Such notice will determine his position with regard to the firm. If at all the minor fails
to give such notice then he shall become a partner in the firm on the expiration of the said 6
months. And shall be liable for all the acts of the other partners.

Rights of outgoing partner

Section 36(1) and Section 37 of Partnership Act, 1932 states some of the rights of an outgoing
partner.

(a) to carry on competing business and

(b) to share the subsequent profits, if the other partners continue the firm's business without
settling his accounts.

Section 36(1) of Partnership Act, 1932 States the rights of the outgoing partner. It imposes
certain restrictions but also allows an outgoing partner to carry on the competing business of
that firm. Following are some of the restrictions regarding the same. Outing partner cannot

- use the firm name

- represent himself as a member of the firm

- solicit the customs of the person who was dealing with the firm before he ceased to be a
partner.

Section 36(2) of Partnership Act, 1932 deals with the agreement in restraint of the trade.
According to this section an outgoing partner may make an agreement with the partners that,
when he ceases to be the partner of the firm, he will not carry on any business related to that's
firm within a specified period or local limits of that's firm.

Section 37 of Partnership Act, 1932 deals with the rights of an outgoing partner in certain cases
to share subsequent profits. When the continuing partners carry on the business of the firm with
the property of the firm without any final settlement of accounts between the firm and the
outgoing partner, then at that time in the absence of a contract to the contrary the outgoing
partner is entitled to claim his share in the profits of the firm, or at his option, interest at 6%
p.a on the amount of his share in the property of the firm.

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For example, A and B are partners. The partnership is dissolved by the consent, and it is agreed
that the assets and business of the firm would be sold by auction. A nevertheless continues to
carry on the business on the partnership premises, with the partnership property and capital,
and on his own account. Thus, as the example A must account to B for the profits thus made
alternately B may claim 6 percent p.a on his share

Rights of Partners in Dissolution of a Firm

Upon dissolution a partner has some of the rights which are as follows

 Right to lien (Section 46)

 Right to return on premium (Section 51)
 Right where partnership contract is rescinded fraud or etc (Section 52)
 Right to restrain use of firm name or property (Section 53)

Right to lien (Section 46)

Under section 46 of partnership Act upon the dissolution of a firm every partner is entitled to
have the property of the firm which is applied in the depths and liability of the firm and to have
the surplus distributed among the partner in accordance with their rights such right of the
partner is called as right to lien of partners. This right is known in English law as the equitable
lean of the partner.

Pollock defines equitable lien as a partner right to have a specific portion of property dealt
with in particular way for the satisfaction of a specific claim.

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Right to return on premium (Section 51)

Where a partner has paid a premium on entering on a partnership for a fixed term and the firm
is dissolved before the expiration of the term he is entitled to repayment of the whole or a part
of the premium.

The condition necessary to attract the applicability of section 51 are -

 The partnership must be for a fixed term .

 The firm must have been dissolved prematurely.
 It must have been dissolved otherwise then by the death of the partner.

However, no refund shall be paid if the dissolution -

 Is due to the death of the partner.

 Is due to the misconduct of the partner who has paid the premium or
 Is in the pursuance of the answer agreement which contains no agreement for the refund
of the premium

For example, A and B entered into a partnership for a term of ten years, A paying a premium
of Rs 10,000 to B. Just before the end of the second year B became bankrupt. The question
arose whether A was entitled to the return of the premium and if so then how much? It was
been held that N'Djamena insolvency HD terminated the partnership and therefore estate of B
must return or give centrist for a proportionate part of the premium namely Rs. 8,000. This
similar situation had arose in Freeland v. Stansfeld , 65 E. R. 490.8

Right where partnership contract is rescinded fraud or etc (Section 52)

If the partner is induced to join the firm by the intention of fraud or misrepresentation by other
partner, he has the right to put an end to the partnership agreement when such fraud or
misrepresentation is found. In such a situation a partner is entitled to –

 A right of lien or retention and of the surplus of the assets and of the firm left after
having paid the debts of the firm and for any sum which is paid by him with a view to
share a new share with in the firm and for any capital one contributed by him
 to rank as a creditor of the firm as to any payment made by him towards the debts of
the firm, and

8
65 E. R. 490

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  to be indemnified by the partner in or partners guilty of fraud or misrepresentation
against all the debts of the firm.

Right to restrain use of firm name or property (Section 53)

In the event of dissolution of a firm, every time partner may restrain any other partner from
carrying on a similar business in the firms name or from using any of the property of the firm
for his own benefit, until the affairs of the firm have been completely wound up, unless a
partner has purchased the goodwill of the firm.

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Conclusion

In a partnership, the partners are free to form and agreement and decide the mutual rights. The
relation of partners in the partnership is of utmost good faith, therefore it is the duty of every
partner to work for the common advantage of the firm and to work accordingly in order to gain
profit for the firm.

Mutual rights of the firm generally depend upon the provisions of the agreement but, there are
certain rights which are conferred by the Act in the case when there is no explicit into an
agreement to the contrary. Any agreement which is been made between the partners the rights
which are been stated in that agreement shall stand. But however, they shall not be vague or
contrary against the nature of the act.

All the rights which are guaranteed in a partnership firm are given in the partnership agreement
or deed. If there is any change in the constitution of the firm or if the partnership continues
after the expiry of the term or undertaking for which it was constituted then it does not affect
the mutual rights of the partners.

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Bibliography

The topic assigned to me is “Rights of the Partners” in Partnership Act 1932. For this
assignment I have referred various books and website.

Books

 Bare Act
 R K Bangia - 19th edition
 Pollock & Mulla – 16th edition

Sites Referred

 www.legalservices.com
 Indian Kanoon
 blog.ipleaders.in
 www.indiafilings.com

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