9 Relation of Partners to one another.pptx

Relation of partners to one another Partnership Act

1. Relation of Partners to one another Business Law

2. Relation of Partners to one another Two fundamental principles govern relations of partners to one another. The first principle gives the partners the freedom to settle their mutual rights and duties by their own voluntary agreement. Section 11 gives freedom to partners, subject to the provisions of this Act, to determine their mutual rights and duties by their own agreement. Certain duties are of compulsory nature and cannot be altered by an agreement to the contrary. But subject to that, the partners can settle their rights and obligations inter se by their own contract.

3. Section 11 DETERMINATION OF RIGHTS AND DUTIES OF PARTNERS BY CONTRACT BETWEEN THE PARTNERS 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.

4. Section 11 (2) AGREEMENTS IN RESTRAINT OF TRADE. Notwithstanding anything contained in section 27 of the Indian Contract Act, 1872, such contracts may provide that a partner shall not carry on any business other than that of the firm while he is a partner.

5. Section 11 Partnership is a relation depending on the consent of the parties, not only for its existence, but for the terms of the agreement in all things consistent with its essential nature and purpose and course of dealing. Mutual rights and liabilities of the partners can be decided or determined by the contract between them. The partners are in liberty to decide any question or matter relating to their rights and duties by making an agreement. It means all these rights and duties can be changed or varied by consent of all the partners. That agreement may be express or implied.

6. Section 9 The second principle is that relations of partners to one another are based upon the fundamental principle of utmost good faith. Every partner is an unlimited agent of his co partners for all matters connected with the business and therefore has the power to bind them unlimited liability. Mutual trust and confidence among the partners becomes necessary condition of their relations. Section 9 gives statutory recognition to this principle. This duty cannot be excluded by any agreement to the contrary.

7. Section 9 GENERAL DUTIES OF PARTNERS- Partners are bound to carry on the business of the firm to greatest common advantage, to be just and faithful to each other, and to render true accounts and full information of all things affecting the firm to any partner, his heir or legal representative.

8. Section 9 It means, the partners should carry business of the firm to the greatest common advantages and later, they should render to any partner or his legal representatives' full information of all things affecting the firm. A partner must observe the utmost good faith in his dealings with the other partners. All the partners are bound to render accounts to each other but where some of the accounts are kept by one of them, prima facie he would be the proper person to explain and give full information about them. Eg in a transaction between partners for the sale and purchase of a share in the business, if one of them is better acquainted with the accounts than the other, it is his duty to disclose all material facts.

9. Section 10 DUTY TO INDEMNIFY FOR LOSS CAUSED BY FRAUD- Every partner shall indemnify the firm for any loss caused to it by his fraud in the conduct of the business of the firm.

10. Section 10 It means the partner, committing fraud in the conduct of the business of the firm, must make good the loss sustained by the firm by his misconduct. An act of a partner causes a loss to the firm because of his fraud during conduct of the business of the firm, then he has to indemnify the same to the firm.

11. Relation of Partners to one another Sections 9 and 10 of the Act lay down the basic duties of every partner and the said duties are not subject to any contract to the contrary. Therefore, partners are bound to carry on the business of the firm to the greatest common advantage, to be just and faithful to each other and to render accounts and full information of all things affecting the firm to any partner or his legal representative and every partner is bound to indemnify the firm for any loss caused to it by fraud in the conduct of the business of the firm.

12. Rights and Duties of Partners Subject to this the mutual rights and duties of partners may be decided by contract between the partners, either express or implied. Subject to any contract to the contrary such duties and rights of each partner are provided in Sections 12 to 17 of the Partnership Act.

13. Rights of Partners Rights of Partners

14. Right to take part in business Section 12(a) Section 12 (a): Subject to contract between the partners “every partner has a right to take part in the conduct of the business” Every partner has a right to take part in the management of the business of the firm this is because partnership business is a business of the partners and their management powers are generally co-extensive. But if there is a contract that he will not be entitled to take part in the conduct of the business, then, contract will prevail. The privilege of participation in business must be used for promoting the interest of the firm and not for damaging it.

15. Right to take part in business The partners are free to provide in their agreement that only some of them will take part in the conduct of the business and certain other partner will not. But if such a right is wrongfully denied to a partner he can seek the enforcement of the right through a court of law.

16. Right to take part in business Eg now suppose this management power of the particular partner is interfered with and he has been wrongfully precluded from participating therein. Can the court interfere in these circumstances? The answer is in affirmative. The court can, and will, by injunction, restrain other partners from doing do. It may be noted in this connection that a partner who has been wrongfully deprived of the right of participation in the management has also other remedies eg a suit for dissolution, a suit for accounts without seeking dissolution etc.

17. Right to take part in business The above provisions of law will be applicable only if there is no contract to the contrary between the partners. It is quite common to find a term in partnership agreements, which gives only limited power of management to a partner or a term that the management of the partnership will remain with one or more of the partners to the exclusion of others. In such a case, the court will normally be unwilling to interpose with the management with such partner or partners, unless it is clearly made out that something was done illegally or in breach of the trust reposed in such partners.

18. Right to take part in business In Suresh Kumar v. Amrit Kumar , 1982, the Delhi High Court issued an injunction against a partner who, in order only to undermine the position of the managing partners, wrote to the principals of the firm not to supply motor vehicles and to the banker not to honour the firm’s cheques.

19. Right to express opinion Section 12(c) When difference of opinion arises between the partners while conduct business Section 12(c): Subject to the contract between the partners “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; “ A difference of opinion may relate either to an ordinary matter or fundamental matter

20. Right to express opinion Section 12(c) Where any difference arises between the partners with regard to the business of the firm, it shall be determined by the views of the majority of them, 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. This means that in routine matters, the opinion of the majority of the partners will prevail. Of course, the majority must act in good faith and every partner must be consulted as far as practicable. The majority rule will not apply where there is a change in the nature of the firm itself. In such a case, the unanimous consent of all the partners is needed.

21. Right to express opinion Every partner has right to express his opinion relating to business activities. But the nature of business cannot be changed by a single partner. In Const v. Harris , 1824, it was held that in the ordinary matter connected with the business of the firm or routine matters, the opinion of the majority of the partners is to prevail. The majority must, of course act with perfect good faith and as far as possible every partner must be consulted.

22. Right to express opinion In Highley v. Walker , 1910, it was held that if the partners are divided over an ordinary matter connected with the business, the same may be settled by a majority of the partners. But every partner shall be given the right to express his opinion before the matter is to be decided. All matters arising in connection with the execution of the agreed business of the firm fall in this category and may be carried through by majority opinion. Where the partners were divided over the question of the introduction of a partner’s son into the business with a view to his learning the business, it was held that the difference related to an ordinary matter of business and, therefore, majority opinion should prevail. But where the difference of opinion relates to a matter of fundamental importance, consent of all the partners becomes necessary. Fundamental matters include the question of any alteration of, or addition to, the business of the firm and the admission of the new partner then consent of all the partners are needed.

23. Right of Inspection Section 12(d) Every partner has right to check the accounts of the business. Section 12(d) , Subject to the contract between the partners “every partner has a right to have access to and to inspect and copy any books of the firm.” This right is available to both active and dormant partners. So every partner whether active or sleeping is entitled to have access to any of the books of the firm and to inspect and take out of copy thereof. The right must however be exercised bona fide. This right is not only in respect of books of accounts but also in respect of any books of the firm including secrets. In Trego v. hunt , 1896, it was held that this right is to be exercised bona fide; a partner who proposes to use the extracts or any information obtained from the books of the firm for purposes injurious or hostile to the interest of his partners can be restrained from so doing.

24. Right of Inspection A partner can have the accounts inspected through an agent. Eg where a sleeping partner wanted to sell his interest to the other partners and authorized an expert valuer to inspect accounts to ascertain the value of his interest, it was held that the other partners could not object to it, unless they could show some reasonable grounds for their objection such as, for example, protection of trade secrets. Bevan v Webb (1900-3)

25. Right to receive Remuneration Section 13(a) Unless otherwise agreed, partners are not entitled to receive salary or remuneration for taking part in the conduct of the business Section 13 (a) Subject to contract between the partners – “a partner is not entitled to receive remuneration for taking part in the conduct of the business;” No partner is entitled to receive any remuneration in addition to his share in the profits of the firm for taking part in the business of the firm. But this rule can always be varied by an express agreement, or by a course of dealings (Section 11), in which event the partner will be entitled to remuneration. Thus a partner can claim remuneration even in the absence of a contract, when such remuneration is payable under the continued usage of the firm. In other words, where it is customary to pay remuneration to a partner for conducting the business of the firm he can claim it even in the absence of a contract for the payment of the same.

26. Right to receive Remuneration Section 13(a) Thus, a partners are not entitled to receive salary or remuneration for taking part in the conduct on the business. It means a partner can only take share in profits and not any salary but if there is a contract which provides that a partner can claim salary for taking part in the business then the contract will prevail. The partnership agreement may, however provide for the payment of remuneration to working partners – Garwood’s Trusts Re , 1903 It is only if the partners so agree a partner may be entitled to additional salary, commission etc for the efforts made by him in running the business of the firm. If there is a contract which provides that a partner can claim salary for taking part in the business then contract will prevail.

27. Right to share Profit Section 13(b) Section 13(b): Subject to the contract between the partners “the partners are entitled to share equally in the profits earned, and shall contribute equally to the losses sustained by the firm;” Partners are entitled to share equally in the profits earned and so contribute equally to the losses sustained by the firm. The amount of a partner’s share must be ascertained by enquiring whether there is any agreement in that behalf between the partners. If there is no agreement then you should make a presumption of equality and the burden of proving that the shares are unequal will lie on the party alleging the same.

28. Right to share Profit Section 13(b) Unless otherwise agreed, all the partners are entitled to share the profits of the firm equally. Similarly, they are bound to contribute equally in the losses so sustained in the course of the business of the firm. This would be so even where there is disproportionate capital contribution or some of the partners render extra-ordinary services. Mansha Ram v. Tej Bhan , 1958

29. Right to share Profit Thus, the profits and losses shall be shared and contribute equally by their partners, irrespective of their contribution. But this rights is also subject to the contract between the partners: The partner can, by contract, decide that what share the partner will be entitled for profits and losses. If the contract provides that a partner can only share the profit, but not the losses, that contract is also valid because Section 13(b) is subject to contract. If contract provides that a partner will only share the losses and not the profits that contract is not valid because according to Section 4 sharing of profits is basic essential of partnership so without sharing of profit, there is no partnership.

30. Right to share Profit Whether Partners have contributed money equally or unequally, whether they are or are not on parity as regards skill etc , whether they have or have not laboured equally for the benefit of the firm, their shares will be considered as equal, unless some agreement to the contrary can be shown to have been entered into . It means if any partner alleges that their shares are unequal he has to prove an agreement to that effect.

31. Right to share Profit In Robinson v. Anderson , 1855, Two solicitors were jointly retained to defend certain actions and there was no satisfactory evidence to show in what proportion they were to divide their remuneration. It was held that they were entitled to share it equally although they had been paid separately and had done unequal amount of work.

32. Right of Interest Section 13(c) and (d) Section 13(c & d): Subject to the contract between the partners “(c) where a partner is entitled to interest on the capital subscribed by him, such interest shall be payable only out of profits; (d) a partner making, for the purposes of the business, any payment or advance beyond the amount of capital he has agreed to subscribe, is entitled to interest thereon at the rate of six per cent per annum;”

33. Right of Interest on capital Section 13(c) The following elements must be there before a partner can be entitled to interest on money brought by him in the partnership business: -express agreement to that effect, or -practice of the particular partnership or -any trade custom to that effect; or -a statutory provision which entitles him to such interest. As a general rule, no interest on capital is to be given on such capital subscribed by him, but where the agreement provides for interest on capital so subscribed, then a partner is entitled to interest. According to Section 13(c), that interest shall be payable only out of profits.

34. Right of Interest on advances Section 13(d) Section 13(d) provides that if some payment is made by a partner beyond the capital he agreed to pay then as per section 13(d), he is entitled to get the interest on such amount so subscribed at 6% p.a. This right also is subject to contract. Suppose a partner makes an advance to the firm in addition to the amount of capital to be contributed by him, in such a case, the partner is entitled to claim interest thereon @ 6% per annum. While interest on capital account ceases to run on dissolution, the interest on advances keep running even after dissolution and up to the date of payment.

35. Right of Interest on advances Unless otherwise agreed partners are not entitled to any interest on their contributions to the capital. Even where a partner is given the right to receive interest on his subscribed capital, such interest shall be payable only out of profits. keshavji Ravji & co v CIT 1990 SC So far as interest on capital contribution is concerned it ceases to run from the date of dissolution. Somasundaram v S Chettiar 1938

36. Right to indemnity Section 13(e) Section 13(e): Subject to the contract between the partners “the firm shall indemnify a partner in respect of payments made and liabilities incurred by him in the ordinary and proper conduct of the business; and 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;”

37. Right to indemnity Section 13(e) A partner must indemnify the firm for any loss caused to it by wilful neglect in the conduct of the business of the firm as per section 10 A partner, while acting on behalf of the firm may make certain payments and also bear certain liabilities, If act is done in ordinary course of business, If act is done in emergency as an ordinary prudent man, then he has the right to get indemnified from the firm. But this right is also subject to contract.

38. Right to indemnity To protect the firm from loss, every partner has a right to use his powers. The firm shall indemnify a partner in respect of payments made and liabilities incurred by him. The Act provides two kinds of indemnity. In first place, a partner is entitled to recover from the firm any expenses incurred by him “in the ordinary and proper conduct of the business”. These words constitute an important condition of this right and were explained in Thomas v. Atherton , 1877

39. Right to indemnity Thomas v. Atherton , 1877, in this case T, the managing partner of a colliery, received notice from L, an adjoining owner, that the workings were being carried on beyond the boundary. T insisted that he was entitled to the disputed ground, and carried on his working. The matter, having referred to arbitration, he was held liable to pay 6000 pounds as damages for the trespass. His claim for contribution from his co-partners failed, as the loss was not suffered in the ordinary and proper conduct of the business. He worked beyond the limits of the partnership colliery without proper enquiry as to limits and had acted with gross negligence and recklessness in continuing his working after notice and without consulting his partner, when it was evident that his right to work in the disputed area was extremely doubtful.

40. Right to indemnity The second kind of indemnity is recoverable when a partner has done an act involving expenditure in order to protect the property of the firm from a loss threatened by an emergency. It is necessary that the partner concerned should have acted as a reasonable person would have acted in his own case. In Sadhu Narayana Aiyangar v. Ramaswami , it was held that the right to indemnity is not lost by the dissolution of the firm and it also does not matter that there is or has been no settlement of accounts.

41. Other Rights Right of Retirement: Every partner has a right to retire from the firm serving notice in case of partnership at will. Right of Existence: A partner cannot be expelled by any other partner from the business. Every partner has a right to live in the business. Right of Admission : No new partner can be admitted without the consent of all the present partners in business.

42. Duties of a Partner Duties

43. Duties of a Partner Section 9 and 10 contains duties of the partners which are not subject to contract between the partners whereas Section 12 to 17 deals with certain duties made with subject to contract between the partners.

44. GENERAL DUTIES OF PARTNERS Section 9 GENERAL DUTIES OF PARTNERS- Partners are bound to carry on the business of the firm to greatest common advantage, to be just and faithful to each other, and to render true accounts and full information of all things affecting the firm to any partner, his heir or legal representative.

45. Duty to carry on the business to the greatest common advantage Section 9 and 16(a) Section 9 : Partnership is based on mutual confidence and trust. So it is necessary that no partner should gain any personal advantage at the cost of others. Every partner is bound to carry on the business of the firm to the greatest common advantage. In other words, the partner must use his knowledge and skill in the conduct of business to secure maximum benefits for the firm. Section 9 must read with Section 16 (a) “Subject to the contract between the partners, - (a) if a partner derives any profits for himself from any transaction of the firm, or from the use of the property or business connection of the firm or the firm-name, he shall account for that profit and pay it to the firm;” This duty is provided by law (statutory duty)

46. Duty to carry on the business to the greatest common advantage Thus, all the Endeavour’s of a partner must be to secure a maximum profit for the firm. He should not try to make a secret profit for himself at the expense of the firm. One of the leading case on this point is that of Bentley v. Craven , 1853, in this case A partner in a firm of sugar refiners, who had great skill in buying sugar at the right time was entrusted to buy sugar for the firm. He supplied sugar from his personal stock, which he had bought earlier when the price was low. He charged the prevailing market price and thus made a considerable profit. Later on, when his copartners discovered this, they brought an action for an account of the profit. The firm was held entitled to that profit.

47. Duty to carry on the business to the greatest common advantage Similarly in Dunne v. English , 1874, where a partner, authorized to sell a joint property for 60,000 pound, sold it to the company, in which he had a large interest, for a much higher price and concealed the excess price, he was held bound to share it with his co-partners/firm.

48. Duty to render true accounts Section 9 Every partner must render true and proper accounts to his co-partners. Partners are bound to each other by the principle of utmost good faith ( uberrimae fidei). This is entailing a duty of the partners towards each other to make a full and open disclosure of facts affecting the affairs of the firm. In partial recognition of this principle section 9 makes it a duty of the partners to render true accounts to every other partner……..” Partners are bound to render true accounts and full information of all the things affecting the firm to any partner or his legal representative….”

49. Duty to render true accounts He must make these accounts available to the other partners because every partner has a right to have access to and to inspect and copy any of the books including the account books of the firm Section 12(d) . The partnership funds in the hands of a partner must be spent by him properly for the purposes of the firm’s business and the partner concerned should keep proper vouchers in respect of the expenses. He should not mix up his money with that of the firm nor should he wrongly spend or misappropriate the firm’s money otherwise he will be accountable for the same towards the firm.

50. Duty to render true accounts The partnership funds in the hands of a partner must be spent by him properly with greater advantage to the firm for the purpose of the business of the firm. According to Section 18, Every partner is an agent of the firm, so according to the law of agency, information to the agent is deemed as information to the principal. Therefore, Section 9 makes it a necessary duty on every partner to pass the full information of all the things effecting the firm or the other partners.

51. Duty to render true accounts If a partner is in possession of more information about the affairs and assets of the firm, he should not conceal that from his co - partners. And if without furnishing that information, he makes a contract with his co-partners, the contract is voidable. This principle was laid down in Law v. Law , 1905, where a partner had sold his share in the assets of the firm to his copartner and discovered subsequently that material information had been concealed from him. He would have been entitled to set aside the sale for the fact that with knowledge of the concealment and without insisting upon full disclosure, he entered into an agreement to modify the original bargain.

52. Duty to render true accounts Where no such fraud or concealment was involved and the accounts were settled on the basis of compromise by approximately and roughly allocating the assets to different partners, the settlement was not allowed to be reopened simply because some matter escaped consideration. The court found that the matter which escaped consideration was of no consequence to the firm. Rattan Lal v. Jai Janinder Prasad 1976

53. Duty to be just and faithful to each other Section 9 Another duty mentioned in Section 9 is that the partners must be just and faithful to each other. Persons enter into partnership with others on the basis of their mutual confidence and trust. There is mutual agency between the partners and every partner is the agent of all others and he can bind them to an unlimited extent. Every partner is, therefore, expected to be just and faithful to his copartners. The partner must perform their functions with utmost fairness. Section 33 provides that even if the contract between the partners authorized the expulsion of a partner, the fellow partners must exercise this power in good faith.

54. Duty to be just and faithful to each other When a partner purchases the shares of another partner or a working partner is acting on behalf of a sleeping partner, or there is a transaction in which a partner is likely to gain an advantage at the cost of others, there is a need for good faith. In Abbott v. Crump , 1870, it was held that if a partner betrays confidence reposed in him and gains any personal advantage at the cost of other partners, he is accountable for the same. The court further held that, where a partner is guilty of a conduct, which destroys mutual confidence, e.g., one partner commits adultery with another partner’s wife that can be a ground on which the court may order dissolution of the firm.

55. Duty to render full information of all things affecting the firm Section 9 Every partner is an agent of the firm. According to the law of agency, information to the agent is deemed to be information to the principal. Section 9 , therefore, makes it incumbent on every partner to pass on full information of all things affecting the firm to his other fellow partners. Concealment of the facts by a partner renders him liable to others. Thus, if a partner having full knowledge of material facts with regard to the partnership assets purchases the share of a co-partner without making full disclosure of the facts to the other, the contract is voidable.

56. Duty to render full information of all things affecting the firm In Law v. Law , 1950, it was held that is if a partner, who is entitled to repudiate the contract on the ground of concealment of facts by the other co-partner does not insist on full disclosure, but rather agrees to the modification of the original bargain, such a partner cannot subsequently repudiate the contract.

57. Duty to indemnify for loss caused by fraud or willful neglect Section 10 and 13(f) If any loss is caused to the firm because of a partner's willful neglect in the conduct of the business or fraud commit by him against a third party then such partner must indemnify the firm for the loss. According to Section 10, “every partner shall indemnify the firm for any loss caused to it by his fraud in the conduct of the business of the firm.” Section 10 deals with a duty of the partner towards the firm. This duty is not subject to the contract between the partners therefore, it is a statutory duty. According to Section 10; A fraud is committed and A loss is caused to the firm, then in such cases, the firm has the right to get indemnified from that partner who caused fraud.

58. Duty to indemnify for loss caused by fraud or willful neglect Under Section 13(f), Subject to the Contract between the partners “a partner shall indemnify the firm for any loss caused to it by his willful neglect in the conduct of the business of the firm.” According to Section 13(f) every partner has a duty to indemnify the firm for any loss so caused by wilful neglect of that partner. The firm has the right to get indemnified by the partner who caused the loss. This clause is subject to the contract. The firm’s right to get indemnified from partner in relation to wilful neglect is subject to the contract. It means, if the contract expressly provides that there is no liability in case of wilful neglect, than that partner is not duty bound to indemnify the firm. But in section 10, he is duty bound to indemnify the firm for the loss caused to the firm by his fraud.

59. Duty to indemnify for loss caused by fraud or willful neglect This section also talks about the basic duty of partners to conduct themselves fairly and honestly both towards their co-partners and persons dealing with the firm. Where a partner falters from the path and loss is caused to the firm, he will be exclusively liable for the same. That is what is meant by saying that he must compensate or indemnify the firm against any loss caused by his own breach of duty.

60. Duty to indemnify for loss caused by fraud or willful neglect The purpose of this rule is to induce partners to deal honestly with the customers of the firm. If, for example, a partner in the ordinary course of the business of the firm commits a fraud upon a customer of the firm, for which the firm, including the innocent partners, has been held liable, the firm may recover indemnity from the partner guilty of fraud. The liability of fraud cannot be excluded by any agreement to the contrary, for it would be opposite to public policy to exempt a person from the consequences of his own fraud.

61. Duty to indemnify for loss caused by fraud or willful neglect As firm is liable not only for the contract made by one of them on behalf of others but also for wrongful act or omission of a partner acting in the ordinary course of business of the firm. Unlike section 12 to 17, the duty mentioned in section 10 is not subject to the contract between the partners. It is not possible for a partner to negative his liability towards the firm for loss caused to the firm due to his fraud. This section in absolute terms provides that every partner shall indemnify the firm for any loss caused to the firm by his fraud in the conduct of the firm and leaves no scope for the guilty partner to contract himself out of such liability.

62. Duty to indemnify for loss caused by fraud or willful neglect In Campbell v. Campbell , 1834, one of the partners of a distillery, who did not take part in the conduct of business, had to pay penalties which were levied upon the firm in consequence of the purchase of illicit whisky. The purchase was affected by the managing partners and the plaintiff partners had no knowledge of them. They were held liable jointly and severally to indemnify him against the amount so paid and interest on it. It was immaterial that the loss was caused by acts of illegal nature, for the plaintiff had not taken any part in them, nor had done anything, which could be regarded as acquiescence, knowledge or consent.

63. Duty to attend diligently to his duties Section 12(b) and 13(f) Sections 12(b) and 13(f): According to Section 12(b), “every partner is bound to attend diligently to his duties in the conduct of the business of the firm.” If a partner is negligent in the performance of his duties, this may cause loss not to that partner alone but to the whole firm. It has, therefore, been provided in Section 13(f) “a partner shall indemnify the firm for any loss caused to it by his wilful neglect in the conduct of the business of the firm.” If the firm suffers any loss by the willful neglect of a partner, he shall indemnify the firm for the same. The expression ‘willful neglect’ means an act done intentionally and deliberately rather than by inadvertence or an accident – Tamboli v. G.I.P. Rly, 1928 .

64. Duty to attend diligently to his duties If partner is guilty of wilful negligence and firm suffers a loss, he would be bound to indemnify the firm for the same. But he will not be liable for mere errors of judgment or for acts done in good faith. In Cragg v. Ford , 1842, where a partner who was made in-charge for winding up the business of the firm made some delay in disposing of some bales of cotton, ignoring the suggestion of a fellow partner. The price of cotton fell considerably and loss was caused due to the delayed sale. It was held that the defendant was not liable for the loss as there was no willful neglect on the part of the partner concerned because he was acting bona fine and did not anticipate the sudden fall in the price.

65. Duty to attend diligently to his duties The same is followed in the case of Sasthi kenkar v Man Gobinda 1919, in a suit for dissolution of partnership, the alleged negligence was that they failed to sue certain firms for price of coal supplied and one of the claims became time barred and another was lost due to the debtor’s insolvency. They were held liable for the claim which had time barred but the other claim the court held that the firm was an old customer and the defendents themselves learned it too late that it had become insolvent.

66. Duty to attend diligently to his duties An action for indemnity can be brought against a partner only by the firm or by the other partners on behalf of the firm, but not by a partner in his individual capacity. Gur Dayal v L Raghunath 1976, Court held that Section 13 does not contemplate a suit by one partner for damages against another partner. The liability of a partner is to the firm and not to one particular partner. The partners are however, free to make a contract that they will not be liable for the wilful neglect because this provision is subject to contract between the partners.

67. Duty to hold and use partnership property exclusively for the firm Section 15 According to Section 15, “Subject to the contract between the partners, the property of the firm shall be held and used by the partners exclusively for the purposes of the business.” It provides that the property of the firm shall be held and used exclusively for the purpose of the firm. In partnership, there is a community of interest which all the partners take in the property of the firm. But that does not mean that during the subsistence of the partnership, a particular partner has any proprietary interest in the assets of the firm. Every partner of the firm has a right to get his share of profits till the firm subsists and he had also a right to see that all the assets of the partnership are applied to and used for the purpose of partnership business.

68. Duty to hold and use partnership property exclusively for the firm Section 15 Section 15 has to be read with Section 16 because Section 15 provides general rule for which liability is imposed under Section 16. According to Section 15, the property of the firm must be exclusively used for the business of the firm but not for the personal use of partners. This duty and liability is also subject to contract. The property of the firm is to be used by the partners exclusively for the purpose of the firm’s business rather than the private and personal use of a partner. Although every partner has an interest in the property but no one can deal with any specific item of property as his own.

69. Duty to hold and use partnership property exclusively for the firm In Addanki Narayanappa v Bhaskara Krishnappa 1966 SC , The Supreme Court explained the nature of the rights of the partners in the following words: “Whatever may be the character of a property which is brought in by the partners when the partnership is formed or which may be acquired in the course of the business of the partnership, it becomes the property of the firm and what a partner is entitled to is his share of profits, if any, accruing to the partnership from the realization of this property and upon the dissolution of the partnership to a share in the money representing the value of the property. No doubt since a firm has no legal existence, the partnership property will vest in all the partners and in that sense every partner has an interest in the property of the partnership”.

70. Duty to hold and use partnership property exclusively for the firm The property of the firm has got to be used exclusively for the purpose of the business of the firm. If any partner derives any profit or personal advantage by the use of the partner of the firm, he has to account for that profit and pay the same to the firm Section 16(a) , but this rule is subject to contract between the partners .

71. Duty to hold and use partnership property exclusively for the firm PERSONAL PROFITS EARNED BY PARTNERS Section 16 (a) “Subject to the contract between the partners, - (a) if a partner derives any profits for himself from any transaction of the firm, or from the use of the property or business connection of the firm or the firm-name, he shall account for that profit and pay it to the firm;”

72. PROPERTY OF THE FIRM Section 14 THE PROPERTY OF THE FIRM- “Subject to contract between the partners, the property of the firm includes all property and rights and interest in property originally brought into the stock of the firm, or acquired, by purchase or otherwise, by or for the firm for the purposes and in the course of the business of the firm, and includes also the goodwill of the business. Unless the contrary intention appears, property and rights and interest in property acquired with money belonging to the firm are deemed to have been acquired for the firm.”

73. PROPERTY OF THE FIRM According to Section 14, the property of the firm includes all movable and immovable properties and rights and interests in the property which is originally brought into the stock of the firm. The property which is acquired or purchases by the firm is also considered to be the property of the firm. Eg All the partners contribute Rs 4000 each to purchase the property for the business of the firm. That property is considered property of the firm. The goodwill of the firm is also considered as property of the firm. But any property which is used for firm business doesn’t always become the property of the firm. Eg of a partner uses his own car for the firm’s purpose, than that car is not considered to be a property of the firm.

74. PROPERTY OF THE FIRM Laxmandas v Gulab Devi 1936 The property belonging to any partner doesn’t become the property of the firm by mere using of the same for partnership business. It will become firm’s property when there is an intention to treat such property as firm’s property. Kaushal Shah’s Case, In this SC held that Goodwill of the business of the firm is included in the property of the firm.

75. Property of the Firm It means property of the firm not only includes what is originally brought into the stock of the firm but also whatever is subsequently acquired, by purchase or otherwise. Property of the firm also includes goodwill. Goodwill is an advantage acquired in the course of business. Goodwill being the property of the firm it may be sold either separately or along with other property of the firm. Section 55(1)

76. Property of the Firm The property belonging to any partner does not become the property of the firm by merely use of the same for the partnership business. It will become the property of the firm if there is an indication of an intention to treat such property as the property of the firm. Property purchased with the partnership money is deemed to be the property of the firm. If a partner purchases some property with partnership money in his own name, it is deemed to be the partnership property being held by the partner on behalf of the firm. Forster v Hale

77. Duty to hold and use partnership property exclusively for the firm So no partner should use the assets of the firm for any of his personal purposes. Any such exploitation will render the partner accountable to the firm for any private advantage obtained by him. He shall also be responsible to indemnify the firm for damage, if any, thereby caused to its assets.

78. Duty to account for personal profits Section 16 Section 16 : “PERSONAL PROFITS EARNED BY PARTNERS. Subject to the contract between the partners, - ( a) if a partner derives any profits for himself from any transaction of the firm, or from the use of the property or business connection of the firm or the firm-name, he shall account for that profit and pay it to the firm; ( b) if a partner carries on any business of the same nature as and competing with that of the firm, he shall account for and pay to the firm all profits made by him in that business.”

79. Duty to account for personal profits Section 16 Section 16(a), where a partner derives any profit for himself from any transaction of the firm or from the use of the property or business connection of the firm or firm name, he must account for that profit and pay it to the firm Eg , A B C and D established partnership business for refining sugar. A who was himself a wholesale grocer, was entrusted with the work of selection and purchase of sugar. As a wholesale grocer, A was well aware of the variations in the sugar market and has the suitable sense of propriety as regards purchases of sugar. He has already in stock sugar purchased at a low price which he sold to the firm when it was in need of some, without informing the partners that the sugar sold had belonged to him. It was held that A was bound to account to the firm for the profit so made to him. This rule subject to a contract between partners.

80. Duty to account for personal profits Section 16 Section 16(b), where a partner carries on a competing business, he must account for and pay to the firm all profits made by him in that business. Eg A B C and D started a business in partnership for importing salt from a foreign ports and selling it at Chittagong. A struck certain transactions in salt on his own account which were found to be of the same nature as the business carried on by the partnership. It was held that A was liable to account to the firm for profits of the business as made by him. This rule is also subject to a contract between the partners.

81. Duty to account for personal profits Section 16 If a partner derives any personal profit from partnership transactions or from the use of the property of the firm or business connection the firm or the firm's name, he must account for such profit and pay it to the firm. It is the duty of every partner to use the property of the firm strictly and solely for the purposes of business of the firm. If a partner uses a joint property for any private purpose, he must, in the first place, account for the advantages gained from such use and secondly, compensate the firm for any damage to such use. In Gardner v. McCutcheon 1842, the captain of a ship, which was owned by him and his co-partner, made considerable profit by making certain contracts, while the ship was operating under charter-parties. He was held liable to account for such profit.

82. Duty to account for personal profits Thus, (1) if a partner derives any profit for himself from any transaction of the firm, then in such a case, he shall account for that property, has to pay profit to firm. Eg A partner sells his own property to the firm without telling the other partners and earns profit. In this case, profit earned by partner, has to be paid to firm. (2)If a partner uses any property of the firm and derives any profit out of it, then that profit shall be payable to firm. Eg Partner uses machinery of the firm and earns profit. So, in this case, the profits so earned shall be given to firm. (3)If a partner uses business connection of the firm and earns profit, then he shall account for that profit and pay to firm. Eg A partner uses firm’s database for his own business. (4)If a partner uses the firm’s name i.e. goodwill of the firm and earns profit, then he shall account for that profit and pay it to the firm.

83. Duty to account for personal profits A partner is the agent of the firm for the purpose of the business of the firm. According to Law of agency rule, no agent can deal on his own account in the business of agency without the consent of his principal Section 215, ICA. If an agent without the consent of his principal, deals in the business of agency on his own account instead of on account of his principal, the principal is entitled to claim from the agent any benefit which may have resulted to him from the transaction Section 216 ICA.

84. Duty to account for personal profits Section 215 of ICA Right of principal when agent deals, on his own account, in business of agency without principal’s consent—If an agent deals on his own account in the business of the agency, without first obtaining the consent of his principal and acquainting him with all material circumstances which have come to his own knowledge on the subject, the principal may repudiate the transaction, if the case shows, either that any material fact has been dishonestly concealed from him by the agent, or that the dealings of the agent have been disadvantageous to him.

85. Duty to account for personal profits Section 216 of ICA Principal’s right to benefit gained by agent dealing on his own account in business of agency—If an agent, without the knowledge of his principal, deals in the business of the agency on his own account instead of on account of his principal, the principal is entitled to claim from the agent any benefit which may have resulted to him from the transaction.

86. Duty to account for personal profits Bentley v Craven 1853 Partner who is himself whole sale dealer supplied his own sugar to firm and earned profit out of this without giving any knowledge to other partner. Held that he was bound to account to the firm for the profit made by him. If any partner purchases the property of the firm without the knowledge to other partners and gain some benefit out of this transaction then he has to account for that benefit to the firm.. Gordon v Holland 1913, a partner sold the land belonging to the firm to a purchaser and then repurchased that land himself, it was held that all the benefits made by this partner on re-purchase of the land had to be given to the firm.

87. Duty not to carry on any competing business Section 16(b) Section 16(b) “if a partner carries on any business of the same nature as and competing with that of the firm, he shall account for and pay to the firm all profits made by him in that business.” The principle is well established by the authorities that “a partner is not to derive any exclusive advantage by engaging in transactions in rivalry with the firm Dean v Macdowell 1878 . A partner is supposed to devote himself solely to the business of the firm. A partner must not carry on competing business to that of the firm. If he carries on and earns any profit then he must account for the profit made and pay it to the firm.

88. Duty not to carry on any competing business If a partner carries on any business of the same nature as of the firm and competing with that of the firm, then in such a case, the partner shall account for and pay to firm all profits made by him in that business. Section 11(2) provides, partners can by agreement make restraint for doing any business other than the business of the firm. But Section 16 (b) prohibits only that business which is competing with the business of the firm.

89. Duty not to carry on any competing business According to Section 27 of ICA, an agreement in restraint of Trade is void. According to it, an agreement in relation to any type of restraint whether absolute or partial whether in relation to any kind of business will be void to that extent. Section 11(2) provides an exception to this rule according to which a partner shall not carry any business other than the business of the firm, while he is a partner. So it means that this clause is applicable only when he is a partner, so, when that partner retires, he can do any business of his choice.

90. Duty not to carry on any competing business Section 11(2), the partners can lawfully make a contract that a partner shall not carry on any business other than that of the firm while he is a partner. Such a contract protects the interests of the partners in partnership and has been declared to be valid inspite of the rule contained in Section 27 ICA , which declares an agreement in restraint of trade as void. If such an agreement has been entered into then the question of any partner carrying on any other business, competing or non-competing, does not arise. Injunction can be obtained against a partner who after making such a contract tries to carry on some business other than that of the firm.

91. Duty not to carry on any competing business However, even if there is no such agreement between the partners, it is expected that a partner shall not carry on a competing business, otherwise he will have to account for the profits of that business to the firm. If the business carried on by a partner is not of the same nature and is not in competition with the firm the partner concerned may retain the profits of that business to himself. The above-stated rule is subject to contract between the partners and therefore it is possible that a partner may be permitted by a contract to carry on competing business and also to retain the profits of that business with himself.

92. Duty not to carry on any competing business If a partner carries on any personal business in breach of this Kind of agreement, he may not be liable to account for his profits, but his co-partners may apply under Section 44(d) for dissolution of the firm on the ground of persistent breach of agreement.

93. Other Duties Duty to share losses : It is the duty of the partners to bear the losses of the firm. Partners share the losses equally when there is no agreement or as per their profit share ratio. Duty to act within authority: Every partner is bound to act within the scope of authority. If he exceeds his authority and the firm suffers from any loss, he shall have compensated the firm for such loss.

94. Other Duties Duty to be liable jointly and severally: Every partner is jointly and individual liable to the third parties for all acts of the firm done while he is a partner. Duty not to assign his interest: A partner cannot assign or transfer his partner interest to an outsider so as to make him the partner of the firm without the consent of other partners.

95. Rights and duties of partners These rights and duties will be implied in the partnership unless the partnership agreement provides to the contrary i.e. makes any variation in the said rights and duties. Similarly, subject to a contract to the contrary, if a partner derives any profit for himself from any transaction of the firm or from the use of the property or business connection with the firm or the firm name he is liable to account for the profit and pay it to the firm, and if the partner carries a business of the same nature as and competing with that of the firm, he shall account for and pay to the firm all profits made by him in that business.

96. RIGHTS AND DUTIES OF PARTNERS AFTER A CHANGE IN THE FIRM Section 17 Rights and duties after a change take place in the constitution of the firm, it may occurs in one of the four ways: -Where a new partner or partners come in -where some partner or partners go out, i.e. by death or retirement -where the partnership concerned carries on business other than the business for which it was originally formed -where the partnership business is carried on after the expiry of the term fixed for the purpose

97. RIGHTS AND DUTIES OF PARTNERS AFTER A CHANGE IN THE FIRM Section 17 Subject to contract between the partners, - where a change occurs in the constitution of a firm, the mutual rights and duties of the partners in the reconstituted firm remain the same as they were immediately before the change, as far as may be; AFTER THE EXPIRY OF THE TERM OF THE FIRM. where a firm constituted for a fixed term continues to carry on business after the expiry of that term, the mutual rights and duties of the partners remain the same as they were before the expiry, and so far as they may be consistent with the incidents of partnership-at-will; and WHERE ADDITIONAL UNDERTAKINGS ARE CARRIED OUT. where a firm constituted to carry out one or more adventures or undertakings carries out other adventures or undertakings, the mutual rights and duties of the partners in respect of the other adventures or undertakings are the same as those in respect of the original adventures or undertakings.

98. RIGHTS AND DUTIES OF PARTNERS AFTER A CHANGE IN THE FIRM Section 17 This section contemplates 3 kinds of changes in a partnership firm: Change in the constitution of the firm: A change in the constitution of the firm occurs either when a new partner is admitted or a partner ceases to be a partner by retirement, expulsion, insolvency or death. Business continued after the expiry of the term: Partners may have originally agreed to carry on the business only for a fixed term , eg they become partners for a term of 5 years. It is possible that inspite of the completion of the term of 5 years partners do not close down the business, but continue to run the same.

99. RIGHTS AND DUTIES OF PARTNERS AFTER A CHANGE IN THE FIRM Section 17 3 Carrying out additional undertakings: A firm may have been constituted to carry out one or more adventures or undertakings but subsequently the partners may decide to carry out some more adventures or undertakings. Inspite of these changes the mutual rights and duties of the partners continue to be same as they were existing earlier. This rule is however subject to contract between the partners. The partners may by a contract vary their rights and duties when one or the other of the changes take place.

100. RIGHTS AND DUTIES OF PARTNERS AFTER A CHANGE IN THE FIRM Section 17 The terms of the old firm will apply to the new firm which arises after the change only to the extent to which they are applicable. The new firm becomes a firm “at will” and only such terms will survive as are consistent with a firm “at will”. Eg the right to ask for arbitration and that of a sleeping partner to participate in profits remain unaffected. But a term laying the period for a notice to dissolve the firm would not to be applicable as it is against the concept of a firm at will. Featherston Rangh v Fenwick 1810

101. Partnership Property Business law

102. Partnership Property For several purposes of the law of partnership it becomes necessary to determine the joint property of the partners, that is, the property of the firm as opposed to the personal property of the partners. For example, on the dissolution of a firm, the firm debts are first paid out of the joint assets. Again, partnership property can be used only for the purposes of the business of the firm. Further, during the subsistence of the partnership, no partner can deal with any portion of the property as his own. Nor he can assign his interest in a specific item of the partnership property to anyone.

103. Concept and nature of partnership property Theoretically, of course, a partnership, being not a legal person, is not of owning any property and the so-called property of the firm is nothing but the joint estate of all the partners, yet, for all practical purposes, the joint estate is regarded as so much separate from the partners that none of them can claim any personal ownership over any item of it .

104. Concept and nature of partnership property Section 14, “THE PROPERTY OF THE FIRM- “Subject to contract between the partners, the property of the firm includes all property and rights and interest in property originally brought into the stock of the firm, or acquired, by purchase or otherwise, by or for the firm for the purposes and in the course of the business of the firm, and includes also the goodwill of the business. Unless the contrary intention appears, property and rights and interest in property acquired with money belonging to the firm are deemed to have been acquired for the firm.”

105. Concept and nature of partnership property The expression ‘property of the firm’ also referred to as ‘partnership property’, ‘partnership assets’, ‘joint stock’, ‘common stock’ or ‘joint estate’, denotes all property, rights and interest to which the firm, that is a, all partners collectively may be entitled. The property which is deemed as belonging to the firm, in the absence of any agreement between the partners showing contrary intention, is comprised of the following items: -all property, rights and interest which partners may have brought into the common stock as their contribution to the common business; -all the property, rights and interest acquired or purchased by or for the firm, for the purposes and in the course of the business of the firm; and -goodwill of the business

106. Concept and nature of partnership property The determination of the question whether a particular property is or is not property of the firm ultimately depends on the real intention or agreement of the partners. Thus, the mere fact that the property of a partner is being used for the purposes of the firm shall not by itself make it partnership property, unless it is intended to be treated as such. Partners, may by an agreement at any time, convert the property of any partner or partners or separate property of any partner into a partnership property.

107. What constitutes partnership property 1) Property originally brought in It is for the partners to determine by their agreement what shall be the property of the firm. Section 14 lays down rules for ascertaining the intention of the partners for this purpose. 1. Property originally brought in: The first rule is that unless a different intention appears, the property of the firm includes all property, and rights and interests in property originally brought into the stock of the firm. In other words, whatever property is thrown into the common stock at the commencement of business becomes the property of the firm. Thus where a grocer, provision dealer and wine merchant took two partners into the business who contributed no capital and the merchant continued to purchase stock-in-trade for the firm with his own money, it was held, on the bankruptcy of the firm, that the stock-in-trade had become the property of the firm.

108. What constitutes partnership property In Miles v Clarke 1953, the plaintiff and the defendant constituted a partnership of professional photographers. The leasehold premises, furniture and the studio equipment belonged to the defendant, but both partners contributed to the stock-in-trade. On the dissolution of the firm, it was held that only the stock-in-trade was joint property, the rest remaining the personal property of the defendant.

109. What constitutes partnership property In case of B.N. Murthy & Sons v. V.V. Sugana , 1978 before the Andhra Pradesh High Court, five persons purchased a land jointly. Subsequently a cinema hall was constructed with their joint money. They then formed a firm to exhibit films there. The land and the hall were held not to have become the property of the firm. They remained co-owners because there was no evidence at all of their intention to convert the property into that of the firm .

110. What constitutes partnership property Goodwill and Trade Marks: Section 14 specifically lays down that the goodwill of a business is subject to a contract between the partners, to be regarded as ‘property’ of the firm. But this section does not define the term Good will. ‘goodwill’ is a concept which is very easy to understand but difficult to define. Goodwill may be defined as the value of the reputation of a business house in respect of profits expected in future over and above the normal level of profits earned by undertaking belonging to the same class of business.

111. What constitutes partnership property When a partnership firm is dissolved every partner has a right, in the absence of any agreement to the contrary, to have the goodwill of business sold for the benefit of all the partners. Goodwill is a part of the property of the firm. It can be sold separately or along with the other properties of the firm. Any partner may upon the sale of the goodwill of a firm, make an agreement with the buyer that such partner 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 . Such agreement shall be valid if the restrictions imposed are reasonable.

112. What constitutes partnership property Commr of Gift Tax v. Chhotala Mohan Lal, 1987 SC, Though trademarks, patents, copyrights, etc., are not specifically mentioned, they being important rights, constituting what is described as an intellectual property, have to be regarded as property of the firm.

113. What constitutes partnership property 2) Property subsequently acquired 2. Property subsequently acquired: The next rule is that the property acquired, by purchase or otherwise, by or for the firm, or for the purposes and in the course of the business of the firm, belongs to the firm – Wray v. wary, 1905 (2) Ch 349. Where a property is acquired with the money belonging to the firm arid also in the name of the firm, no doubt arises as to its being the property of the firm. Where a property is purchased with the money of the firm, but in the name of a partner, the presumption is that it belongs to the firm.

114. What constitutes partnership property Thus, where one partner bought shares in his own name, but with the money of the firm, the shares were held to be partnership property. Similarly, where the partners affected assurance of their lives for which premiums were paid out of the money of the firm, the policies were held to be the property of the firm. Again, where a partner renews a lease of the firm in his own name, the renewed lease is a property of the firm – Debi Prasad v. Jai Ram , 1952.

115. What constitutes partnership property Property Acquired in Breach of Duty: When something of valuable nature is acquired by a partner in breach of his duty of good faith, it is taken to be acquired for the benefit of all the partners and has to be accounted for to the firm.

116. What constitutes partnership property 3) Partner's property in firm's use 3. Partner's property in firm's use: Where the personal property of a partner is being used in the business of the firm, it is a question of fact to be determined by reference to the parties’ intention whether it has become the property of the firm. The well-known illustration is the case of Robinson v Ashton , 1875 The owner of a cotton-mill entered into partnership with two others. The business was carried on at his mill. The value of the assets of the mill was credited to his capital account and he was allowed interest on it. The mill was enlarged and improved by the firm and also new buildings were erected on land acquired by the firm. It was held that the mill had become the property of the firm.

117. What constitutes partnership property In Davis v. Davis , 1894 Where a father left for his two sons his business and three houses in equal shares. They let out one of the houses and employed the rent in the development of the business of the workshop, which was attached to the two houses. It was held that the houses were not a part of their joint estate. Mere use of a partner's property by the firm does not make it a property of the firm. In this case, one partner contributed his land and the other constructed the cinema hall built on it in keeping with the agreement to run it in partnership. The court said that the land had remained the property of the lady owner and the person who had provided the structure on it had the right to remove it.

118. What constitutes partnership property Where the property is exclusively belonging to a person, it does not become a property of the partnership merely because it is used for the business of the partnership, such property will become property of the partnership if there is an agreement.

119. What constitutes partnership property Partner's Personal Trade Marks: In reference to trade marks, it has been laid down: "Upon the formation of a partnership with a person entitled to a trade mark, such mark will, in the absence of express intention in relation to it, become an asset of the partnership, for the whole trade is carried on by the partnership, and the trade mark is but one element in it. Such a trade mark is, therefore, capable to being assigned by the partnership and the court will, after an assignment to a purchaser, restrain the firm, or any partner in it, from himself using the mark and from assigning it to any other person - Bury v. Bedford , 1864.

120. What constitutes partnership property In reference to a patent it has been laid down. When a partnership at will is formed, for the purpose of working an invention for which a patent has previously been taken out by and registered in the name of one of the partners alone, the patent becomes an asset of the partnership, and each partner acquires a right to practice the invention; and this right is not taken away by the registered owners, assigning the patent to third parties who have notice of the existence of the partnership.”

121. What constitutes partnership property Partner's House Property in Firm's Use: In case of Jafferali Bhaloo Lakha v. Standard Bank of South Africa , 1928 before the Privy Council, a person established his personal business and also acquired some separate property in which the business was carried on. He made a deed of gift of all that he possessed in favour of his six sons, and then died. It being found as a matter of fact that his sons became partners in the business, the question 'arose whether the house property in which the business was carried on became the property of the firm. Their Lordships said: "Was this house part of the partnership assets? It has been found by the court that it was part of the business assets, and of the partnership assets.

122. What constitutes partnership property Partner's Personal License: Where a license to run a cinema hall was issued in the name of a partner in his individual and personal capacity, the Supreme Court held that the other partner would not get an automatic right to work the license, A stipulation in the partnership deed that the licensed premises, including the cinematograph under use there and the right to operate the cinema license, would be the property of the firm, could not make the license a joint property of the partners, though such a provision may enable the other partners to share the profits earned under the licensed business – Ved Gupta v. Apsara Theaters , 1983

123. What constitutes partnership property Partner's Tenancy Rights: In Jayalakshmi v Shanmugham , 1988 the question arose before the Kerala High Court as to whether and under what principles the tenancy rights of a partner in the premises where the business of the firm is being carried on would become the property of the- firm. The court noted the provisions of Section 14 and also the fact that the goodwill of the firm, being the property of all the partners, attaches to the firm's place of business and came to the conclusion that the overriding principle is that the property of a partner, whether it be in the shape of a tenancy right or anything else, cannot become the property of the firm by the mere fact that it was being used in business.

124. What constitutes partnership property 4) Conversion of joint into separate property 4. Conversion of joint into separate property: Where certain property is purchased with partnership money, but in the name and for the sole benefit of a partner, he becoming debtor to the firm for the purchase money, it becomes the personal property of the partner. Similarly, where on the dissolution of a firm, a part of the joint properties is allotted to a partner, it becomes his separate property – N. Khandelwal Saheb v. N. Guda Saheb , 2003

125. What constitutes partnership property Partnership is an intangible relationship between two or more people. It arises only out of a contract, which may be express or implied. If two or more persons work in the same business and agree to share profits and losses, it is still not a partnership unless there is mutual agency. A partner plays the role of an agent as well as that of a principal with respect to the other partners in the firm. There are certain rights and duties in the partnership unless the partnership agreement provides to the contrary i.e. makes any variation in the rights and duties as mentioned above. The property of a partnership firm will consist of all the assets, moveable and immoveable brought in by any or all the partners into the firm and also include the goodwill.