Rights ,duties and liabilities of partners in partnership

Rights , Duties &Liabilities of partners , of one partner to another partner and partners to a partnership firm under Indian Partnership Act.

1. Presentation on- RIGHTS,DUTIES AND LIABILITIES OF PARTNERS IN PARTNERSHIP BY-SHIVANI TIWARY 2019-47 BA .LLB ( Sem II) DAVV

2. TABLE OF CONTENTS SERIAL NO . TITLE 1. INTRODUCTION . 2. RIGHTS OF PARTNERS . 3. DUTIES OF PARTNERS . 4. LIABILITIES OF PARTNERS . 5 . CASE LAWS . 6. CONCLUSION . 7. BIBLIOGRAPHY .

3. INTRODUCTION In a partnership, the partners are free to form an agreement and decide the mutual rights and duties. Relation of partners in the partnership is of utmost good faith, therefore, it is the duty of every partner to work for the greatest common advantage of the firm and to work diligently in order to avoid any loses to 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 agreement between the partners, these rights can be abrogated by entering into an agreement to the contrary. While deciding the shares of the partners in a firm it becomes highly important to determine the partnership property. Theoretically speaking, the partnership property is nothing but the joint property of all the partners. 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 and duties of the partners.

4. Rights of a Partner: 1. Right to Take Part in the Conduct of the Business Sec. 12(a) stipulates that each partner in a business partnership have the right to take part in the business proceeding. But this right is subject to a contract to the contrary. However, this right may be waived by a partner himself. 2. Right to be Consulted In case of matters affecting the business, each partner can has the right to be consulted. Further, every partner has the right to express his views in front of other partners also. Sometimes, difference of opinion arises among the partners. If it is over an ordinary matter, the same may be settled by a majority of the partners, whereas if it is over a fundamental matter, it can be settled only with the consent of all the partners. 3. Right to have Access to Books Every partner in a business partnership can access and inspect any of the books of the firm as per law. It can be exercised either by the partner himself or by his authorized agent. The partners cannot object to inspection of books by the agent of a partner, unless they have a reasonable ground for believing that the trade secrets might be leaked out. 4. Right to Share Profits Every partner is entitled to have equal share in the profits of the firm. At the same time, the partners are equally liable to all the losses sustained by the firm unless otherwise agreed upon as per the partnership agreement.

5. 8 . Right to the Use of the Partnership Property In the absence of any contract to the contrary, each partner is presumed to have an equal share in the property of the partnership and is entitled to have them held and used only for the purpose of the business. Partners should not use it as their own property.When at any point of time, a partner uses the property of the business firm to his own benefit either directly or indirectly, the profits thus earned are accountable to the firm. 9 . Power in an Emergency As per the Indian Partnership Act, a partner is vested with the powers to initiate action to safeguard the firm from loss. 5 . Right to Interest on Capital Ordinarily, no interest is payable to the partners. However, if it is allowed by an express or implied agreement or by the custom of trade, a partner can charge interest on capital. In such a case also, interest shall be paid only out of profits. 6 . Right to be Indemnified The partner of a firm is entitled be indemnified by the firm in the following circumstances: Expenses incurred in the ordinary course of business, and Expenses incurred in an emergency. 7 . Right not to be Expelled Every partner has a right not to be expelled from the firm unless there is a clause in the partnership agreement that give power to the majority of the partners to expel him in good faith.

6. Duties of a partner: Section 9: General duties of a partner Partners are legally bound to carry on the business of the partnership firm. The general responsibilities of a partner are listed below : A partner is required to carry on the business to the highest common advantage. A partner is required to be just and faithful to each other. ( Uberrima f idei ) A partner has to render to any other partner or his legal representative about the true account and all the information of all the things affecting the partnership firm . Section 10: To indemnify for fraud According to Section 10, a partner of the partnership firm is liable to compensate the firm for any damages caused to its business or the firm because of a partner’s fraud in the conduct of the business of the firm. Section 12(b) & Section 13(a): To attend duties diligently without remuneration According to Section 12(b) of the Indian Partnership Act, every partner is legally bound to attend to his duties diligently to his duties relating to the conduct of the firm’s business. Moreover, Section 13(a) enumerates that a partner is not, however, generally entitled to remuneration for participating in the conduct of the business. A partner is also bound to let his partners have the advantage of his knowledge and skill. Section 13(f ): To indemnify for willful neglect According to the Section, a partner of a partnership firm must compensate the firm for any damages or loss caused to it by willful neglect in the conduct of the business of the firm.

7. Section 13(b): To share losses All the partners of a partnership firm are liable to contribute equally to the injury sustained by the firm . Section 16(a): To account for any profit If a partner of a partnership firm derives any profit for himself for any transaction of the firm or from the use of the property or business connection of the firm or firm’s name, then the partner is bound to account for that profit and refund it to the firm . Section 16(b): To account and pay for profits of competing for business If a partner carries on a company of the same nature as the firm and competes with that of the firm, the partner must be accountable for and pay to the firm all the profits made in the business by the partner. The partnership firm will not be held liable for any losses caused in the business.

8. Liabilities of a partner: 1. Liability of a partner for acts of the firm : Every partner is jointly and severally liable for all acts of the firm done while he is a partner. Because of this liability, the creditor of the firm can sue all the partners jointly or individually . 2. Liability of the firm for wrongful act of a partner : If any loss or injury is caused to any third party or any penalty is imposed because of wrongful act or omission of a partner, the firm is liable to the same extent as the partner. However, the partner must act in the ordinary course of business of the firm or with authority of his. 3. Liability of the firm for misutilisation by partners : Where a partner acting within his apparent authority receives money or property from a third party and misutilises it or a firm receives money or property from a third party in the course of its business and any of the partners misutilises such money or property, then the firm is liable to make good the loss. Liability of an incoming partner: An incoming partner is liable for the debts and acts of the firm from the date of his admission into the firm. However, the incoming partner may agree to be liable for debts prior to his admission. Such agreeing will not empower the prior creditor to sue the incoming partner. He will be liable only to the other co-partners .

9. CASE LAWS 5. Liability of a retiring partner: A retiring partner is liable for the acts of the firm done before his retirement. But a retiring partner may not be liable for the debts incurred before his retirement if an agreement is reached between the third parties and the remaining partners of the firm discharging the retiring partner from all liabilities. After retirement the retiring partner shall be liable unless a public notice of his retirement is given. No such notice is required in case of retirement of a sleeping or dormant partner …

10. In   Pullin Bihari Roy v. Mahendra Chandra Ghosal , there was a partnership for buying and selling of the salt. One of the partners while buying the salt for the firm, bought some quantity of salt for himself and then gained profit by selling it on his personal account. He was held to be liable to account to his co-partners for the profits earned. However, a partner can carry on any business which is outside the scope of the business of the firm . In  Law v. Law ,[4] it was held by the court that if a partner is in possession of some extra information then he is bound to deliver it to the co-partners. If the partner enters into a contract with other co-partners without furnishing them the material details which is known to him but not his co-partners then such a contract is  voidable.

11. Facts of the case  --           In this case, Mr. Smith and his son were carrying on partnership business as 'M/s. Smith and son. Owing (due) to financial difficulties, they assigned the business to their creditors and executed an agreement/ document to the effect. According to the agreement, the business was to be managed by five trustees representing the creditors under the name of 'Stanton Iron Co'. The trustees include Cox and Haywood. The net income/profit (after paying off the creditors) was to be distributed by the trustees. After all the creditors had been paid off, the business had to be re transferred to M/s. Smith and son. The creditors were empowered to discontinue the business or to make rules for conducting the business. While the business was being managed by the trustees, Hickman, plaintiff in this case supplied goods to the firm (and draw a bill , which was accepted by Haywood I.e. Haywood had undertaken to pay) Cox did not accept the trusteeship and did not take part in the transaction. Hickman sued the firm for payment treating Cox and Haywood as partners. Judgment  ---       The House of Lords Held that there was no partnership and Cox was not liable. Lord Cranworth held that participation in profits is not the decisive test of a partnership. The true test is, whether there exists 'mutual agency' between/among the partners. COX V HICKMAN (1860)

12. CONCLUSION In a partnership, the partners are free to form an agreement and decide the mutual rights and duties . Relation of partners in the partnership is of utmost good faith, therefore, it is the duty of every partner to work for the greatest common advantage of the firm and to work diligently in order to avoid any loses to 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 agreement between the partners, these rights can be abrogated by entering into an agreement to the contrary. While deciding the shares of the partners in a firm it becomes highly important to determine the partnership property. Theoretically speaking, the partnership property is nothing but the joint property of all the partners. 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 and duties of the partners.

13. BIBLIOGRAPHY ~ Bare Act of Indian patrnership Act,1932 . ~ www.preservearticles.com . ~ blog.ipleaders.in . ~ IndianKanoon.org .