Chapter: 1.2 Relations of Partners to One Another in the Indian Partnership Act

Relations of Partners to One Another

Section 9 - General Duties of partners.

As per Section9 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 true accounts and full information of all things affecting the firm, any partner or his legal representative.

In other words the duties of the partners, in general, are as follows:

(a) To act to the greatest common advantage;
(b) To be just and faithful to each other;
(c) To render true accounts; and
(d) To render full information;

Section 10 - Duty to indemnify for loss caused by fraud:

As per 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.

Fraud - This section is mandatory and not subject to a contract to the contrary, so that there is no doubt that a partner cannot contract him out of liability for fraud, as he may do in the case of willful default. The innocent partners of a firm are liable to third parties for the fraud of one of them, but under this section they are entitled to proceed against the partner who has committed the fraud.

Section 11

(a) 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 the contract between the partners, and such contract may be expressed or implied by a course of dealing. Such contract may be varied by consent of all partners, and such Consent may be expressed or be implied by a course of dealing.

(b)Agreement in restraint of trade:

Notwithstanding anything contained in sec. 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 partner.

"Subject to provisions of this Act"

These words are intended to show that a partnership contract will be subject to the provisions of this Act.

Section 12 - The conduct of the business:

As per Section 12, subject to contract between the partners
(a) Every partner has a right to take part in the conduct of the business;
(b) Every partner is bound to attend diligently to his duties in the conduct of the business.
(c) 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; and
(d) Every partner has a right to have access, to inspect or to copy any of the Books of the firm.

Section 13 - Mutual rights and liabilities:

As per Section 13, subject to contract between the partners
(a) A partner is not entitled to receive remuneration for taking part in the conduct of the business;
(b) The partners are entitled to share equally in the profits earned and shall contribute equally to the losses sustained by the firm;
(c) Where a pa tner 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 an advance beyond the amount of capital he has agreed to subscribe, is entitled to interest there upon at the rate of six percent per annum;
(e) 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; and

(f) 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.

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, or 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, rights and the interests in property acquired with money belonging to the firm are deemed to have been acquired for the firm.

Section 15 - Application of the property of the firm:

As per Section 15, subject to contract between the partners, the property of the firm shall be held and used by the partners exclusively for the purposes of the business.

Use of partnership property:

The rule laid down in this section is subject to the contract between the parties. The words "shall be held and used exclusively for the purposes of the business" indicate that the partnership property must be used exclusively for the partnership business. The word "exclusively" would indicate that such property is not used for the purpose other than the partnership business. So a mortgage of partnership property by a partner for his own benefit is invalid.

If a partner uses the property of the firm for his own purposes, he will be liable to account to the firm for the profits, if any, that he may make.

Section 16 - Personal profits earned by partners.

As per Section 16, subject to contract between

the partners
(a) If a partner derives any profit for him 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 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.