2. Incoming partner
• Section 31(1): no person shall be introduced as a partner into
a firm without the consent of all the existing partners. This is
subject to contract between the partners.
• Section 31(2): subject to the provisions of section 30, a person
who is introduced as a partner into a firm does not thereby
become liable for any act of the firm, before he became a
partner.
• Section 30(7) where a minor who has been admitted to the
benefits of partnership, elects to become a partner after
attaining majority, becomes personally liable to third parties
for all acts of the firm done since he was admitted to the
benefits of partnership.
3. Liability
• An incoming partner will not be liable for any act
of the firm done before he became a partner.
• But he can contract with the existing partners
that he will be remain for the past debts of the
firm.
• As regards the creditors, they can get this
contract enforced only when they have given
their clear consent to the effect that they exempt
the old firm from the debts and will hold the new
firm liable for the debts.
• Thus complete novation is essential.
4. continued
• For liability of new partner for existing debts
following must be proved-
• The new firm has taken the liability to pay the
existing debts.
• The creditors have exempted the debts of the
old firm and have agreed or given their
consent that they will realize their debts from
the new firm.
5. Outgoing partner
• A partner may leave the firm in any of the
following ways-
• With the consent of all other partners-
section 32(1) (a) - a partner may retire with
the consent of all other partners
• With an express agreement by partners- a
partner may retire by mutual agreement of
the partners. The agreement must be express
• Section 32(1)(b)- a partner may retire in
accordance with an express agreement by
partners.
6. Vishnu Chandra V Chandrika Prasad Agarwal
• SC- whether plaintiff was entitled to retire from the firm on
the basis of the partnership deed?
• Para 18 of the deed provided that if a partner wanted to leave
the firm he could do so by giving a month’s notice to other
partners but in such a situation partnership business would
not stop.
• Para 20 provided that no partner will leave the firm within
one year of the commencement of the business. In case he
left the firm with in one year of the commencement of the
business his capital shall not be returned by the end of one
year.
• SC observed- clause specifies that a partner may dissociate
from the partnership is nothing but a situation where a
partner wants to retire
7. Continued..
• The first part of section 18 confers a right on the partner to
retire from partnership as envisaged by section 31(1)(b) of the
act.
• The second part of clause 18 provides for the consequence of
such retirement by providing that even on such retirement
the partnership will neither be dissolved nor the business will
come to an end.
• The court concluded that any partner may retire after giving a
month’s notice. There is no prohibition from retiring within
one year of the commencement of the business. The
consequences of retiring within one year will be that the
capital will not be returned by the end of one year.
8. By giving notice to all other partners in case of partnership at will
• Section 32(1) ( c) a partner may retire where the partnership
at will, by giving notice in writing to all other partners of his
intention to retire.
• Notice must be in writing and must express an intention to
retire.
• By Expulsion- section 33(1) a partner may not be expelled
from a firm by any majority of the partners, save in the
exercise of good faith of powers conferred by contract
between the partners.
• For a partner to be expelled by a majority of partners, two
conditions must be satisfied-
• Such power must have been conferred by contract between
the partners.
• The power to expel a partner conferred under the contract
between partners must be exercised in good faith.
9. Insolvency of partner
• Where a partner in a firm is adjudicated an insolvent
he ceases to be a partner on the date on which the
order of adjudication is made, whether or not firm is
thereby dissolved.
• Section 42(d)- provides that subject to contract
between the partners, a firm is dissolved by the
adjudication of a partner as an insolvent.
• Thus, the partners may by contract provide that the
firm shall not be dissolved on the insolvency of a
partner.
• But as provided in section 34(1) whether the firm is
dissolved or not, on adjudication of insolvency of a
partner, he ceases to be a partner in the firm.
10. Continued.
• Section 34(2) where under a contract
between the partners the firm is not dissolved
by the adjudication of a partner as an
insolvent, the estate of a partner so
adjudicated is not liable for any act of the firm
and the firm is not liable for any act of the
insolvent, done after the date on which the
order of adjudication is made.
11. By death
• Section 42(c ) : subject to the contract between
the partners a firm is dissolved by the death of a
partner.
• Thus partners may by contract provide that on
the death of a partner the firm will not be
dissolved. But if there is no such agreement, the
firm will be dissolved on the death of a partner.
• Section 35- where under a contract between the
partners the firm is not dissolved by the death of
a partner, the estate of the deceased partner is
not liable for any act of the firm done after his
death.
12. Liability of Retired Partner
• Liability for acts done before his retirement
• Liability for the acts done after his retirement.
• 1. liability for acts done before his retirement- so
long a person remains a partner in a firm, he remains
bound by the acts of the firm.
• Section 25- every partner is jointly and severally
liable to the firm; section 18- partners is the agent of
the firm for the purpose of the business of the firm.
• Thus even after his retirement , a partner remains
liable for the acts of he firm done before his
retirement. But he may be discharged from his
liability by contract between third parties and the
partners of reconstituted firm.
13. 2.Liability for acts done after his retirement
• A partner is not liable for acts of the firm done after
his retirement.
• Section 32(3)- notwithstanding the retirement of a
partner from a firm, he and the partners continue to
be liable as partners to third parties for any act done
by any of them which would have been an act of the
firm if done before the retirement, until public notice
is given of the retirement.
• provided that a retired partner is not liable to any
third party who deals with the firm without knowing
that he was a partner.
14. Section 72
• A public notice under this Act is given—
• (a) where it relates to the retirement of a partner from a
registered firm, or to the dissolution of a registered firm, or
to the election to become or not to become a partner in a
registered firm by a person attaining majority who was
admitted as a minor to the benefits of partnership, by
notice to Registrar of Firms under section 63(Recording of
changes and dissolution of firm), and by publication in the
Official Gazette and in at least one vernacular newspaper
circulating in the district where the firm to which it relate
has its place or principal place of business, and
• (b) in any other case, by publication in the Official Gazette
and in at least one vernacular newspaper circulating in the
district where the firm to which it relates has its place or
principal place of business.
15. Rights of outgoing Partner
• Right of outgoing partner to carry on competing business
• Section 11(2) : a partner shall not carry on any business other than
that of the firm while he is a partner.
• 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
• Section 36(1)- An outgoing partner may carry on a business
competing with that of the firm and he may advertise such
business, but, subject to contract to the contrary, he may not,—
(a) use the firm name,
• (b) represent himself as carrying on the business of the firm, or
• (c) solicit the customers of persons who were dealing with the firm
before he ceased to be a partner.
16. Agreement in restraint of trade
• Sec 36(2) : A partner may make an agreement with
his partners that on ceasing to be a partner he will
not carry on any business similar to that of the firm
within a specified period or within a specified local
limits; and, notwithstanding anything contained in
section 27 of the Indian Contract Act, 1872 (9 of
1872), such agreement shall be valid if the
restrictions imposed are reasonable.
17. Right of outgoing partner in certain cases to share subsequent profits
• Section 37: Where any member of a firm has died or
otherwise ceased to be a partner, and the surviving
or continuing partners carry on the business of the
firm with the property of the firm without any final
settlement of accounts as between them and the
outgoing partner or his estate, then, in the absence
of a contract to the contrary, the outgoing partner or
his estate is entitled at the option of himself or his
representatives to such share of the profits made
since he ceased to be a partner as may be
attributable to the use of his share of the property of
the firm or to interest at the rate of six per cent. per
annum on the amount of his share in the property of
the firm:
18. Continued..
• Provided that whereby contract between the
partners an option is given to surviving or
continuing partners to purchase the interest of a
deceased or outgoing partner, and that option is
duly exercised, the estate of the deceased
partner, or the outgoing partner or his estate, as
the case may be, is not entitled to any further or
other share of profits;
• but if any partner assuming to act in exercise of
the option does not in all material respects
comply with the terms thereof, he is liable to
account for the same.
19. continued
• Section 37 applies in the following cases-
• Where a member of the firm has died or has
ceased to be a partner and
• The remaining partners carry on the business
of the firm without any final settlement of
accounts with the retiring partner or his
estate.
20. Section 38
• A continuing guarantee to a firm, or to a third
party in respect of the transaction of a firm is
in the absence of agreement to the contrary
revoked as to future transactions from the
date of any change in the constitution of the
firm
