RELATIONSHIP OF ONE PARTNER WITH ANOTHER

INTRODUCTION –

Having done the types of partner, let’s get forward and learn more about rights and duties of a partner which will give us a proper insight of the provisions laid out in the Indian Partnership Act, 1932 and it will help us to recall the necessary details regarding partners, their roles, duties, liabilities, insolvency, retirement, expulsion, etc.

It is very important to note that the sections which will be dealt in this article are from S. 9 to S. 13 and S. 16 and 17 of IPA, 1932. But likewise, these aren’t the only sections for all the parts already mentioned. One might wonder, why we give importance to all of these sections and business related aspect in law, as law is this one thing which is required everywhere and it is that one thing which exists in our society as the binding link for all of us and, similarly, the Partnership Act works quite efficiently for the Business, anyone up for business school must remember these simple yet utterly complex laws.

What do you think, ‘is showing the books of record or accounts’ a right of all or any of the partners? Or, do you think a partner can be a guarantor for the losses incurred by other partner, or, can they act as agent and principal of each other at the same time? So, for all of these answers let us get a deeper knowledge of the Ss. 9 to 13 of the Indian Partnership Act. These sections are –

1. General duties of partner (S.9)
2. Duties to indemnify the loss incurred by fraud (S.10)
3. Determination of rights and duties of partner by contract between the partners (S.11)
4. The conduct of the business (S.12)
5. Mutual rights and liabilities of partners (S. 13)

Let us understand all of these sections with a single example, suppose A, B, C and D are four partners ‘A’ looks into the account as he is well acquainted with the business transaction and is better than any of the other, ‘B’ has the duty to talk to third parties and get clients for the business, ‘C’ looks into the production and ‘D’ looks into the Technical and Management aspect of their business. Now, keep this example in mind while we get to know about these sections.

GENERAL DUTIES –

S. 9 in a very simple language talks about the General Duties of Partners, if we say ‘A’ handles the account for the firm, then he must be just and faithful towards the other partners – B, C and D, this can be rendered by telling all the profits and losses incurred, and making the business first priority in very simple sense.

It can be divided as follows –

1. Partners are bound to carry on the business of the firm to the greatest common advantage,
2. To be just and faithful to each other,
3. And, to render true accounts and full information of all things affecting the firm to any partner or his legal representative.

A partner must look for the utmost good faith while dealing with any aspect of the business.

PROVISION RELATED TO INDEMNIFY THE LOSS –

Now, for next section, i.e., S. 10, we must remember and know the meaning of Indemnity, which in literal sense means to make compensation for the loss or damages. Just in case if ‘B’ did fraud with the third party and that too on behalf of the firm, then out of all the partners, ‘B’ is responsible for indemnifying the loss and while doing so if some profits are gained then it shall be divided among all the partners.

RIGHTS AND LIABILITIES VIA CONTRACT

S. 11 has two parts, firstly, the mutual duties and rights are to be defined with the help of a contract and should be strict in all sense, it can either be express or implied with the consent of all of the partners. Implied contracts are done with gestures or by merely accepting something. For example, in the beginning of the business no one ever expressed what work they shall be doing, but later, in the course of dealing with the firm, ‘A’ manages the accounts and others never disagreed with it, so it was the implied consent.

Secondly, it says about the agreement in restraint of the trade, provides, that the partner shall not carry out any business other than the business of firm, until he is the partner of the firm.

Partnership is always based on consent and depends upon the contract between all the partners and so the S. 11 makes it clear and more proper for our understanding.

CONDUCT OF BUSINESS

The S. 12 has its own little clauses to explain the parts contained in it and they are further divided into four parts, which are as follows – subject to the contract between the partners (this line makes it clear, that the Contract determines all of the rights and what rights could be included and what not)

• Every partner has a right to take part in the conduct of the business;
• every partner is bound to attend diligently to his duties in the conduct of the business;
• any difference arising as to ordinary matters connected with the business may be decided by 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 partners; and
• every partner has a right to have access to and to inspect and copy any of the books of the firm. [1]

For (a) clause, it is very clear that a partnership is formed to carry out certain business and as decided, fir which various sections could be made or all can carry out various aspect of the business. Giving management powers to all the partner, where as if in case a partner’s right is infringed, that partner can knock the doors of court, to restrain other partners for doing so by injunction. Now, this completely depends upon the contract of partners.

Clause (c) deals with the right to be consulted regarding the business of the firm, every one shall have the right to express the opinion and accordingly, the majority and better decision for the firm shall be decided. The majority must act in good faith and every partner must be consulted as far as practicable.

Clause (d) says that every partner even the sleeping or active partner have the right to inspect the books of firm, books like account records, credit and debits incurred, files for the different contract for production or anything the business is dealing with, also the partners must act with bona fide intention.

MUTUAL RIGHTS AND LIABILITIES –

Mutual rights and liabilities.—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 partner is entitled to interest on the capital subscribed by him such interest shall be payable only out of profits; for this to be applicable, first of all there has to be some prior agreement on it, or, some trade custom, or, a statutory proviso dealing the same.

(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;

(e) 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; and

(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.

COMBINED RIGHTS (FROM S. 9 TO 13)

• Right to produce his/her consent freely
• Right to take part in the conduct of the business
• Right to be consulted
• Right to access book
• Right to remuneration
• Right to share profits
• Right to be indemnified
• Right to indemnify the firm
• Right to receive interest on capital
• Right to receive interest on advances

These all rights are mentioned in the above article.

CONCLUSION –

Contract between the partners solves the reasoning of rights and liabilities, consent which is the most important aspect of any contract is eventually being accepted as a mode of expressing interests of partner which ultimately sets out the limits and rights of each and every partner of the firm. We have learned various rights and few liabilities of every partner in this article. The rights can be varied as per the condition and requirement of the conduct of any business and partners.

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[1] S.12 of Indian Partnership Act, 1932