The Indian Partnership Act, 1932

(c)(i) Whether a Partner can be introduced without the consent of other Partners?

No. By virtue of provisions of Section 31 of the Indian Partnership Act, 1932, no person can be introduced as a partner in a firm without the consent of all the existing partners.

In what manner a Partner can transfer his share in Partnership?

As per Section 31 of the Indian Partnership Act, 1932, no person can be introduced as a partner in a firm without the consent of all the existing partners unless specified as per the partnership agreement. A partner cannot, by transferring his own interest, make anybody else a partner in his place, unless the other partners agree to accept that person as a partner.

However, a partner is not debarred from transferring his interest. A partner’s interest in the partnership can be regarded as an existing interest and tangible property which can be assigned.

(ii)(1) Rights of a Transferee during the continuance of Partnership [Section 29(1)]:

During the continuance of partnership, such transferee is not entitled:

(a)to interfere with the conduct of the business,

(b)to require accounts, or

(c)to inspect books of the firm.

He is only entitled to receive the share of the profits of the transferring partner and he is bound to accept the profits as agreed to by the partners, i.e., he cannot challenge the accounts.

(2)The rights of such a transferee on the dissolution of the firm are as follows [Section 29(2)]:

On the dissolution of the firm, the transferee will be entitled, against the remaining partners:

(a)to receive the share of the assets of the firm to which the transferring partner was entitled, and

(b)for the purpose of ascertaining the share, he is entitled to an account as from the date of the dissolution.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, January 2026, 1(c) (New Scheme).

(b)(i) Mutual rights and liabilities of Partners (Section 13 of the Indian Partnership Act, 1932):

Subject to contract between the partners, they are entitled to:

Right to Remuneration [Section 13(a)]: 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, in which event the partner will be entitled to remuneration.

Right to Share Profits [Section 13(b)]: 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.

Interest on Capital [Section 13(c)]: The following elements must be there before a partner can be entitled to interest on moneys brought by him in the partnership business: (i) an express agreement to that effect, or practice of the particular partnership or (ii) any trade custom to that effect; or (iii) a statutory provision which entitles him to such interest.

Interest on Advances [Section 13(d)]: If 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.

Right to be Indemnified [Section 13(e)]: Every partner has the right to be indemnified by the firm in respect of payments made and liabilities incurred by him in the ordinary and proper conduct of the business of the firm as well as in the performance of an act in an emergency for protecting the firm from any loss, if the payments, liability and act are such as a prudent man would make, incur or perform in his own case, under similar circumstances.

Right to indemnify the firm [Section 13(f)]: A partner must

indemnify the firm for any loss caused to it by willful neglect in the conduct of the business of the firm.

(ii)Dissolution by the Court: According to Section 44 of the Indian Partnership Act, 1932 the Court may, at the suit of the partner, dissolve a firm on any of the following grounds:

Insanity/Unsound Mind : Where a partner (not a sleeping partner) has become of unsound mind, the court may dissolve the firm on a suit of the other partners or by the next friend of the insane partner. Temporary sickness is no ground for dissolution of firm.

Permanent Incapacity: When a partner, other than the partner suing, has become in any way permanently incapable of performing his duties as partner, then the court may dissolve the firm. Such permanent incapacity may result from physical disability or illness etc.

Misconduct: Where a partner, other than the partner suing, is guilty of misconduct which is likely to affect prejudicially the carrying on of business, the court may order for dissolution of the firm, by giving regard to the nature of business. It is not necessary that misconduct must relate to the conduct of the business. The important point is the adverse effect of misconduct on the business. In each case nature of business will decide whether an act is misconduct or not.

Persistent Breach of Agreement : Where a partner other than the partner suing, willfully or persistently commits breach of agreements relating to the management of the affairs of the firms or the conduct of its business, or otherwise so conduct himself in matters relating to the business that it is not reasonable practicable for other partners to carry on the business in partnership with him, then the court may dissolve the firm at the instance of any of the partners.

Following comes in to category of breach of contract:

-Embezzlement

-Keeping erroneous accounts

-Holding more cash than allowed

-Refusal to show accounts despite repeated request etc.

Transfer of Interest : Where a partner other than the partner suing, has transferred the whole of his interest in the firm to a third party or has allowed his share to be charged or sold by the court, in the recovery of arrears of land revenue due by the partner, the court may dissolve the firm at the instance of any other partner.

Continuous/ Perpetual Losses : Where the business of the firm cannot be carried on, except at a loss in future, the court may order for its dissolution.

Just and Equitable Grounds : Where the court considers any other ground to be just and equitable for the dissolution of the firm, it may dissolve a firm.

The following are the cases for the just and equitable grounds:

•Deadlock in the management.

•Where the partners are not in talking terms between them.

•Loss of substratum.

•Gambling by a partner on a stock exchange.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, January 2026, 5(b) (New Scheme).

(c)(i) A filed a suit against B who had stolen the goods of the firm:

The said suit by A is Maintainable.

Justification: According to Section 69(1) of the Indian Partnership Act, 1932, a partner of an unregistered firm cannot file a suit in any court against the firm or any partner to enforce a right arising from a contract, unless the firm is registered. Section 69 only bars civil suits to enforce contractual rights. It does not prevent criminal action. But, in this case, A had filed a suit against B for stealing the goods of the firm which is a criminal offense.

Hence, the suit filed against B for the theft of the goods of the firm is maintainable.

(ii)A filed a suit against M/s. ABC & Associates for claiming share of the assets on its dissolution

The said suit by A is Maintainable.

Justification: According to Section 69(3) of the Indian Partnership Act, 1932, a partner of an unregistered firm is precluded from bringing legal action against the firm. But such a person may sue for realization of his share in the firm’s property where the firm is dissolved. Here, A’s claim is valid as the shares are the assets of the dissolved firm and A can claim it even if the firm is unregistered.

(iii)M filed a suit against the firm for recovery of ₹ 10,000/- dues. M also owed ₹ 4,000/-. The firm claimed a set-off.

The said suit by M is Maintainable

Justification: According to Section 69(2) of the Indian Partnership Act, 1932, in case of an unregistered firm, an action can be brought against the firm by a third party. If an action is brought against the firm by a third party, then neither the firm nor the partner can claim any set-off, if the suit be valued for more than ₹ 100 or pursue other proceedings

to enforce the rights arising from any contract.

Here, M filed a suit against the firm for the recovery of ₹ 10,000 dues from the firm. M also owed ₹ 4,000/- to the firm.

The firm cannot set-off the claim of ₹ 4,000/- as it is more than ₹ 100/. - Nevertheless, M is entitled for recovery of ₹ 10,000 from firm.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, September 2025, 1(c) (New Scheme).

(b)DISSOLUTION BY THE COURT (SECTION 44 of the Indian Partnership Act, 1932):

Court may, at the suit of the partner, dissolve a firm on any of the following ground:

(a)Insanity/unsound mind: Where a partner (not a sleeping partner) has become of unsound mind, the court may dissolve the firm on a suit of the other partners or by the next friend of the insane partner. Temporary sickness is no ground for dissolution of firm.

(b)Permanent incapacity: When a partner, other than the partner suing, has become in any way permanently incapable of performing his duties as partner, then the court may dissolve the firm. Such permanent incapacity may result from physical disability or illness etc.

(c)Misconduct: Where a partner, other than the partner suing, is guilty of conduct which is likely to affect prejudicially the carrying on of business, the court may order for dissolution of the firm, by giving regard to the nature of business.

(d)Persistent breach of agreement: Where a partner other than the partner suing, wilfully or persistently commits breach of agreements relating to the management of the affairs of the firm or the conduct of its business, or otherwise so conduct himself in matters relating to the business that it is not reasonably practicable for other partners to carry on the business in partnership with him, then the court may

SUGGESTED ANSWER

dissolve the firm at the instance of any of the partners. Following comes in to category of breach of contract:

•Embezzlement,

•Keeping erroneous accounts

•Holding more cash than allowed

•Refusal to show accounts despite repeated request etc.

(e)Transfer of interest: Where a partner other than the partner suing, has transferred the whole of his interest in the firm to a third party or has allowed his share to be charged or sold by the court, in the recovery of arrears of land revenue due by the partner, the court may dissolve the firm at the instance of any other partner.

(f)Continuous/Perpetual losses: Where the business of the firm cannot be carried on except at a loss in future also, the court may order for its dissolution.

(g)Just and equitable grounds: Where the court considers any other ground to be just and equitable for the dissolution of the firm, it may dissolve a firm. The following are the cases for the just and equitable grounds-

(i)Deadlock in the management.

(ii)Where the partners are not in talking terms between them.

(iii)Loss of substratum.

(iv)Gambling by a partner on a stock exchange.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, September 2024, 5(b) (New Scheme).

(b)Dissolution of partnership doesn’t mean dissolution of firm. According to Section 39 of the Indian Partnership Act, 1932, the dissolution of partnership between all partners of a firm is called the 'dissolution of the firm'.

Thus, the dissolution of firm means the discontinuation of the legal relation, the dissolution of firm means the discontinuation of the legal relation existing between all the partners of the firm. But when only one or more partners retires or becomes incapacitated from acting as a partner due to death, insolvency or insanity, the partnership, the relationship between such a partner and other is dissolved, but the rest may decide to continue.

SUGGESTED ANSWER

In such cases, there is in practice, no dissolution of the firm. The particular partner goes out, but the remaining partners carry on the business of the firm, it is called dissolution of partnership. In the case of dissolution of the firm, on the other hand, the whole firm is dissolved. The partnership terminates as between each and every partner of the firm.

Important note: Different mode of presentation to an answer

Dissolution of partnership doesn’t mean dissolution of firm. This statement can be proved with the help of some points of distinction between both of them, which are as follows:

Dissolution of Firm Vs. Dissolution of Partnership

SUGGESTED ANSWER

Dissolution By the Court (Section 44 of the Indian Partnership Act, 1932):

Court may, at the suit of the partner, dissolve a firm on any of the following grounds:

(a)Insanity/unsound mind: Where a partner (not a sleeping partner) has become of unsound mind, the court may dissolve the firm on a suit of the other partners or by the next friend of the insane partner. Temporary sickness is no ground for dissolution of firm.

(b)Permanent incapacity: When a partner, other than the partner suing, has become in any way permanently incapable of performing his duties as partner, then the court may dissolve the firm. Such permanent incapacity may result from physical disability or illness etc.

(c)Misconduct: Where a partner, other than the partner suing, is guilty of conduct which is likely to affect prejudicially the carrying on of business, the court may order for dissolution of the firm, by giving regard to the nature of business. It is not necessary that misconduct must relate to the conduct of the business. The important point is the adverse effect of misconduct on the business. In each case nature of business will decide whether an act is misconduct or not.

(d)Persistent breach of agreement: Where a partner other than the partner suing, wilfully or persistently commits breach of agreements relating to the management of the affairs of the firm or the conduct of its business, or otherwise so conduct himself in matters relating to the business that it is not reasonably practicable for other partners to carry on the business in partnership with him, then the court may dissolve the firm at the instance of any of the partners. Following comes in to category of breach of contract:

•Embezzlement,

•Keeping erroneous accounts

•Holding more cash than allowed

•Refusal to show accounts despite repeated request etc.

SUGGESTED ANSWER

(e)Transfer of interest: Where a partner other than the partner suing, has transferred the whole of his interest in the firm to a third party or has allowed his share to be charged or sold by the court, in the recovery of arrears of land revenue due by the partner, the court may dissolve the firm at the instance of any other partner.

(f)Continuous/Perpetual losses: Where the business of the firm cannot be carried on except at a loss in future also, the court may order for its dissolution.

(g)Just and equitable grounds: Where the court considers any other ground to be just and equitable for the dissolution of the firm, it may dissolve a firm. The following are the cases for the just and equitable grounds-

(i)Deadlock in the management.

(ii)Where the partners are not in talking terms between them.

(iii)Loss of substratum.

(iv)Gambling by a partner on a stock exchange.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, June 2024, 5(b) (New Scheme).

(b)Mode of Settlement of partnership accounts (Section 48 of the Indian Partnership

Act, 1932): In settling the accounts of a firm after dissolution, the following rules shall, subject to agreement by the partners, be observed:-

(i)Losses, including deficiencies of capital, shall be paid first out of profits, next out of capital, and, lastly, if necessary, by the partners individually in the proportions in which they were entitled to share profits;

(ii)The assets of the firm, including any sums contributed by the partners to make up deficiencies of capital, must be applied in the following manner and order:

(a)in paying the debts of the firm to third parties;

(b)in paying to each partner rateably what is due to him from capital;

(c)in paying to each partner rateably what is due to him on account of capital; and

(d)the residue, if any, shall be divided among the partners in the proportions in which they were entitled to share profits.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, December 2023, 6(b) (Old Scheme).

(a)Application for Registration (Section 58 of the Indian Partnership Act, 1932): The

registration of a firm may be effected at any time by sending by post or delivering to the Registrar of the area in which any place of business of the firm is situated or proposed to be situated, a statement in the prescribed form and accompanied by the prescribed fee, stating-

(a)The firm’s name

(b)The place or principal place of business of the firm,

(c)The names of any other places where the firm carries on business,

(d)the date when each partner joined the firm,

(e)the names in full and permanent addresses of the partners, and

(f)the duration of the firm.

The statement shall be signed by all the partners, or by their agents specially authorised in this behalf.

(1)Each person signing the statement shall also verify it in the manner prescribed.

(2)A firm name shall not contain any of the following words, namely:-

‘Crown’, ‘Emperor’, ‘Empress’, ‘Empire’, ‘Imperial’, ‘King’, ‘Queen’, ‘Royal’, or words expressing or implying the sanction, approval or patronage of Government except when the State Government signifies its consent to the use of such words as part of the firmname by order in writing.

Registration (Section 59): When the Registrar is satisfied that the provisions of section 58 (above mentioned provisions) have been duly complied with, he shall record an entry of the statement in a register called the Register of Firms and shall file the statement.

The Firm when registered shall use the brackets and word (Registered) immediately after its name.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, June 2023, 3(a) (Old Scheme).

(a)Section 39 provides that when a party to a contract has refused to perform or disabled himself from performing his promise in its entirety the promisee may put an end to the contract unless he had signified, by words or conduct his acquiesce in its continuance. Further, in term of Section 40, the promisee shall be required to perform personally, if there is such an apparent intention of the parties.

Also, as per Section 75 of the Act, a person who rightfully rescinds a contract is entitled to compensation for any damage which he has sustained through non-fulfilment of the contract.

Therefore, in the instant case,

(i)Since, Sheena could not perform as per the terms of contract, Shital Vidya Mandir can terminate the contract.

(ii)In the second situation, the management of Shital Vidya Mandir informed Sheena about the continuance of the contract. Hence, the management cannot now rescind the contract after a month on this ground subsequently.

(iii)As per Section 75, Shital Vidya Mandir can claim damages that it has suffered because of this breach in part (i).

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, May 2022, 1(a) (Old Scheme).

(b)According to Section 44 of the Indian Partnership Act, 1932, Court may, at the suit of the partner, dissolve a firm on any of the following grounds:

(a)Insanity/unsound mind: Where a partner (not a sleeping partner) has become of unsound mind, the court may dissolve the firm on a suit of the other partners or by the next friend of the insane partner. Temporary sickness is no ground for dissolution of firm.

(b)Permanent incapacity: When a partner, other than the partner suing, has become in any way permanently incapable of performing his duties as partner, then the court may dissolve the firm. Such permanent incapacity may result from physical disability or illness etc.

(c)Misconduct: Where a partner, other than the partner suing, is guilty of conduct which is likely to affect prejudicially the carrying on of business, the court may order for dissolution of the firm, by giving regard to the nature of business.

(d)Persistent breach of agreement: Following comes into category of breach of contract:

(e)Transfer of interest: Where a partner other than the partner suing, has transferred the whole of his interest in the firm to a third party or has allowed his share to be charged or sold by the court, in the recovery of arrears of land revenue due by the partner, the court may dissolve the firm at the instance of any other partner.

(f)Continuous/Perpetual losses: Where the business of the firm cannot be carried on except at a loss in future also, the court may order for its dissolution.

(g)Just and equitable grounds: Where the court considers any other ground to be just and equitable for the dissolution of the firm, it may dissolve a firm. The following are the cases for the just and equitable grounds-

(i)Deadlock in the management.

(ii)Where the partners are not in talking terms between them.

(iii)Loss of substratum.

(iv)Gambling by a partner on a stock exchange.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, May 2022, 6(b) (Old Scheme).

(a)(i) As per the provisions of Section 32 of the Indian Partnership Act, 1932, (the Act) a partner may retire:

(a)with the consent of all the other partners;

(b)in accordance with an express agreement by the partners; or

(c)where the partnership is at will, by giving notice in writing to all the other partners of his intention to retire.

However, a minor cannot be admitted as a partner in a firm. A minor can only be admitted to the benefits of partnership with the consent of all partners.

As the partnership is at will, Mr. X can retire from the firm by giving notice in writing to all the other partners of his intention to retire and Mr. S, being a minor, can only be admitted to the benefits of partnership under Section 30 of the Act with the consent of all the existing partners.

(ii)Within 6 months of his attaining majority or on his obtaining knowledge that he had been admitted to the benefits of the partnership, whichever is later, the minor partner has to decide whether he shall remain as a partner or leave the firm.

If he has elected not to become a partner, he may give a public notice in this regard and failure to do so, he shall become a partner in the firm after the expiry of the said 6 months.

As Mr. S failed to give the public notice whether he elected to become or not to become a partner of the firm, after expiry of 6 months from obtaining the majority, he will become the partner of the firm.

As per Section 12(d) of the Indian Partnership Act, 1932, every partner has the right to access and to inspect and to copy any of the books of the firm.

Therefore, Mr. S, in the given case, in the capacity of the being a partner by 5th of October, 2023, have right to inspect the books of accounts.

The right, must, however, be exercise Bonafide.

(iii)According to Section 69 of the Act, the firm or any other person on its behalf cannot bring an action against a third party for breach of contract entered into by the firm, unless the firm is registered and the persons suing are or have been shown in the register of firms as partners in the firm.

In other words, a registered firm can only file a suit against a third party and the persons suing have been in the register of firms as partners in the firm.

In view of the above provisions of law, since Mr. S is now a member of the Registered Firm, he has the authority to sue Mr. T for non-payment of fees.

In view of the above provisions of law, since Mr. S is now a member of the Registered Firm, he has the authority to sue Mr. T for non-payment of fees.

(iii)ALTERNATE ANSWER:

Within 6 months of attaining majority or on obtaining knowledge that a minor partner had been admitted to the benefits of partnership, whichever date is later, the minor partner has to decide whether he shall remain a partner or leave the firm.

Where he has elected not to become partner, he may give public notice that he has elected not to become partner, and such notice shall determine his position with regard to the firm.

If he fails to give such notice, he shall become a partner in the firm on the expiry of the said six months.

As Mr. S became major on 5th January 2023 and after six months i.e. 5th July 2023, he shall become a partner in the firm as he has not given notice of not becoming a partner.

Therefore, Mr. S has authority to sue Mr. T on non-payment of fee as no notice is required for remaining as a partner on attaining majority.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, September 2025, 3(a) (New Scheme).

(c)(i) Rights of outgoing partner to carry on competing Business (Section 36 of the Indian Partnership Act, 1932)

An outgoing partner may carry on 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 custom of persons who were dealing with the firm before he ceased to be a partner.

Agreement in restraint of trade- 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 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.

(ii)Right of the partners to be indemnified by the firm [Section

13(e)]: Every partner has the right to be indemnified by the firm in respect of payments made and liabilities incurred by him in the ordinary and proper conduct of the business of the firm as well as in the performance of an act in an emergency for protecting the firm from any loss, if the payments, liability and act are such as a prudent man would make, incur or perform in his own case, under similar circumstances.

Liability of partner to indemnify the firm [Section 13(f)]: A

partner must indemnify the firm for any loss caused to it by wilful neglect in the conduct of the business of the firm.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, May 2025, 1(c) (New Scheme).

(c)(i) If a partner is otherwise expelled, the expulsion is null and void.

According to Section 33 of the Indian Partnership Act, 1932

(i)the power of expulsion must have existed in a contract between the partners;

(ii)the power has been exercised by a majority of the partners; and

(iii)it has been exercised in good faith.

If all these conditions are not present, the expulsion is not deemed to be in bona fide interest of the business of the firm.

The test of good faith as required under Section 33(1) includes three things:

(i)The expulsion must be in the interest of the partnership.

(ii)The partner to be expelled is served with a notice.

(iii)He is given an opportunity of being heard.

Hence, it is correct to say that, if a partner is otherwise expelled, the expulsion is null and void.

(ii)“The partner who is expelled will cease to be liable to the third party for the act of the firm done after expulsion”

According to Section 32(3) of the Indian Partnership Act, 1932, notwithstanding the expulsion 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 expulsion, until public notice is given of the expulsion.

However, an expelled partner is not liable to any third party who deals with the firm without knowing that he was a partner.

Hence, the statement given is partially correct.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, September 2024, 1(c) (New Scheme).

(a)Expulsion of partner and factors to be kept in mind:

As per Section 33 of the Indian Partnership Act, 1932, a partner may not be expelled from a firm except

(i)the power of expulsion must have existed in a contract between the partners;

(ii)the power has been exercised by a majority of the partners; and

(iii)it has been exercised in good faith.

If all these conditions are not present, the expulsion is not deemed to be in bona fide interest of the business of the firm and shall be null and void.

The test of good faith as required under Section 33(1) includes three things:

(i)The expulsion must be in the interest of the partnership

(ii)The partner to be expelled is served with a notice

(iii)He is given an opportunity of being heard.

Yes, a partner may be expelled by other partners strictly in compliance with the provisions of section 33.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, November 2022, 3(a) (Old Scheme).

(b)(i) Introduction of a Partner (Section 31 of the Indian Partnership Act, 1932):

Subject to contract between the partners and to the provisions of Section 30, no person shall be introduced as a partner into a firm without the consent of all the existing partners.

In the instant case, Mr. Prateek can be introduced as a partner with the consent of Mr. B and Mr. C, the existing partners.

(ii)Rights of Transferee of a Partner’s interest (Section 29): A transfer by a partner

of his interest in the firm, either absolute or by mortgage, or by the creation by him of a charge on such interest, does not entitle the transferee, during the continuance of the firm, to interfere in the conduct of business, or to require accounts, or to inspect the books of the firm, but entitles the transferee only to receive the share of profits of the transferring partner, and the transferee shall accept the account of profits agreed to by the partners.

Hence, here Mr. Prateek, the transferee in M/S ABC Associates cannot inspect the books of the firm and contention of the other partners is right that Mr. Prateek cannot challenge the books of accounts.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, May 2022, 4(b) (Old Scheme).

(c)(i) Right of partners to have business wound up after dissolution (Section 46 of the Indian Partnership Act, 1932):

On the dissolution of a firm, every partner or his representative is entitled, as against all the other partners or their representative, to have the property of the firm applied in payment of the debts and liabilities of the firm, and to have the surplus distributed among the partners or their representatives according to their rights.

This means every partner has a right to ensure that the firm's debts are paid first from firm assets and only then, the remaining surplus is distributed. This right is enforceable against co-partners.

(ii)Continuing authority of partners for purposes of winding up

(Section 47): After the dissolution of a firm, the authority of each partner to bind the firm and the other mutual rights and obligations of the partners, continue notwithstanding the dissolution, so far as may be necessary to wind up the affairs of the firm and to complete transactions begun but unfinished at the time of the dissolution, but not otherwise.

Provided that the firm is in no case bound by the acts of a partner who has been adjudicated insolvent; but this proviso does not affect the liability of any person who has after the adjudication represented himself or knowingly permitted himself to be represented as a partner of the insolvent.

(iii)Mode of Settlement of partnership accounts (Section 48): In

settling the accounts of a firm after dissolution, the following rules shall, subject to agreement by the partners, be observed: -

(A)Losses, including deficiencies of capital, shall be paid first out of profits, next out of capital, and lastly, if necessary, by the partners individually in the proportions in which they were entitled to share profits;

(B)The assets of the firm, including any sums contributed by the partners to make up deficiencies of capital, must be applied in the following manner and order:

(a)in paying the debts of the firm to third parties;

(b)in paying to each partner rateably what is due to him from the firm for advances as distinguished from capital;

(c)in paying to each partner rateably what is due to him on account of capital; and

(d)the residue, if any, shall be divided among the partners in the proportions in which they were entitled to share profits. If firm assets are insufficient to pay debts, the partners must contribute in proportion to their loss-sharing ratios (Section

49)to meet the deficiency.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, May 2026, 1(c) (New Scheme).

(a)(i) Whether the firm was correct in refusing the inspection of accounts by Mr. Niman during the firm’s continuance?

As per Section 29(1) of the Indian Partnership Act, 1932 (the Act), a transfer by a partner of his interest in the firm, either absolute or by mortgage, or by the creation by him of a charge on such interest, does not entitle the transferee, during the continuance of the firm, to interfere in the conduct of business, or to require accounts, or to inspect the books of the firm, but entitles the transferee only to receive the share of profits of the transferring partner, and the transferee shall accept the account of profits agreed to by the partners.

In the given case during the continuance of partnership, such transferee Mr. Niman is not entitled:

-to interfere with the conduct of the business.

-to require accounts.

-to inspect books of the firm.

However, Mr. Niman is only entitled to receive the share of the profits of the transferring partner and he is bound to accept the profits as agreed to by the partners, i.e. he cannot challenge the accounts.

Therefore, CHJ & Associates was correct in refusing Niman the right to inspect accounts during the firm's continuance. Niman's demand was legally unenforceable.

Whether Niman is legally eligible to ask for the accounts of the firm for past 3 years on dissolution?

As per Section 29(2) of the Act, if the firm is dissolved or if the transferring partner ceases to be a partner, the transferee is entitled as against the remaining partners to receive the share of the assets of the firm to which the transferring partner is entitled, and, for the purpose of ascertaining that share, to an account as from the date of the dissolution. Also, there is no provision entitling Niman to demand accounts for the past 3 years (prior to dissolution).

In the instant case, as the CHJ and Associates decided to dissolve the partnership firm, Mr. Niman is not eligible to ask for the accounts of the firm for past 3 years on dissolution. He is entitled to an account of the firm from the date of the dissolution only.

(ii)Implied authority of partner as agent of the firm (Section 19 of

the Indian Partnership Act, 1932): Subject to the provisions of Section 22 of the Act, the act of a partner which is done to carry on, in the usual way, business of the kind carried on by the firm, binds the firm.

The authority of a partner to bind the firm conferred by this section is called his “implied authority”.

In the absence of any usage or custom of trade to the contrary, the implied authority of a partner does not empower him to-

(a)Submit a dispute relating to the business of the firm to arbitration;

(b)withdraw a suit or proceedings filed on behalf of the firm;

(c)acquire immovable property on behalf of the firm;

In the instant case, Mr. Promod cannot submit the suit against Mr. Sanjay, a raw material supplier of the firm for poor quality raw materials to Mediation as it is beyond the Implied authority of a partner.

As he cannot, on his own, withdraw the existing suit against Mr. Sanjay to enable out-of-court settlement (mediation), as Section 19(2)(d) restricts a partner's implied authority to withdraw a suit on behalf of the firm.

Furthermore, he cannot acquire the immovable property offered by Mr. Sanjay on behalf of the firm.

Mr. Pramod cannot unilaterally withdraw the suit or acquire the property on behalf of the firm without the consent of Mr. Kumar. He must wait for Mr. Kumar to return or seek his consent before proceeding. Acting without consent would make Pramod personally liable for any adverse consequences.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, May 2026, 3(a) (New Scheme).

(b)Minors admitted to the benefits of partnership (Section 30): A minor

cannot be bound by a contract because a minor’s contract is void and not merely voidable. Therefore, a minor cannot become a partner in a firm because partnership is founded on a contract. Though a minor cannot be a partner in a firm, he can nonetheless be admitted to the benefits of partnership under Section 30 of the Act. When this has been done with the consent of all the partners then the rights and liabilities of such a partner under Section 30 are as follows:

(1)Rights:

(i)A minor partner has a right to his agreed share of the profits and of the firm.

(ii)He can have access to, inspect and copy the accounts of the firm.

(iii)He can sue the partners for accounts or for payment of his share but only when severing his connection with the firm, and not otherwise.

(iv)On attaining majority, he may within 6 months elect to become a partner or not to become a partner. If he elects to become a partner, then he is entitled to the share to which he was entitled as a minor. If he does not, then his share is not liable for any acts of the firm after the date of the public notice served to that effect.

(2)Liabilities:

(i)Before attaining majority:

(a)The liability of the minor is confined only to the extent of his share in the profits and the property of the firm.

(b)Minor has no personal liability for the debts of the firm incurred during his minority.

(c)Minor cannot be declared insolvent, but if the firm is declared insolvent his share in the firm vests in the Official Receiver/Assignee (which means minor can recover his share in the firm on proportionate basis from official receiver/assignee)

(ii)After attaining majority : Within 6 months of his attaining majority or on his obtaining knowledge that he had been admitted to the benefits of partnership, whichever date is later, the minor partner has to decide whether he shall remain a partner or leave the firm.

Where he has elected not to become partner, he may give public notice that he has elected not to become partner and such notice shall determine his position with regard to the firm. If he fails to give such notice he shall become a partner in the firm on the expiry of the said six months.

(a)When he becomes partner: If the minor becomes a partner on his own willingness or by his failure to give the public notice within specified time, his rights and liabilities as given in Section 30(7) are as follows:

(i)He becomes personally liable to third parties for all acts of the firm done since he was admitted to the benefits of partnership.

(ii)His share in the property and the profits of the firm remains the same to which he was entitled as a minor.

(b)When he elects not to become a partner:

(i)His rights and liabilities continue to be those of a minor up to the date of giving public notice.

(ii)His share shall not be liable for any acts of the firm done after the date of the notice.

(iii)He shall be entitled to sue the partners for his share of the property and profits. It may be noted that such minor shall give notice to the Registrar that he has or has not become a partner.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, May 2026, 5(b) (New Scheme).

(a)(i) Liability of D: As per section 31 of the Indian Partnership Act, 1932, the liabilities of the new partner ordinarily commence from the date when he is admitted as a partner, unless he agrees to be liable for obligations incurred by the firm prior to the date. The new firm, including the new partner who joins it, may agree to assume liability for the existing debts of the old firm, and creditors may agree to accept the new firm as their debtor and discharge the old partners. The creditor’s consent is necessary in every case to make the transaction operative. The mere agreement amongst partners cannot operate as Novation. Thus, an agreement between the partners and the incoming partner that he shall be liable for existing debts will not ipso facto give creditors of the firm any right against him.

In the instant case, D would not be liable for the debts of the firm incurred prior to his admission by virtue of the agreement between A, B, C and the creditors.

(ii)If D was minor at the time of admission: As per section 30, the

liability of the minor is confined only to the extent of his share in the profits and the property of the firm.

Minor has no personal liability for the debts of the firm incurred during his minority.

Moreover, a mere agreement amongst partners cannot operate as Novation. Thus, an agreement between the partners and the incoming partner that he shall be liable for existing debts will not ipso facto give creditors of the firm any right against him.

SUGGESTED ANSWER

Hence, D would not be liable in this case also.

(iii)Liability of D upon becoming major: A minor partner on attaining majority becomes personally liable to third parties for all acts of the firm done since he was admitted to the benefits of partnership.

Moreover, a mere agreement amongst partners cannot operate as Novation. Thus, an agreement between the partners and the incoming partner that he shall be liable for existing debts will not ipso facto give creditors of the firm any right against him.

Hence, D would not be liable to pay the existing debt upon becoming major.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, May 2025, 3(a) (New Scheme).

(b)The partner indeed virtually embraces the character of both a principal and an agent.

As per Section 18 of the Indian Partnership Act, 1932, a partner is the agent of the firm for the purpose of the business of the firm. So as far as he acts for himself and in his own interest in the common concern of the

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partnership, he may properly be deemed a principal and so far as he acts for his partners, he may properly be deemed as an agent.

The principal distinction between him and a mere agent is that he has a community of interest with other partners in the whole property and business and liabilities of partnership, whereas an agent as such has no interest in either.

The implied authority of a partner to bind the firm by all acts done by him in all matters connected with business is done in the usual way, not beyond the nature and scope of partnership.

Sections 19(1) and 22 deal with the implied authority of a partner .

The impact of these Sections is that the act of a partner which is done to carry on, in the usual way, business of the kind carried on by the firm binds the firm, provided that the act is done in the firm name, or any manner expressing or implying an intention to bind the firm. Such an authority of a partner to bind the firm is called his implied authority. It is however subject to the following restrictions:

1.The act done must relate to the usual business of the firm, that is, the act done by the partner must be within the scope of his authority and related to the normal business of the firm.

2.The act is such as is done for normal conduct of business of the firm. The usual way of carrying on the business will depend on the nature and circumstances of each particular case.

3.The act to be done in the name of the firm or in any other manner expressing or implying an intention to bind the firm.

Thus, a partner has implied authority to bind the firm by all acts done by him in all matters connected with the partnership business and which are done in the usual way and are not in their nature beyond the scope of partnership.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, May 2025, 5(b) (New Scheme).

(c)Though a minor cannot be a partner in a firm, he can nonetheless be admitted to the benefits of partnership under Section 30 of the Indian Partnership Act, 1932. The following are the Rights and Liabilities (before attaining majority):

(1)Rights:

(i)A minor partner has a right to his agreed share of the profits and of the firm.

(ii)He can have access to, inspect and copy the accounts of the firm.

(iii)He can sue the partners for accounts or for payment of his share but only when severing his connection with the firm, and not otherwise.

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(iv)On attaining majority, he may within 6 months elect to become a partner or not to become a partner. If he elects to become a partner, then he is entitled to the share to which he was entitled as a minor. If he does not, then his share is not liable for any acts of the firm after the date of the public notice served to that effect.

(2)Liabilities:

Before attaining majority:

(a)The liability of the minor is confined only to the extent of his share in the profits and the property of the firm.

(b)Minor has no personal liability for the debts of the firm incurred during his minority.

(c)Minor cannot be declared insolvent, but if the firm is declared insolvent his share in the firm vests in the Official Receiver/Assignee (which means minor can recover his share in the firm on proportionate basis from official receiver/assignee).

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, January 2025, 1(c) (New Scheme).

(a)The given question is based on the Section 18 read with sections 25 & 26 of the Indian Partnership Act, 1932. Section 18 deals with the Partner to be an agent of the firm. This means that a partner is the agent of the firm for the purpose of the business of the firm.

The partner indeed virtually holds the character of both a principal and an agent. So as far as he acts for himself and in his own interest in the common concern of the partnership, he may properly be deemed a principal and so far as he acts for his partners, he may properly be deemed as an agent.

The rule that a partner is the agent of the firm for the purpose of the business of the firm cannot be applied to all transactions and dealings between the partners themselves. It is applicable only to the act done by partners for the purpose of the business of the firm.

According to section 25, the partners are jointly and severally responsible to third parties for all acts which come under the scope of their express or implied authority. “Act of firm’ connotes any act or omission by all the partners or by any partner or agent of the firm, which gives rise to a right enforceable by or against the firm.

As per section 26, the firm is liable to the same extent as the partner for any loss or injury caused to a third party by the wrongful acts of a partner, if they are done by the partner while acting:

(a)in the ordinary course of the business of the firm

(b)with the authority of the partners.

According to the facts given in the questions, P, a partner to PQR Associates, buys cement on behalf of the firm from D in the ordinary course of the firm’s business. P uses the cement for his personal purposes. D, the supplier was unaware of the private use of cement by P and claims price from the firm. Firm refuses to pay the price on the ground that the cement was never received by it.

Referring to the stated provisions of the Indian Partnership Act, 1932, following are the answers:

(i)Said Section is applicable only to the act done by partners for the purpose of the business of the firm. In such case, partner act as the

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agent of the firm for the purpose of the business of the firm. Since in the given case, P, buys cement on behalf of the firm from D in the ordinary course of the firm’s business.

Therefore, in the given case, firms’ contention of refusal to pay the price on the ground that the cement was never received by it, is not tenable.

(ii)Further for commission of the wrongful act by the partner, the firm is liable to the same extent as the partner for any loss or injury caused to a third party by the wrongful acts of a partner, if they are done by the partner while acting:

(a)in the ordinary course of the business of the firm

(b)with the authority of the partners.

In the given case, part of the cement so purchased by P was delivered to the firm by him and the rest of the cement was used by him for his private use, was not known to the firm and the supplier. Since the act of the P to purchase the cement was in the ordinary course of business with the authority of the partner, however wrongful use by the partner will make the firm liable to the same extent as the partner for loss or injury caused to D.

However, PQR Associates can take action against P, the partner.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, January 2025, 3(a) (New Scheme).

(c)The Indian Partnership Act, 1932 does not make the registration of firms compulsory nor does it impose any penalty for non-registration. However, under Section 69, non-registration of partnership gives rise to a number of disabilities. Although registration of firms is not compulsory, yet the consequences or disabilities of non-registration have a persuasive pressure for their registration.

Exceptions: Non-registration of a firm does not, however affect the following rights:

1.The right of third parties to sue the firm or any partner.

2.The right of partners to sue for the dissolution of the firm or for the settlement of the accounts of a dissolved firm, or for realization of the property of a dissolved firm.

3.The power of an Official Assignees, Receiver of Court to release the property of the insolvent partner and to bring an action.

4.The right to sue or claim a set-off if the value of suit does not exceed ₹ 100 in value.

5.The right to suit and proceeding instituted by legal representatives or heirs of the deceased partner of a firm for accounts of the firm or to realise the property of the firm.

SUGGESTED ANSWER

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, June 2024, 1(c) (New Scheme).

(a)(i) Section 40 of the Indian Partnership Act, 1932, gives right to the partners to dissolve the partnership by agreement with the consent of

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all the partners or in accordance with a contract between the partners. ‘Contract between the partners’ means a contract already made.

Also, according to section 44, the Court may, at the suit of a partner, may dissolve a firm on various grounds including where the business of the firm cannot be carried on except at a loss (in future also).

In the instant case, P wants to continue the partnership business despite the losses incurred over the past four years and Q and R are reluctant to continue operating the business due to continuous losses.

Here, P can insist on continuing the business if the partnership agreement does not specifically provide such a right to one or more partner / partners since Section 40 specifies that with the consent of all the partners or in accordance with a contract between the partners the firm can be dissolved.

Options available to Q and R

Mutual Agreement to Dissolve the Partnership: Q and R can propose to P that the partnership be dissolved by mutual agreement. If P agrees, the partnership can be dissolved amicably.

Dissolution by the Court: If P does not agree to dissolve the partnership mutually, Q and R can approach the court for an order under Section 44.

(ii)According to Section 25 of the Indian Partnership Act, 1932, every partner is jointly and severally liable for all acts of the firm done while he is a partner.

As per section 26, the firm is liable to the same extent as the partner for any wrongful act or omission of a partner while acting:

(a)in the ordinary course of the business of the firm, or

(b)with the authority of the partners.

Section 27 provides that the firm is liable if a partner, acting within the scope of his apparent authority, receives money or property from a third party and misapplies it, or if the firm in the course of its business receives money or property and the same is misapplied while it is in the custody of the firm.

SUGGESTED ANSWER

In the instant case, both A and B are liable to C for the wrongful acts committed by B. A cannot avoid liability merely on the grounds of being a sleeping partner.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, June 2024, 3(a) (New Scheme).

(a)As per the provisions of Sections 19(1) read with the provisions of Section 22 of the Indian Partnership Act, 1932, which deal with the implied authority of a partner, provide that the act of a partner which is done to carry on, in the usual way, business of the kind carried on by the firm, binds the firm, provided that the act is done in the firm name, or any manner expressing or implying an intention to bind the firm. Such an authority of a partner to bind the firm is called his implied authority.

As per the provisions of Section 20 of the Indian Partnership Act, 1932, the partners in a firm may, by contract between the partners, extend or restrict the implied authority of any partner. Notwithstanding any such restriction, any act done by a partner on behalf of the firm which falls within his implied authority binds the firm, unless the person with whom he is dealing knows of the restriction or does not know or believe that partner to be a partner.

As per the provisions of Section 21 of the Indian Partnership Act, 1932, a partner has authority, in an emergency, to do all such acts for the purpose of protecting the firm from loss as would be done by a person of ordinary prudence, in his own case, acting under similar circumstances, and such acts bind the firm.

As per the provisions of sub-section (2) of Section 19 the Indian Partnership Act, 1932, in the absence of any usage or custom of trade to the contrary, the implied authority of a partner does not empower him to-

(a)Submit a dispute relating to the business of the firm to arbitration;

(b)open a banking account on behalf of the firm in his own name;

(c)compromise or relinquish any claim or portion of a claim by the firm;

(d)withdraw a suit or proceedings filed on behalf of the firm;

(e)admit any liability in a suit or proceedings against the firm;

(f)acquire immovable property on behalf of the firm;

(g)transfer immovable property belonging to the firm; and

(h)enter into partnership on behalf of the firm.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, December 2023, 3(a) (Old Scheme).

(b)It is true to say that Indian Partnership Act, 1932 does not make the registration of firms compulsory nor does it impose any penalty for non-registration.

Following are the consequences of Non-registration of Partnership Firms in India:

The Indian Partnership Act, 1932 does not make the registration of firms compulsory nor does it impose any penalty for non-registration. However, under Section 69 of the Indian Partnership Act, 1932, non-registration of partnership gives rise to a number of disabilities. These disabilities briefly are as follows:

(i)No suit in a civil court by firm or other co-partners against third party: The firm

or any other person on its behalf cannot bring an action against the third party for breach of contract entered into by the firm, unless the firm is registered and the persons suing are or have been shown in the register of firms as partners in the firm.

(ii)No relief to partners for set-off of claim: If an action is brought against the firm by a third party, then neither the firm nor the partner can claim any set-off, if the suit be valued for more than ₹ 100 or pursue other proceedings to enforce the rights arising from any contract.

(iii)Aggrieved partner cannot bring legal action against other partner or the firm:

A partner of an unregistered firm (or any other person on his behalf) is precluded from bringing legal action against the firm or any person alleged to be or to have been a partner in the firm. But, such a person may sue for dissolution of the firm or for accounts and realization of his share in the firm’s property where the firm is dissolved.

(iv)Third party can sue the firm: In case of an unregistered firm, an action can be brought against the firm by a third party.

Following are the Rights unaffected due to non-registration of firms: Non-

registration of a firm does not, however effect the following rights:

1.The right of third parties to sue the firm or any partner.

2.The right of partners to sue for the dissolution of the firm or for the settlement of the accounts of a dissolved firm, or for realization of the property of a dissolved firm.

3.The power of an Official Assignees, Receiver of Court to release the property of the insolvent partner and to bring an action.

4.The right to sue or claim a set-off if the value of suit does not exceed ₹ 100 in value.

5.The right to suit and proceeding instituted by legal representatives or heirs of the deceased partner of a firm for accounts of the firm or to realise the property of the firm.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, November 2022, 4(b) (Old Scheme).

(a)(i) Whether the Association will be treated as Partnership?

Section 4 of the Indian Partnership Act, 1932 states that "Partnership" is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.

The sharing of profits of a business is an essential feature of partnership. There can be no partnership where only one of the partners is entitled to the whole of the profits of the business. Partners must agree to share the profits in any manner they choose.

But an agreement to share losses is not an essential requirement. It is open to one or more partners to agree to share all the losses.

Yes, it is a case of partnership . The association between the partners, Ramesh and Suresh will be treated as partnership according to the provisions of the Indian Partnership Act, 1932, as there was a partnership agreement according to which they decided to share in profit only.

Alternate Answer to 3(a)(i)

No, it is not a case of partnership due to lack of the mutual agency which is conclusive evidence of partnership. Mutual agency includes that all partners are jointly and severally liable for the partnership's debts and obligations, even if they didn't directly participate in the specific transaction.

(ii)As per the Indian Partnership Act, 1932, "Partnership" is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all (mutual agency).

In the gives case, there was no agreement to share profit of the business. Manak was incurring all the expenses relating to the construction and Roop Singh is merely acting as an agent of Manak as he was receiving 5% of the contract value.

Therefore, this arrangement will not be termed as partnership.

(iii)According to Section 6 of the Indian Partnership Act, 1932 in determining whether a group of persons is or is not a partnership firm, or whether a person is or is not a partner in a firm, regard shall be had to the real relation between the parties, as shown by all relevant facts taken together.

For determining the existence of partnership, it must be proved that:

(a)There was an agreement between all the partners concerned;

(b)The agreement was to share the profits of a business and

(c)The business was carried on by all or any of them acting for all.

Sharing of profit, which is prima facie evidence, exists but mutual agency among Shantanu and Shankar, which is an essential element, does not exist here as Shantanu borrowed ₹ 50 Lakhs for his business

from Shankar for which will take 25% of profit share.

In the absence of mutual agency, the most essential element of partnership, the arrangement between Shantanu and Shankar cannot be treated as a partnership under the Indian Partnership Act, 1932.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, January 2026, 3(a) (New Scheme).

(b)(i) Retirement of a Partner (Section 32 of the Indian Partnership Act,

1932): A partner may retire:

(a)with the consent of all the other partners;

(b)in accordance with an express agreement by the partners; or

(c)where the partnership is at will, by giving notice in writing to all the other partners of his intention to retire.

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.

However, a retired partner is not liable to any third party who deals with the firm without knowing that he was a partner.

In the instant case, Mr. AM can be held liable for the firm’s debt as no public notice was given of his retirement and Mr. R entered into a business transaction with M/s SR Enterprises believing that Mr. AM was still a partner in the firm.

(i)ALTERNATE ANSWER:

Partner by Holding Out (Section 28):

Partnership by holding out is also known as partnership by estoppel. When a person represent himself, or knowingly permits himself, to be represented as a partner in a firm (when in fact he is not) he is liable, like a partner in the firm to anyone who on the faith of such representation has given credit to the firm.

The Rule given in Section 28 is also applicable to a former partner who has retired from the firm without giving proper public notice of his retirement. In such cases a person who, even subsequent to the retirement, give credit to the firm on the belief that he was a partner, will be entitled to hold him liable.

In the instant case, Mr. AM, despite retiring, did not publicly notify his disassociation from the firm. Since, Mr. R, the supplier, believed in good faith that Mr. AM was still a partner and extended credit based on this assumption, Mr. AM can be held liable as a “Partner by holding out”.

(ii)(1) Expulsion of a Partner (Section 33 of the Indian Partnership Act,

1932): A partner may not be expelled from a firm by a majority of partners except in exercise, in good faith, of powers conferred by contract between the partners.

The test of good faith as required under Section 33(1) includes three things:

•The expulsion must be in the interest of the partnership.

•The partner to be expelled is served with a notice.

•He is given an opportunity of being heard.

If a partner is otherwise expelled, the expulsion is null and void.

Action by the partners of M/s LMP & Associates, a partnership firm to expel Mr. G from the partnership was justified as he was expelled by unanimous approval of the partners exercised in good faith to protect the interest of the partnership against the unauthorized activities charged against Mr. G. Provided, a proper notice and opportunity of being heard has been given to Mr. G.

(2)Factors to be kept in mind before expelling a Partner

The following are the factors to be kept in mind prior to the expelling of a partner from the firm by other partners:

(a)the power of expulsion must have existed in a contract between the partners;

(b)the power has been exercised by a majority of the partners; and

(c)it has been exercised in good faith.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, September 2025, 5(b) (New Scheme).

(b)(i) (1) Partner by holding out (Section 28 of the Indian Partnership Act,

1932): Where a man holds himself out as a partner, or allows others to do it, he is then stopped from denying the character he has assumed and upon the faith of which creditors may be presumed to have acted.

(2)Nominal Partner: A person who lends his name to the firm, without having any real interest in it, is called a nominal partner.

SUGGESTED ANSWER

He is not entitled to share the profits of the firm. Neither he invests in the firm nor takes part in the conduct of the business. He is, however liable to third parties for all acts of the firm.

(ii)Dissolution by Agreement (Section 40 of the Indian Partnership Act, 1932):

Section 40 gives right to the partners to dissolve the partnership by agreement with the consent of all the partners or in accordance with a contract between the partners. ‘Contract between the partners’ means a contract already made.

Hence, the statement ‘dissolution of a firm by the consent of the majority of the partners is not correct unless otherwise provided in a contract between them.

(iii)Compulsory dissolution (Section 41):

A firm is compulsorily dissolved

•by the happening of any event which makes it unlawful for the business of the firm to be carried on or for the partners to carry it on in partnership.

Hence, the statement ‘compulsory dissolution requires an order from the court’ is not correct.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, January 2025, 5(b) (New Scheme).

(a)(i) Partner by holding out (Section 28 of the Indian Partnership Act, 1932):

Anyone who by words spoken or written or by conduct represents himself, or knowingly permits himself to be represented, to be a partner in a firm, is liable as a partner in that firm to anyone who has on the faith of any such representation given credit to the firm, whether the person representing himself or represented to be a partner does or does not know that the representation has reached the person so giving credit.

In the instant case, since Gopal allowed himself to be represented as a partner to the RS & Co. and third parties acted based on this belief and therefore, Gopal is held liable to Sundar as he represented himself by his act to be a partner to the RS & Co.

However, Gopal is not liable to Madhav for the liabilities incurred by the firm. Information of Gopal being a partner to the firm was shared by the Sundar (Supplier to the firm) which is not falling within the ambit of doctrine of holding out.

Hence Gopal is liable to Sundar and not to Madhav for the liability of the Firm.

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(ii)Rights and liabilities of new partner: The new firm, including the new partner who joins it, may agree to assume liability for the existing debts of the old firm, and creditors may agree to accept the new firm as their debtor and discharge the old partners. The creditor’s consent is necessary in every case to make the transaction operative. Novation is the technical term in a contract for substituted liability, of course, not confined only to case of partnership.

But a mere agreement amongst partners cannot operate as Novation. Thus, an agreement between the partners and the incoming partner that he shall be liable for existing debts will not ipso facto give creditors of the firm any right against him.

In the instant case, Amar will not be liable in a suit filed by the creditor against the firm and all existing partners for recovery of the old debt of the firm.

(iii)According to section 37 of the Indian Partnership Act, 1932,

•Where any member of a firm has died or otherwise ceased to be

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.

In the instant case, Suman is entitled to claim either interest on her share in the property i.e. ₹ 1,20,000 (6% of ₹ 20 Lakh) or a share of the profits i.e. ₹ 1 Lakh (10% of ₹ 10 Lakh) from the firm for the use of

her share in the property.

Therefore, claim of Suman of ₹ 3 Lakh is not valid.

SUGGESTED ANSWER

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, September 2024, 3(a) (New Scheme).

(b)(i) As per Section 4 of the Indian Partnership Act, 1932, "Partnership" is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.

Yes, it is a case of partnership.

Reason: The sharing of profits is an essential feature of partnership. There can be no partnership where only one of the partners is entitled to the whole of the profits of the business. Partners must agree to share the profits in any manner they choose. But an agreement to share losses is not an essential requirement. It is open to one or more partners to agree to share all the losses.

(ii)No, it is not a case of partnership

Reason: Sharing of profit, which is a prima facie evidence, exists but mutual agency among X and Y, which is an essential element, does not exist here. Since there is no partnership, the third party i.e. paper dealer cannot make Y liable for the paper supplied by him to X.

(iii)No, it is not a case of partnership

Reason: Persons who share amongst themselves the rent derived from a piece of land are not partners, rather they are co-owners. Because, neither there is existence of business, nor mutual agency is there.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, December 2023, 4(b) (Old Scheme).

(b)According to sub-section (3) of Section 32 of the Indian Partnership Act, 1932, a retiring partner along with the continuing partners continue to be liable to any third party for acts of the firm after his retirement until public notice of his retirement has been given either by himself or by any other partner. But the retired partner will not be liable to any third party if the latter deals with the firm without knowing that the former was a partner.

As per the provisions of Section 28, where a man holds himself out as a partner or allows others to do it, when in fact he is not a partner, he is liable like a partner in the firm to anyone who on the faith of such representation has given credit to the firm.

In the instant case, since Mr. R has not given the public notice of his retirement from the partnership firm and Mr. S believes that Mr. R is a partner, Mr. R will be liable to Mr. S under the provisions of Section 32.

Also Mr. E, who has been introduced as a partner of the firm to which Mr. E has not presumably denied, will also be liable for the payment of 25 fans supplied to the firm on credit along with other partners in terms of the provisions of Section 28 as stated above.

Over and above R and E, P and Q being the partners of the firm along with the firm will also be held liable to S.

Therefore, S can recover the payment from the Firm, P, Q, R and E.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, June 2023, 4(b) (Old Scheme).

(a)(i) Definition of Partnership: 'Partnership' is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. (Section 4 of the Indian Partnership Act, 1932)

The definition of the partnership contains the following five elements which must coexist before a partnership can come into existence:

1.Association of two or more persons

2.Agreement

3.Business

4.Agreement to share Profits

5.Business carried on by all or any of them acting for all

(ii)ELEMENTS OF PARTNERSHIP

The definition of the partnership contains the following five elements which must coexist before a partnership can come into existence:

1.Association of two or more persons: Partnership is an association of 2 or more persons. Again, only persons recognized by law can enter into an agreement of partnership. Therefore, a firm, since it is not a person recognized in the eyes of law cannot be a partner. Again, a minor cannot be a partner in a firm, but with the consent of all the partners, may be admitted to the benefits of partnership.

The Partnership Act is silent about the maximum number of partners but Section 464 of the Companies Act, 2013 read with the relevant Rules has now put a limit of 50 partners in any association / partnership firm.

2.Agreement: It may be observed that partnership must be the result of an agreement between two or more persons. There must be an agreement entered into by all the persons concerned. This element relates to voluntary contractual nature of partnership. Thus, the nature of the partnership is voluntary and contractual. An agreement from which relationship of Partnership arises may be express. It may also be implied from the act done by partners and from a consistent course of conduct being followed, showing mutual understanding between them. It may be oral or in writing.

3.Business: In this context, we will consider two propositions. First, there must exist a business. For the purpose, the term 'business' includes every trade, occupation and profession. The existence of business is essential. Secondly, the motive of the business is the "acquisition of gains" which leads to the formation of partnership. Therefore, there can be no partnership where there is no intention to carry on the business and to share the profit thereof.

4.Agreement to share profits: The sharing of profits is an essential feature of partnership. There can be no partnership where only one of the partners is entitled to the whole of the profits of the business. Partners must agree to share the profits in any manner they choose. But an agreement to share losses is not an essential element. It is open to one or more partners to agree to share all the losses. However, in the event of losses, unless agreed otherwise, these must be borne in the profit-sharing ratio.

5.Business carried on by all or any of them acting for all: The business must

be carried on by all the partners or by anyone or more of the partners acting for all. This is the cardinal principle of the partnership Law. In other words, there should be a binding contract of mutual agency between the partners. An act of one partner in the course of the business of the firm is in fact an act of all partners. Each partner carrying on the business is the principal as well as the agent for all the other partners. He is an agent in so far as he can bind the other partners by his acts and he is a principal to the extent that he is bound by the act of other partners. It may be noted that the true test of partnership is mutual agency rather than sharing of profits. If the element of mutual agency is absent, then there will be no partnership.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, December 2021, 3(a) (Old Scheme).

(b)“Sharing in the profits is not conclusive evidence in the creation of partnership”

Sharing of profit is an essential element to constitute a partnership. But it is only a prima facie evidence and not conclusive evidence, in that regard. The sharing of profits or of gross returns accruing from property by persons holding joint or common interest in the property would not by itself make such persons partners. Although the right to participate in profits is a strong test of partnership, and there may be cases where, upon a simple participation in profits, there is a partnership, yet whether the relation does or does not exist must depend upon the whole contract between the parties.

Where there is an express agreement between partners to share the profit of a business and the business is being carried on by all or any of them acting for all, there will be no difficulty in the light of provisions of Section 4, in determining the existence or otherwise of partnership.

But the task becomes difficult when either there is no specific agreement or the agreement is such as does not specifically speak of partnership. In such a case for testing the existence or otherwise of partnership relation, Section 6 has to be referred.

According to Section 6, regard must be had to the real relation between the parties as shown by all relevant facts taken together. The rule is easily stated and is clear but its application is difficult. Cumulative effect of all relevant facts such as written or verbal agreement, real intention and conduct of the parties, other surrounding circumstances etc., are to be considered while deciding the relationship between the parties and ascertaining the existence of partnership.

Hence, the statement is true / correct that mere sharing in the profits is not conclusive evidence.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, December 2021, 6(b) (Old Scheme).

(b)Conduct of the Business (Section 12 of the Indian Partnership Act, 1932): 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 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

(d)every partner has a right to have access to and to inspect and copy any of the books of the firm.

(e)in the event of the death of a partner, his heirs or legal representatives or their duly authorised agents shall have a right of access to and to inspect and copy any of the books of the firm.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, June 2023, 6(b) (Old Scheme).

(b)Partnership Vs. Co-Ownership or joint ownership i.e. the relation which subsists between persons who own property jointly or in common .

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, November 2022, 6(b) (Old Scheme).

(a)(i) Partnership for a fixed period (Indian Partnership Act, 1932): Where a provision

is made by a contract for the duration of the partnership, the partnership is called ‘partnership for a fixed period’. It is a partnership created for a particular period of time. Such a partnership comes to an end on the expiry of the fixed period.

(ii)Minor as a partner: A minor is not competent to contract. Hence, a person who is a minor according to the law to which he is subject may not be a partner in a firm, but with the consent of all the partners for the time being, he may be admitted to the benefits of partnership.

Rights of a minor in a partnership firm:

(i)A minor partner has a right to his agreed share of the profits and of the firm.

(ii)He can have access to, inspect and copy the accounts of the firm.

(iii)He can sue the partners for accounts or for payment of his share but only when severing his connection with the firm, and not otherwise.

(iv)On attaining majority, he may within 6 months elect to become a partner or not to become a partner. If he elects to become a partner, then he is entitled to the share to which he was entitled as a minor. If he does not, then his share is not liable for any acts of the firm after the date of the public notice served to that effect.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, May 2022, 3(a) (Old Scheme).

(b)(i) No, this is not a case of partnership because the sharing of profits or of gross returns accruing from property holding joint or common interest in the property would not by itself make such persons partners.

Alternatively, this part can also be answered as below:

Yes, this is a case of partnership, as the car is used personally only on Sundays and holidays and used for most of the days as a Taxi. Hence, it is inferred that the main purpose of owning the car is to let it for business purpose. Also, there is an agreement for equally dividing the earnings.

(ii)Yes, this is a case of partnership because there is an agreement between two firms to combine into one firm.

(iii)Yes, this is a case of partnership because A & B, co-owners, have agreed to conduct a business in common for profit.

(iv)No, this is not a case of partnership as no charitable association can be floated in partnership.

(v)No, this is not a case of partnership as they are co-owners and not the partners. Further, there exist no business.

(vi)Yes, this is a case of partnership as there exist the element of doing business and sharing of profits equally.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, December 2021, 4(b) (Old Scheme).