Relationship of Partners to One Another
Section 9. General duties of partners.
Partners must run the firm’s business for the greatest common benefit of all partners.
They must be honest, fair, and faithful to one another.
They must give true accounts and complete information about anything that affects the firm to any partner or that partner’s legal representative.
Section 10. Duty to indemnify for loss caused by fraud.
If a partner commits fraud while conducting the firm’s business, and the firm suffers a loss because of that fraud,
That partner must indemnify (compensate) the firm for the loss.
Section 11. Determination of rights and duties of partners by contract between the partners.
Agreements in restraint of trade.
11(1).
The partners can decide their mutual rights and duties through a contract between them.
This contract can be express, meaning written or clearly stated.
It can also be implied from how they regularly conduct business.
All of this is subject to the provisions of the Act.
The contract between partners can be changed if all partners agree.
Their consent can be express. (Clearly stated) Or it can be implied from how they consistently act or conduct business.
11(2).
This rule applies even though section 27 of the Indian Contract Act normally restricts agreements that prevent someone from doing business.
The partners’ contract may include a clause restricting a partner from doing any other business.
This restriction applies while he is a partner in the firm.
Section 12. The conduct of the business.
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 disagreement about routine or ordinary matters relating to the business can be decided by a majority of the partners.
Every partner has the right to express their opinion before the decision is made.
However, no change in the nature of the business can be made unless all partners agree.
(d).
Every partner has a right to have access to and to inspect and copy any of the books of the firm.
Section 13. Mutual rights and liabilities.
Subject to contract between the partners:
(a)
A partner is not entitled to remuneration for participating in the conduct of the business.
This includes no salary, commission, or fee for managing day-to-day affairs.
The only exception is if the partnership agreement expressly provides for such remuneration.
In the absence of such an agreement, all work done by partners is considered voluntary and part of their mutual obligation.
(b)
All partners are entitled to share equally in the profits earned by the firm.
This applies even if their capital contributions are unequal, unless agreed otherwise.
Partners must also contribute equally to the losses sustained by the firm.
Loss-sharing equality also applies unless a different arrangement is specified in the partnership agreement.
Profit-sharing ratio and loss-sharing ratio are assumed to be the same, unless the contract provides differently.
(c)
A partner may be entitled to interest on the capital invested by him.
Such entitlement must arise from an agreement between the partners or a consistent practice implying consent.
This interest is payable only out of the firm’s profits.
If the firm makes no profits, the partner cannot claim interest for that period.
Interest on capital cannot be charged as an expense of the firm against its losses.
(d).
A partner may sometimes make a payment or advance for the purposes of the business.
This payment/advance is over and above the capital that the partner has already agreed to contribute.
Such additional payment is treated as a loan or advance to the firm.
For this extra amount, the partner is entitled to receive interest.
The interest is payable at the rate of six per cent per annum.
This interest is payable regardless of whether the firm makes profits or not.
The right to interest arises automatically, even if the partnership agreement is silent—unless partners agree otherwise.
The purpose of this rule is to compensate a partner who temporarily uses his own funds to meet business needs.
(e).
The firm shall indemnify a partner for certain payments and liabilities incurred by him:
(i). In the ordinary and proper conduct of the business:
A partner may make payments or incur liabilities while running the day-to-day affairs of the firm.
These actions must be within the scope of the firm’s ordinary and proper business activities.
For such payments or liabilities, the partner is entitled to be reimbursed by the firm.
This indemnification covers expenses that are necessary, reasonable, and connected with the business.
The rule ensures that a partner is not personally out of pocket for expenses incurred in carrying out the firm’s business.
(ii). In doing an act during an emergency:
A partner may sometimes have to act during an emergency situation affecting the firm.
The act must be done for the purpose of protecting the firm from loss.
The partner’s conduct is judged by the standard of a person of ordinary prudence.
So , the partner must act in a way that a reasonable person would act in his own case, under similar circumstances.
If the act meets this prudence test, the firm must indemnify the partner for any payments made or liabilities incurred.
This protects partners who take urgent, necessary steps to safeguard the firm when immediate action is required.
(f).
A partner has a duty to act with reasonable care while conducting the business of the firm.
If a partner engages in wilful neglect, he breaches this duty.
Wilful neglect means intentional, deliberate, or conscious disregard of responsibilities.
It also includes acting with reckless indifference to the consequences for the firm.
When such wilful neglect causes any loss to the firm, the responsible partner must compensate the firm.
This duty ensures that partners cannot escape liability for losses arising from their intentional or reckless mismanagement.
The indemnity payable restores the firm to the position it would have been in had the neglect not occurred.
Section 14. The property of the firm.
Subject to the contract between the parties:
The property of the firm includes all property, rights, and interests originally brought into the firm’s stock by the partners.
It also includes all property acquired by or for the firm, whether by purchase or any other method.
Such property must be acquired for the purposes of the business or in the course of carrying on the business.
The firm’s property further includes the goodwill of the business.
Unless the contrary intention appears:
Any property, rights, or interests acquired using the firm’s money are presumed to be property of the firm.
This presumption applies even if the property is bought in the name of a partner, unless an intention to the contrary is clearly shown.
Section 15. Application of the property of the firm.
Subject to contract between the partners:
The property of the firm must be held by the partners only in their capacity as partners.
Such property shall be used exclusively for the purposes of the firm’s business.
Partners cannot use firm property for personal or non-business purposes, unless the partnership agreement permits it.
Section 16. Personal profits earned by partners.
Subject to contract between the partners:
The property of the firm must be held by the partners only in their capacity as partners.
Such property shall be used exclusively for the purposes of the firm’s business.
Partners cannot use firm property for personal or non-business purposes, unless the partnership agreement permits it.
Section 17. Rights and duties of partners
Subject to the contract between the parties:
After a change in the firm
(a).
When the constitution of a firm changes, the partner’s mutual rights and duties in the new firm remain the same as before the change.
This applies as far as possible, unless the partners decide otherwise by agreement.
After the expiry of the term of the firm.
(b).
The firm may be originally constituted for a fixed duration.
If, after that fixed term expires, the partners continue to carry on the business, the firm does not automatically dissolve.
In such a case, the mutual rights and duties of the partners remain the same as they were before the term ended.
This continuation applies only to the extent that these rights and duties are compatible with a partnership at will, which the firm becomes after expiry.
Partners may thereafter continue or modify these rights and duties by agreement if they choose.
Where additional undertakings are carried out.
(c).
A firm may be formed for one or more specific ventures or undertakings.
If the firm later undertakes additional ventures beyond the original ones, the question of partner rights and duties arises.
In such cases, the partners’ mutual rights and duties regarding these new ventures are treated as the same as for the original ventures.
