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TABLE OF CONTENTS
Introduction ..................................................................................................................................... 4 Essentials......................................................................................................................................... 4 Introduction of a partner-New Partner ............................................................................................ 4 Break in Identity of Firm by Addition of New Partners ............................................................. 4 Liability of a Incoming Partner ................................................................................................... 5 Retirement of a partner. Sec 32 (1) A partner may retire ........................................................... 6 Section 32(1): Retirement in a Partnership-at-Will..................................................................... 6 Notice of Resignation .................................................................................................................. 6 Liability of a Retiring Partner ..................................................................................................... 6 Section 32(2): Obligation of Retiring Partner ............................................................................. 8 Section 32(3) ............................................................................................................................... 9 (i) Notice of Retirement .............................................................................................................. 9 Effect of Retirement of Partner ................................................................................................... 9 Retirement of a Partner and Valuation of his Share .................................................................. 10 Expulsion of a partner.. ................................................................................................................. 10 Insolvency of a partner.................................................................................................................. 11 Dissolution of Partnership ......................................................................................................... 11 Liability of estate of deceased partner. ......................................................................................... 12 Right of outgoing partner to carry on competing business ........................................................... 12 Agreement in Restraint of Trade ............................................................................................... 13 Remedy for Breach of Agreement ............................................................................................ 13 Right of outgoing partner in certain cases to share subsequent profits......................................... 14 Rights of Retiring Partner ......................................................................................................... 15 Rights and Liabilities of an Outgoing Partner ........................................................................... 16 Revocation of continuing guarantee by change in firm. ............................................................... 16 Bibliography17
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ACKNOWLEDGEMENT
I would like to express my Gratitude to my teacher, Ms. Gurjinder Kaur who gave me the golden opportunity to do this wonderful project on the topic Incoming and Outgoing Partners which also helped me in doing a lot of Research and I came to know about so many new things. Secondly I would also like to thank my parents and friends who helped me a lot in finishing this project within the limited time.
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INTRODUCTION
The law of partnership is contained in the Indian Partnership Act, 1932, which came into force on 1st October 1932. The act is mainly based on English Partnership act 1890 and practically codifies the Indian law of partnership.
Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any one of them acting for all.
ESSENTIALS
Following are the essentials which are required for a valid partnership: Partnership is an association of two or more persons. It must be result of an agreement between two or more persons. The agreement must be to carry on some business. The agreement must be to share profits of the business. Business must be carried on by all or any one of them acting for all.
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INCOMING AND OUTGOING PARTNERS ~ PROJECT REPORT property of the old firm in spite of the apparent though real, change in the constitution. Where, however, there is a real change in the constitution and the new firm is a new identity there seems to be no justification for the view that whatever was the part of the property of the old firm continues to be its property in spite of such change. If the properties could not reach in thehands of the old firm, it could not be attached obviously in the hands of the new firm.2
2GouriSankar v. CM, Bank Ltd., AIR 1959 Cat 262. 3MeenakshiAchi v. P.S.M.S. Chettiar, AIR 1957 Mad 8; see also W.T. Commr. v. PadampatSinghania, 1981 Tax LR 683. 4Commissioner of Income-tax v. G.S. Mills, AIR 1961 SC 24. 5B.M. Devaiah v. Canara Bank, AIR 2003 Kant 143.
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Notice of Resignation
Section 32(1) requires that there should be a notice in writing which involves the idea that the notice should reach the other partners. But if the partnership is not at Will, a notice of registration given by one partner will not serve any purpose.7
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INCOMING AND OUTGOING PARTNERS ~ PROJECT REPORT that after the notice of retirement the creditor has acquiesced in that position and has agreed to get his dues satisfied from the newly constituted partnership firm.8 Under section 32(2) of the Indian Partnership Act, 1932 the liability of a retiring partner as against the third party would be discharged only if there is an agreement made by the retiring partner with the third party and partners of the reconstituted firm, of course an agreement could be implied by the course of dealing between the third party and the reconstituted firm after the retirement of the partner.9 In that case it was held further that if a creditor takes a new security for the debt from the continuing firm, then it shows his intention to deal with the continuing partner for debts owed by the firm. In absence of such express or implied agreement, a public notice is necessary. A partnership firm took overdraft facility and medium term loan of the firm. The amount of liability to the Bank remained unpaid. The defendant in the meantime retired from the partnership firm. The Bank filed a suit for recovery of the loan. The retirement of the defendant was duly intimated to the Bank. There was subsequent agreement between the Bank and other remaining partners that they undertook as partners to remain liable to the Bank. The Bank did not take the signature of the defendant retiring partners for revival letters in respect of the loan and also in the subsequent agreement made by and between the Bank and the existing partners. It was held that the partners of the reconstituted firm at once would be liable for debts of the old firm and that the retiring partner was said to have been discharged from liability to the Bank.10
8Jayantilal v. Mirandas& Sons, AIR 1983 Bom 226. 9Syndicate Bank v. R.S.R. Engineering Works, (2003) 6 SCC 265. 10K], George v. State Bank of Travancore, AIR 2002 Ker 214. 11Vishnu Chandra v. Chandrka Prasad, AIR 1983 SC 523.
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hMeenakshiAchi v. P.S.M.S. Chettiar, AIR 1957 Mad 8. 13Vedachala v. Rangaraju, AIR 1960 Mad 457. 14AjudhiaPershad v. Sham Sunder, AIR 1947 Lah 13 (FB). 15KusumBhimrao v. JavakarLalchand, AIR 1982 Bom 245.
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Section 32(3)
(i) Notice of Retirement
The question whether a person dealing with a firm has notice of the dissolution of the firm by the retirement of one of partners from it is one of fact and the onus of proving that fact is plainly on such partner and this onus is discharged if there is evidence to the effect that notice was given.17
A provision in the partnership deed for retirement is not inconsistent with a partnership-at-Will though firm constituted by only two partners.19
2.
Liability of retiring partner in absence of public notice: Liability does not extend to his being liable to be adjudicated as insolvent for the act of the firm at a subsequent date.20
3.
4.
A retiring partner can avoid liability by giving public notice or retirement. But absence of such notice cannot mean that a partner even after retirement continues to be liable to third parties.22
16MchruBelgamVala v. G. Bell & Co., AIR 1983 Mad 351. 17Kala Ram v. P.N.B. Ltd., AIR 1935 PC 14. 18Central United Bank v. Venkntarama, AIR 1963 Mad 302. 19TalakchandKtrnjiVora v. Keshavlal, AIR 1973 Cal 279. 20VcerappaChcttiar v. KalidossChcttiar, AIR 1974 Mad 150. 21S.B. Amcruddm v. I.T.O., 92 ITR 366. 22P.V. Gandhi v. Gitanjati, AIR 1973 Mad 115.
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Where the new firm assumes liability to pay the debt due to the old firm and the creditor agrees to accept the new firm as his debtor to discharge the old partnership firm from its liability, the partners of the new firm would be liable to pay the creditor.23
EXPULSION OF A PARTNER
(1) A partner may not be expelled from a firm by any majority of the partners, save in the
exercise in good faith of powers conferred by contract between the partners. (2) The provisions of sub-sections (2), (3) and (4) of section 32 shall apply to an expelled
Scope
Section 33 applies where the power of expulsion has been reserved in the articles of the partnership and where the power has been exercised in good faith by all partners whose concurrence is necessary. It does not apply to forcible expulsion of a partner from the business in violation of the contract of partnership.25
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INSOLVENCY OF A PARTNER
(1) Where a partner in a firm is adjudicated an insolvent he ceases to be a partner on the date on which the order of adjudication is made, whether or not the firm is hereby dissolved.
(2) Where under a contract between the partners the firm is not dissolved by the adjudication of a partner as an insolvent, the estate of a partner so adjudicated is not liable for any act of the firm and the firm is not liable for any act of the insolvent, done after the date on which the order of adjudication is made.
Dissolution of Partnership
If a partner is adjudged an insolvent, he ceases to be a partner in the firm on the date the order of adjudication is made by virtue of section 34 of the Act and except where there is a contract to the contract, such firm also dissolved under section 42(d) of the Act.30
27Mushtaque& Co. v. C.I.T., 1973 Tax LR 26. 28Lindely and Banks on Partnership (18th Edn.,para 10-111) See Hitchman v. Crouch Butler Savage Associates Services Ltd., (1983) 127 SJ 441 (The Court need not apply the strict rule of construction). 29hixmmaraynn v. Dwarakaprasad, AIR 1964 MP 55. 30Narsmgh Das v. Bhmram Das AIR 1961 Raj 81.
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Date of Dissolution
There was no provision in the Indian Contract Act, nor is there any provision in the corresponding sections of the (English) Partnership Act, 1890, on the date from which the dissolution of the firm will take effect in the event of insolvency of a partner. But it has been held that the date of such dissolution is the date of the commencement of the bankruptcy of the partner.31If that English principle is followed, m India, the date of such dissolution shall be the date on which the order of adjudication is made. But if construction is put to subsection (1) of section 34 dissolution of the firm may be made on that day or any other subsequent day.
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INCOMING AND OUTGOING PARTNERS ~ PROJECT REPORT (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. Agreements in restraint of trade.(2) A partner may make an agreement with his partners that on ceasing to be a partner he will not carry on any business similar to that of the firm within a specified period or within a specified local limits; and, notwithstanding anything contained in section 27 of the Indian Contract Act, 1872 (9 of 1872), such agreement shall be valid if the restrictions imposed are reasonable.
Reasonableness of Restriction
The otitis to prove that the restrictions imposed in an agreement in restricted of trade are reasonable is on the party which pleads that they are reasonable.35
34Noel Home v. John Douglas, (1912-13) 17 CWN 215 (PC). 35HukmiClrnnd v. Jaipur Ice & Oil Mills, AIR 1980 Raj 155. 36Stiles v. Ecclestone, (1903) 1 KB 544. 37General Accident Assurance Corp. v. Noel, (1902) 1 KB 333.
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Substantive Law
Section 37 lays down the substantive law relating to the liability of a surviving partner who without a settlement of accounts with legal representative of the deceased partner utilises the assets of the partnership for continuing the business as his own.39
Equitable Doctrine
The rule embodied in section 37 is only a breach of well-recognised equitable doctrine that if a trustee mixes the trust fund with his own moneys and employs both in a trade of his own, the cestuique trust
38P.S. Nagaranjanv. Robert Hotz, AIR 1954 Punj 278. 39Laxmidasv. Nanabhai, AIR 1964 SC 11.
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carried by the partner notwithstanding the dissolution. The carrying oil of a similar business by the surviving partner after the termination of partnership does not bring the case within the equitable doctrine enunciated by section 377
40Kasiv. RamanathamChettiar, AIR 1949 Mad 693; see Ramnarayan v. Kashinath, AIR 1951 Pat 53. 412003 AIR SCW 1001: 2003 (2) SCALE 242.
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INCOMING AND OUTGOING PARTNERS ~ PROJECT REPORT in the profits of the firm. When the defendants had not paid the value of the share of the plaintiff pursuant to the agreement for retiring from the firm, it has become a debt on the defendants and the plaintiff is entitled to recover the same with interest. The value of the share of die plaintiff on the date of his retirement from the firm would be regarded as a pure debt with effect from the date on which he ceased to be a partner as per the agreement entered into between the partner. Otherwise the result would be that he was deemed to have been continued as partner of the firm even after he retired from the firm. If consideration is not paid as per the agreement, he would be entitled to enforce it as per law. Mere non-payment of consideration does not take away the legal effect of retirement from the partnership firm.
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42K.P.A. VeilayappaNadar v. BhagiruthiAmmal, (1997) 1 SCC 211.
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BIBLIOGRAPHY
STATUTES/RULES 1. The Indian Partnership Act, 1932
BOOKS 1. Bangia R.K, The Indian Partnership Act 1932, 2011, Allahabad Law Agency WEB SITES 1. 2. 3. 4. 5. 6. www.indiankanoon.org/search/?...incoming%20and%20outgoing www.karunadu.gov.in/karigr/actsrules/indianpartnershipyact/5.html www.scribd.com/doc/79668816/Incoming-and-Outgoing-Partners www.studymode.com Marketing & Advertising www.fh-krems.ac.at/en/.../incoming-outgoing www.mponline.gov.in/Quick%20Links/.../IPA1932English.pdf
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