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Dr.

RAM MANOHAR LOHIYA


NATIONAL LAW UNIVERSITY
LUCKNOW

Law of Contracts -II


Final Draft
On
Laws of partnership in USA, UK and India

SUBMITTED TO: SUBMITTED BY:


Dr. V. Visalakshi Sakshi and Sakshi Dagur
Associate Professor Roll no. 111 and 112
RMLNLU 3rd semester B.A.LL.B
ACKNOWLEDGEMENTS

Our sincere thanks to Prof.Dr. V. Visalakshi for helping us with the topics undertaken and
explaining the basics of research work to be carried out and to encourage us and keep our
enthusiasm towards contract law field. We would also like to thank our parents for their
constant emotional support and encouragement. Our friends also deserve a special mention
for having helped us with the research work and for their valuable inputs in course of
research work.
INTRODUCTION
A general partnership is an association of two or more general partners who operate a
business for profit. All general partners are normally active in the operation of the business,
their rights and obligations are contained in their partnership agreement. All general partners
have unlimited personal liability for debts, taxes, and other claims against the partnership. If
the partnership’s assets are not sufficient to pay creditors, the creditors can satisfy their
claims out of individual partner’s personal assets. This is a major difference between
partnerships and corporations or limited liability companies. Also if a partner fails to pay
their personal debts, the partnership business may be disrupted if the partner’s creditors seek
to satisfy their claims out of the partner’s interest in partnership by seeking what is called a
charging order against partnership assets. Each general partner is considered an agent for the
partnership and, in terms of dealing with third parties, can ordinarily do anything necessary to
operate the business, such as hire employees, borrow money, or enter into contracts on behalf
of the partnership.

LEGAL ENTITY
The central problem of partnership law has been the development of a framework for
determining the substantive rights and obligations arising out of the partnership relationship.
Historically, this problem has been addressed on a conceptual basis, determined by whether a
partnership is viewed as an "entity," a legal person separate from its partners, or an
"aggregate," a relationship among the partners.
In United Kingdom, partnership is not a separate legal entity from its partners. Thus
partnership property is owned by the partners themselves, and right and liabilities are
enforceable by and against the partners themselves1. Nevertheless, the partnership Act 1890,
section 4(1) provides that ‘for the purposes of this act’ persons who have entered into
partnership with one another are called collectively a ‘firm’, and the word ‘firm’ in common
parlance almost invariably denotes a partnership. The use of the collective word ‘firm’ carries
no suggestion that the firm is in some way separate from the partners.
In USA, a partnership is a separate entity from its partners.2 Giving clear expression to the
entity nature of a partnership is intended to allay previous concerns stemming from the
aggregate theory, such as the necessity of a deed to convey title from the “old” partnership

1
P. 204, Kluwer Law International, International Encyclopaedia of Laws, volume 5, corporations and
partnerships
2
Section 201(a), RUPA, 1997
to the “new” partnership every time there is a change of cast among the partners. Under
RUPA, there is no “new” partnership just because of membership changes.

In India, a partnership firm according to the Indian Partnership act is not a separate legal
entity having its existence different from its members. A firm is not considered a person
under the act. Section 4 of the act says that the people who have entered into partnership with
one another are called individually ‘partner’ and collectively a ‘firm’.

A DISCUSSION
In common law, a partnership was considered to be an aggregate. As inserted in partnership
act, 1890 partnership is the relation which subsists between persons carrying on a business in
common with a view of profit3. It was a relationship between persons conducting business as
co-owners, who for that purpose jointly owned property and jointly incurred obligations. In
determining the substantive rights and obligations of partners, the common law applied
customary principles of common ownership and liability. The common law courts largely
applied the traditional forms of co-ownership, joint tenancy, and tenancy in common, to
property owned by partners as a part of their joint business. In reality, however, the
partnership relationship involves more than mere common ownership of partnership property.
It also involves the common use of that property as a part of the partners' joint business.4

This earlier view of partnership as a purely aggregate concept was defective. Its defect was
not that it was based on an aggregate concept of partnerships, but that it tried to describe
partnership rights and obligations solely in terms of customary concepts of ownership and
liability, without regard to the suitability of such concepts in a partnership context. As a
result, aggregate conceptualism put too much emphasis on the individual rights of each
partner, and too little on the collective rights of all the partners.
Legal scholars have proposed two main approaches to reconcile the individual rights of
partners as co-owners with their collective rights arising from the partnership relationship: the
legal-person conceptual approach and the functional approach. The legal-person conceptual
approach introduces the legal fiction that the partnership relationship creates an "entity," a
legal person separate from the partners. This partnership entity "owns" all partnership

3
Section 1(1) of partnership act, 1890
4
The entity aggregate dispute: conceptualism and functionalism in partnership law by Gary S. Rosin available at
http://heinonline.org/HOL/Page?handle=hein.journals/arklr42&div=17&g_sent=1&collection=journals
property and is liable on partnership obligations. Thus, the legal-person fiction at least
nominally preserves the common law concepts of ownership and liability.

Instead of resorting to a legal fiction, the functional approach abandons all pretence of
preserving common law concepts of ownership and liability. Rather, the functional approach
expressly modifies such concepts to conform to the realities of the partnership relationship.
Because, as a matter of fact, the partners are conducting a common business, and have
dedicated their common property to that business, the individual rights of partners as co-
owners are largely subordinated to their collective rights.5

Nevertheless, because partnership law would not be tied to one concept of the nature of a
partnership, it would retain the flexibility of deciding on a case-by-case basis whether, in any
given context, the partners should be treated separately or collectively. Those decisions could
then be made realistically in light of: (1) the relevant rights and obligations of partners under
partnership law generally, and (2) the policy considerations relevant to the particular context.
The common law embarked on the functional course by invoking the power of the courts of
equity to give partners an ''equity" or a "lien" to require that the property be devoted to
partnership purposes. Although some commentators argued the prevailing view was that there
was no distinct "partnership" estate. That is, the partners' equities doctrine modified, but did
not fundamentally alter, the traditional incidents of the common law tenancies. As a result,
this doctrine did not eliminate the conflict between the traditional norms and the necessities
of the partnership relationship."
Dean Lewis saw the role of the UPA as the development and "careful statutory expression of
rules of law based on clear ideas of fundamental principles” as to the nature of partnership
property and a partner's rights in such property.
Yet, over seventy years after the adoption of the UPA, many commentators argue that the
UPA is ambiguous or that it reflects a compromise between the aggregate and the entity
concepts. While the UPA retains the common law aggregate concept of a partnership, it does
not determine the substantive treatment of partners according to that concept. Instead, it takes
a functional approach that allows either the individual or the collective rights of the partners
to be emphasized according to the particular factual and policy context.

5
The entity aggregate dispute: conceptualism and functionalism in partnership law by Gary S. Rosin available
at http://heinonline.org/HOL/Page?handle=hein.journals/arklr42&div=17&g_sent=1&collection=journals
Only a functional approach allows direct evaluation of whether, for any given purpose, the
partners should be treated collectively (like an entity) or separately (as an aggregate). Under
the functional approach, that determination is not made legalistically on the basis of the
metaphysical personhood of a partnership.

Both the language and history of the UPA reflect the adoption of a general aggregate concept
of partnerships as associations of partners, rather than as separate legal persons. Dean Ames,
the draftsman of the first two drafts of the UPA, selected the legal person conceptual
approach, and would have made the partnership, as such, a legal person that itself owns
partnership property and that itself is bound by partnership obligations. Dean Lewis, who
succeeded Dean Ames as principal was unsatisfied with the legal-person approach. Dean
Lewis authored two drafts, one based on the legal person theory and one based on the
aggregate theory.
It was recommended that the UPA retain the common law concept of the partnership as an
aggregate, with the partners as co-owners of partnership property, rather than a legal entity.
This shift from the legal person to the aggregate approach is adopted by UPA. The Ames
drafts defined a partnership as "a legal person formed by the association of two or more
individuals for the purpose of carrying on a business for profit." Section 6(1) of the UPA as
adopted specifies that a partnership is "an association of two or more persons to carry on as
co-owners a business for profit."'
While some commentators have argued that the UPA does not clearly adopt either the legal
person or the aggregate view in regard to the general nature of a partnership,3 7 most courts
and commentators have agreed that section 6(1) generally reflects and adopts the aggregate
concept of the nature of a partnership.

Beginning with Professor Crane, several legal-person conceptualists have challenged the
UPA's general aggregate approach. In addition to arguing that section 6(1) does not clearly
adopt either view of a partnership, 45 the conceptualists maintain that the UPA itself
implicitly makes the partnership a separate entity, which itself owns partnership property and
is itself responsible for partnership obligations. Finally, because section 8(3) provides that
title to real property may be taken in the firm name, the conceptualists argue that the
partnership, as such, holds the title as a separate legal person. The conceptualists argue that
by using the word "partnership," rather than the word "partners" or some variant, to describe
various partnership rights and obligations, the UPA (perhaps unconsciously) endows
partnerships with independent legal personality.
In India, the question was whether firm is a legal person has received considerable judicial
attention. The issue was addressed by Calcutta HC in 19236, where the specific issue was
whether a particular firm can be a partner in another firm. It was held that a firm as such
cannot be a member of partnership; it is not an entity; it is merely a collective name for the
individuals who are member of partnership. Ordinary the business of partnership is
transacted by the managing partner in the name of the firm and contracts on behalf of the
partnership are usually for brevity sake entered into in the name of the frim. Nevertheless
every partner of the firm is in the eyes of the law a party to the business and to contract
entered into in the name of the firm. Whatever is done in the name of the firm is in fact
and in substance done by and on behalf of the partners of the firm. A firm name is mere
alias for the collective name of the partners, and, as such, a contact entered into in the
name of a firm is really a contract entered into by the entire partner thereof.7
It has been held that although a firm cannot enter into a contract of partnership, because
it is not a legal entity, there is nothing in law to bar the individual members of a firm from
entering into partnership with other individuals or with partners of another firm.
A firm not being a legal person, the property of the firm is in fact the partners ‘joint
property and the debts and obligations as their joint and several liabilities. A firm not being
a corporate entity its partners are not its employees, even if they are drawing remuneration
for their services.8

In 7th law commission report, it was suggested that the fundamental principle on which the
Indian Partnership Act is based i.e. a firm is not a legal separate entity should be replaced by
the contrary principle which recognise a firm as a legal person, on the ground that such a firm
would be useful to the business and commercial community as well as to those who deal with
a firm and that it would also simplify proceedings by and against a firm.
In England, it has been suggested that the English law of partnership should in this respect be
assimilated to that of Scotland which recognises a firm as a legal or juristic person. However,
notwithstanding a considerable body of opinion in England being in favour of a firm as a
legal person, the British parliament has so far not accepted that principle.

6
Seodoyal Khemka v Joharmull (1923) ILR 50 cal 549 (558)
7
Brij Kishore Ram Sarup v Sheo Charan Lal, ILR 1938 all 100
8
E.S.I.C. v Ramanuja Match Industries (1985) 1 SCC 218
The difficulties which result from the non-recognition of a firm as a legal entity were
carefully examined by the special committee9 which drafted the Indian Partnership Bill and
the committee tried to meet these difficulties by appropriate modification of some of its
provision, without altering the basic conception that a firm is not a legal entity.
The non-recognition of a firm as a legal person renders possible elasticity of relationship
between the persons who enter into a partnership. This is a great advantage to the
business community, as it facilitates the association of persons with varying, means and
diverse abilities to carry on business on the collective credit of all the partners. The
common law theory of partnership (known in the USA as the ‘aggregate’ theory), as has
been worked out in the Indian Partnership Act meets the requirements and needs of the
business community. Under this theory, the partners own in common the partnership
property and they are joint principles in partnership transactions. The activities carried
on by the partners are not regarded as being carried on by a legal personality distinct
from their individual personalities. The practical difficulties which have been
experienced in the administration of the law of partnership have been to a large extent
overcome by the modification of the procedure applicable to a firm.
Thus, a firm, not being a legal entity, could not ,either in England or in India, sue or be sued
in the firm name or sue or be sued by its own partners, for one cannot sue oneself. This
difficulty with regard to the law of procedure has, however, been removed both in England
and in India under the pressure of consideration of commercial convenience and a form is
now allowed to sue or be sued in the firm name as if it were a corporate body.
Thus it is clear that the law, English as well as Indian, has for some specific purposes, relaxed
its rigid application of the aggregate theory and given, to a limited extent, a legal personality
to a firm. Nonetheless, the general concept of partnership is that a firm is not an entity or a
person in law but is merely an association of persons and the firm name is only a collective
name for individuals who constitute the firm or only a compendious mode of describing the
persons who have agreed to carry on business in partnership. It is in this view of the matter
that a firm is not entitled as such to enter into partnership with another firm or individual and
the firm in not a person in the strict sense of the term. This legal position of a partnership is
succinctly stated by Das C.J in a recent decision of the Supreme Court: Dulichand

9
Gazette of India, 1931
Laxminarayan rom v. commissioner of income-tax Nagpur10 and the report did not consider
it necessary to alter it.
Upon a consideration of the Judicial decision and of the defects disclosed in the
administration of the existing law relating to partnership in India, commission reached the
conclusion that there are no cogent and compelling reasons to justify the alteration of the
basic principle of our law of partnership and to disturb long settled notions as regards the true
nature and character of a partnership and the relations of the partners inter se and with the
outside world. No serious inconvenience or embarrassment has been experienced by the
business community by the non-recognition of a firm as a legal person, and the practical
difficulties experienced in the administration of the law have, to a large extent, been
eliminated.
FIDUCIARY DUTY
In USA

Under section 404 of RUPA,1997, we find mention of the fiduciary duties that the partners
of a partnership firm owe to each other. They arise primarily, if not entirely, from a person’s
agency power to bind the entity and deal with its property. The UPA enacted prior to RUPA
did not contain a definite statement with regards to a partner’s fiduciary duty. Section 9(1) of
the UPA stated that agency law principles presumably including fiduciary principles derived
from agency law, apply to partnerships. Further, section 21 of the UPA entitled “partner
accountable as a fiduciary” required that a partner account to the partnership for any benefit,
and hold as trustee for the partnership any profit, derived without the other partner’s consent
from transactions connected with the partnership’s formation, conduct, or liquidation or from
the partner’s use of partnership property. Judge Cardozo’s moralistic description of
partnership fiduciary duties in Meinhard v. Salmon11 forms basis of numerous such judicial
pronouncements.12 He said –“joint adventures, like co-partners, owe to one another…the duty
of the finest loyalty. Many forms of conduct permissible in a workday world for those acting
at arm’s length, are forbidden to those bound by fiduciary ties…not honesty alone, but the
punctilio of an honour the most sensitive is then the standard of behaviour.” Generally, courts
have held that partners have duties of loyalty, care, fairness, and honesty to the partnership
and their co-partners. These duties can be separated into (a) a duty of loyalty, including a

10
AIR 1956 SC 354
11
164 N.E. 545 (1928)
12
164 N.E. 545 (N.Y.1928)
duty not to usurp partnership opportunities, a duty not to compete with the partnership, and a
duty not to act adversely to the partnership; (b) a duty of good faith and fair dealing; (c) a
duty to exercise appropriate care in partnership management; and (d) a duty to fully disclose
matters that are material to the partnership and its business. Under the UPA, partnership
fiduciary duties are broad and somewhat nebulous and, consequently, are subject to judicial
expansion and contraction. This vague aspect of partnership fiduciary duties was criticized
during the RUPA drafting process. As a result, the drafters of RUPA attempted to craft more
precise partnership fiduciary duty provisions. However, RUPA's partnership fiduciary duty
provisions are far from precise. That a partner is not Section 404(a) of RUPA contains the
following exclusive statement of partnership fiduciary duties: "The only fiduciary duties a
partner owes to the partnership and the other partners are the duty of loyalty and the duty of
care."Section 104(a) provides that "unless displaced by particular provisions of this [Act], the
principles of law and equity supplement this [Act]. Therefore, RUPA attempts to displace
common law rules that coexisted with the UPA, including common law fiduciary duty rules.
Section 404(b) reduces the partners' duty of loyalty to three components. First, following the
self-dealing proscription of section 21(1) of the UPA, section 404(b) (1) states that a partner
must account to the partnership and "hold as trustee for it any property, profit, or benefit
derived by the partner in the conduct and winding up of the partnership business" (but not
during the period prior to the partnership's formation) or derived from the use of partnership
property, including the appropriation of a partnership opportunity. Second, section 404(b) (2)
states that a partner must refrain from dealing adversely with the partnership in the conduct
and winding up of the partnership's business (but, again, not during the period prior to the
partnership's formation). Section 404(b)(3) states that a partner must refrain from competing
with the partnership in the conduct of the partnership's business before dissolution. In
addition to the duty of loyalty and the duty of care, section 404(d) sets forth the following
"obligation" of good faith and fair dealing: "A partner shall discharge the duties to the
partnership and the other partners under this [Act] or under the partnership agreement and
exercise any rights consistently with the obligation of good faith and fair deal. Finally,
section 404(e) adds an element of partner self-interestedness to the fiduciary duty and
obligation formulation: "A partner does not violate a duty or obligation under this [Act] or
under the partnership agreement merely because the partner's conduct furthers the partner's
own interest." A comment to section 404(e) states that trustee and is not held to the same
standards of selflessness as a trustee. Instead, a partner's interests as a principal and owner
must be balanced against his or her duties and obligations as an agent and fiduciary. RUPA
recognizes that these roles sometimes conflict. Specifically, section 404(f) elaborates on the
concept of self-interest, permitting partners to lend money to and transact business with the
partnership and, in so doing, to have the same rights and obligations as non-partners.

Few have been content with RUPA's statement of fiduciary duties. Hence, a lively academic
discussion of this topic has ensued between "contractarians" and "fiduciarians”.
Contractarians adhere to the concept that partnerships are nothing more than contractual
arrangements among partners, and believe that RUPA's purpose is to provide suitable default
provisions for persons who are unlikely to draft customized contracts to govern their
partnership relationship. In this view, the nature of the duties, fiduciary and otherwise, that
exist in a partnership relation depends on the relevant terms of the parties' express or implied
contract. The contractarians argue that RUPA goes beyond existing partnership law by (a)
dictating fiduciary duties and obligations that exist independently of the partners' contractual
relationship and (b) providing insufficient means for partners to change their duties through
their contract. On the other hand, fiduciarians adhere to a belief that partnerships are fiduciary
in nature and that, through their partnership relationship; partners advance their personal
interests by collective enterprise. The fiduciarians argue that this view, rather than the view
that a partnership is nothing more than a contract, forms the basis of pre-RUPA partnership
law. From a fiduciarian perspective, RUPA radically and erroneously abandons partnership
law's fiduciary relationship foundation in favour of a contractarian premise.

INDIA

The partnership act contains various provisions regulating the relationship between partners.
The partners are bound to carry on the business of the firm to the greatest common
advantage, to be just and faithful to each other and to render true accounts and true
information of all things affecting the firm to any partner or his legal representative. Every
partner is bound to attend diligently to his duties in the conduct of the business.

Two fundamental principles govern relations of partners to one another. The first principle
gives the partner the freedom to settle their mutual rights and duties by their own voluntary
agreement. The second principle is that relations of partners to one another are based upon
the fundamental principle of absolute good faith. Section 11 and section 9 of the act give
expression to the above principles respectively. Sec. 11 states, subject to the provision of this
act, the mutual rights and duties of the partners of a firm may be determined by contract
between the partners, and such contract may be expressed or implied by a course of dealing.
Embodying the principle of good faith section 9 of Indian partnership act, 1930, partners are
bound to carry on the business of the firm to the greatest advantage, to be just and faithful to
each other, and to render true account and full information of all things affecting the firm to
any partner or his legal representative.13 Good faith and utmost bona fides are required in the
dealing between working and sleeping partners when matters relating to accounts are
concerned.14

A partner, who is expressly entrusted with the conduct of a sale, was bound fully to disclose
the real facts to another partner and, not having done so, could not exclude him from his
share of profits actually realised by the sale.15 The obligation to perfect fairness and good
faith is especially required to be observed when one partner is trying to get rid of another or
to buy him out.16 It was observed by Lord Eldon that: A partner, who complains that the other
partners do not do their duty toward him, must be ready at all times and offer himself to do
his duty toward them.17

NOT A FIDUCIARY RELATIONSHIP

The duties cast on the partners under sec. 9 are not ‘subject to contact between the partners.’
Therefore, it is absolute is its contents. It cannot be waived by the uninformed partner or
subjected to a compromise. The non-compliance with the duty cast, which is based on the
public policy, must visit legal consequences. Honesty in the behaviour need not be co-related
with the technical doctrine of ‘entrustment of fiduciary capacity’.

Fiduciary means relation to or involving a confidence or trust. The fiduciary relation does not
depend upon any particular circumstances. It exists in almost every shape. Partnership,
however, itself does not create a fiduciary relation between the partners or make one of them

13
RN Oswal Hosiery v CIT AIR 1969 Pun 8; CIT v G Parathasarthy Naidu AIR 1980 AP 158
14
AIR 1930 Mad 141, P 143
15
Dunee v English (1874) 18 Eq 524
16
Blisset v Daniel (1853) 10 Hare 493
17
Const v Harris (1824) Turn & R 524
a trustee for the other or for his representatives. The relation may, however arise on the death
of one of them or created by other special circumstances18.

DUTIES OF PARTNERS:

1. DUTY NOT TO COMPETE


Under section 16(b) of the Act it is duty of partners not to carry on any business
similar to or in competition with the business of the firm and, if a partner does this, he
is bound to pay to the firm all profits made by him in that business.
2. DUTY OF DUE DILIGENCE AND HONESTY
The act puts on obligation on every partner to exercise due diligence while attending
his duties in the conduct of the business. It further provided that if loss occurred in the
conduct of the business of the firm because of the wilful neglect of the partner he shall
have to indemnify the firm for it.19 An action for indemnity can be brought against a
partner only by the firm or by the other partners on behalf of the firm, but not by a
partner in his individual capacity. The liability of a partner is to the firm and not to
one particular partner.20
3. DUTY TO RENDER TRUE ACCOUNTS
Partners being bound to each other by the principle of utmost good faith, section 9 of
the act entail a duty on the partners toward each other to make a full and frank
disclosure of facts affecting the affairs of the firm. Section 9 prescribes that the
partners are bound to render true accounts and full information of all things affecting
the firm to any partner or his legal representative. If a partner is in possession of
information about the affairs and assets of the firm, he should not conceal that from
his co-partners. However, in the absence of special circumstances, he cannot be
regarded as a kind of trustee for the other partners or liable to render accounts to them
in a fiduciary capacity.21 All the partners are bound to render accounts to each other
but where some of the accounts are kept by one of them, prima facie he would be the
proper person to explain and give full information about them.22 The duty to render

18
Halsbury’s Law of England, 3rd edition, vol 38, p 820
19
Section 12(b) and section 13(f), IPA 1930
20
Gur Dayal v. L. Raghunath, AIR 1976All 141
21
Prem Ballah v. Mathura Datt AIR 1967 SC 1342
22
Sukh Dayal v. Sukha Nand AIR 1934 Lah 312, p 313
account to others partners cannot be assigned.23 Not also partners, nut the personal
representatives of the deceased also are entitled to an account from the surviving
partners.
4. Duty to account for personal profits
It is the duty of every partner to use the property of the firm strictly and solely for the
purposes of the business of the firm. If a partner uses a joint property for any private
purposes, he must, in the first place, account for the advantages gained form such use
and, secondly, compensate the firm for any damage to or depreciation of the property
done by such use. Section 161 provides that subject to contract between the partners,
if a partner drives any profit for himself form any transaction of the firm, or from the
use of the property or business connection of the firm or the firm name, he shall
account for the profit and pay it to the firm.

5. DUTY TO INDEMNIFY FOR LOSS CAUSED BY FRAUD


Every partner shall indemnify the firm for any loss caused to it by his fraud in the
conduct of the business of the firm.24

UNITED KINGDOM
Every member of the partnership owes the other partners a duty of utmost good faith.
The duty extends across the whole spectrum of a partner’s relations with his co-
partners. So that even if the matter has a personal aspect to it and does not primarily
relate to partnership business, the duty will still be owed. Thus in Law v Law [1904-
7] All ER Rep 526 a partner bought the share of another without making a full
disclosure of certain matter which was material. It was held that the sale was voidable
and could be set aside. In a more general way, section 28 provides that partners must
render true account and full information of all matters affecting the partnership to any
partner. A partner is liable to account for any benefit derived by him from any
transaction concerning the partnership or by any use by him of the partnership
property, name or business connection, unless he has the consent of the other
partners25. By section 30 a partner is prohibited from carrying on any business of the

23
Ghisulal-Ganeshilal v. Gumbhirmull-Pandya AIR 1938 Cal 377, p 381
24
Section 10 of IPA, 1930
25
Sec. 29(1) of Partnership act, 1890
same nature as and competing with that of the firm, unless he has the consent of the
others. He is liable to account for any profits made in breach of his principle.
The good faith principle also extends in a broad way to cover the way partners make
decisions, so that if they are deciding a matter by a majority vote, the majority will
owe a duty of good faith to the minority, which will involve giving them a fair
hearing and proper discussion.26

OUR CONTRIBUTION AND CONCLUSION


With regards to the legal entity we think that the United States concept of a
partnership being a legal entity does award a sense of security and stability to the
firm. Despite the fact that the aggregate concept of the common law has been relaxed
to a certain extent with regards to suing and getting sued but when it comes to the
partnership property that every partner brings in in his individual capacity which
becomes the property of the firm which is a firm only in the namesake becomes
problematic. Hence the entity concept provides more stability.
However when it comes to the fiduciary relations between the partners we would like
to say that USA in its recent enactment of RUPA 1997, has made this duty way too
restrictive unlike the previous UPA 1914 which leaves little room for the courts to
interpret provisions in the general interest while UK has taken it to an unjust stand
where the duty of good faith extends even to the personal aspects having not much
relation with the partnership business. Therefore, the Indian provision is more
practical by giving the courts interpretational powers to the extent that they can be
used to realise and further the general interests as well as not demanding too much of
good faith from the partners.

26
Const. v. Harris [1824] 37 ER 1191, 1202
BIBLIOGRAPHY

1. 7TH Law Commission Report


2. Kluwer Law International Encyclopaedia of Laws, volume 3, Corporation and
Partnership
3. Kluwer Law International Encyclopaedia of Laws, volume 5, Corporation and
Partnership
4. Pollock and Mulla, Indian partnership act, 7th edition