Liability of Partners to Third Parties
To clarify the nature of a partner’s obligation in a partnership, Section 25 includes the following provision:
- Partner’s responsibility for firm actions. All partners are responsible for the firm’s actions throughout their time as partners, both severally and collectively with the other partners. The actions of an agent acting on behalf of a principal are subject to liability.
- As mentioned above, in accordance with Section 18, a partner is the firm’s agent for the purposes of the firm’s business. As a result, it follows that every act committed by any partner on behalf of the firm automatically entails liability for the actions of the whole firm.
- Regarding the nature of the partners’ accountability, Section 25 declares that each partner is accountable for all business actions taken while he or she is a partner, jointly and severally.
- The case of M/s Glorious Plastics Ltd v. Laghate Enterprises established that a retiring partner cannot be held accountable for an act performed after retirement under section 25 if the partner leaves on April 1, 1982, and the act is completed by the business on March 1, 1985.
- Even if one of the partners may have carried out the firm’s actions, they are all jointly and severally liable. As a result, a third party may, if desired, file a lawsuit against any one of them singly or against any two or more of them collectively.
Relations of Partners to Third Parties (Law of Partnership)
The Indian Contract Act, 1872, governed the field of partnership law before the passage of the Indian Partnership Act, 1932. However, given the quick expansion of trade and industry as well as the escalating industrialization, a distinct partnership law was urgently required. “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,” as stated in section 4 of the Indian Partnership Act, 1932. In this case, the individuals who have formed a partnership are referred to as Partners, and as a group, they are known as a Firm. A firm name is the name that all of the partners use to jointly manage the firm. In a partnership firm, two or more individuals work together to run a business to make money and divide that money according to the partnership deed’s established profit-sharing ratio.
Key Takeaways:
- Among company owners and entrepreneurs, partnerships are among the most well-known forms of commercial agreements.
- A partnership must be established under Section 12 of the Indian Partnership Act to conduct a lawful business.
- The general rules of the Indian Contract Act will, in any event, apply in situations where the Partnership Act is silent.
- Mutual agency is fundamental for the creation of valid partnership.
Table of Content
- Relations of Partners with Third Parties
- Express Authority of a Partner
- Implied Authority of a Partner
- Extension or Restriction of a Partner’s Implied Authority
- Partner’s Authority in an Emergency
- Liability of Partners to Third Parties
- Conclusion
- Relations of Partners to Third Parties- FAQs