Page 144 - DMGT102_MERCANTILE_LAWS_I

Mercantile Laws-I

Notes 10.5.3 Liability of a Firm for Wrongful Acts of a Partner (Secs.26-27)

Where, by the wrongful act or omission of a partner acting in the ordinary course of the business
of a firm, or with the authority of his partners, loss or injury is caused to any third party or any

penalty is incurred, the firm is liable therefore to the same extent as the partner.

Task Iqbal Singh, a partner in a fi rm purchased some goods which were stolen. Later,

he sold the goods. The firm’s accounts showed the transaction. Is the firm liable to the true
owner?

Case Study Partnership

f she weren’t a shade confused, she wouldn’t be Wafers! Her uncle, a star CFO, was her
inspiration and she wished to be like him - jet setting, globe trotting and knowledgeable.
IAt the campus interview her senior had picked a job for Rs 9 lakh and gosh he wasn’t
even a rank holder. Wafers knew that the industry offered fat pay packs but her heart
actually lay in consulting. She wanted to join one of the Big Four firms with the long-term

goal of becoming the next C.
K. Prahalad. Her professor had once told the class, “In life, you should do what the heart
tells you.” He was talking about careers! China said, “For chartered accountants there
are a plethora of opportunities in the new international trading regime.” Wafers agreed.
She recalled reading in the ICAI website that “Opportunities would emerge at three
fundamental levels in the WTO regime. At the government level, at the revenue authorities
level and at the business unit level.” China was surprised. “Wow! These CA students are so

analytical,” he told himself. “You mean to say, accounting firms will have opportunities at
the international level,” queried Muskan, Wafer’s niece. She was in Class X.
“Yeah,” said Wafers. And added, “Actually, the opportunities are not just in the industry.
They are in practice as well.” China remarked, “But that comes with a huge price. If the pink

papers are to be believed, accounting firms in the US have millions of dollars worth of legal
suits pending against them.” Muskan asked, “So?” “So,” replied China, “the liberalised
trade scenario which offers potential to provide services across international borders will
augment greater liability to firms in case of default.” Muskan looked defi nitely confused.

Wafers explained. “Legally, accounting firms in India are allowed to function as sole

proprietary concerns or as partnership firms. A partnership is the relationship between

persons who have agreed to share the profits of a business carried on by all or anyone
of them acting for all.” This set Muskan thinking. “So will I be liable for my partners’
shortcomings even if I have been honest in conducting my duties,” she asked. “That’s the
general idea,” said China impressed by the kid asking the right questions.
“This traditional model is not equipped to meet the multi-competency, multi-disciplinary
and multi-locational requirements of today’s global and domestic clients,” said China.

Wafers added, “Moreover, the major chunk of all benefits is drawn by the creamy layer

of large firms.” She had read a research report on “Who are India’s top auditors and how
much do they charge,” which had, among others, documented the great divide in the
accounting profession. “This is why the accounting fraternity is in favour of limited liability
Contd....

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