Page 164 - DMGT407Corporate and Business Laws

Unit 6: Partnership Act and Limited Liability Act

Section 15 provides that subject to the contract between the partners, the property of the firm Notes
shall be held and used exclusively for the purposes of partnership.

6.4.5 Personal Profits Earned by Partners

Section 16 provides that if a partner derives any profit for himself from 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 that profit and pay it to the firm. A partner can use the property of the firm for
the purposes of business of the firm only and not for his personal advantage.
Profits earned by engaging in a competing business. Section 16 provides that no partner can
carry on any business which is likely to compete with the business of the firm, except with the
consent of the other partners. In case any partner is so engaged in a competing business, then he
must account for the profits thereof to the firm and must also compensate the firm for any loss
sustained by his carrying on such business. Further, s.53 provides that not only during the
continuance of the firm, but also after dissolution of the firm and during the winding up, a
partner may be prohibited and can be restrained from carrying on a competing business in the
name of the firm or using the property of the firm.

It is worth reiterating that s.12 of the Indian Contract Act, 1872, provides that an agreement in
restraint of trade is void. But s.11 permits an agreement between partners that a partner shall not
carry on business other than the business of the firm as long as he is a partner. In practice, such
a clause generally appears in partnership agreements. In the absence of any such arrangements,
partners are free to engage in any private business of their own, provided the same does not
compete with the firm’s business.

Self Assessment

Fill in the blanks:

7. The relation of the partners of a firm to one another arises through a ………………..between
them.
8. Section 14 further provides that the property of a firm, subject to the contract between the
partners, includes the …………………of the business.

6.5 Relations of Partners to Third Parties

Subject to s.18 every partner is the agent of the firm for the purposes of the business of the firm.

6.5.1 Implied Authority of a Partner

A partner’s authority may be express or implied. It is express, when it is fixed between the
partners by mutual agreement. The agreement may, however, be oral or written. It is implied
when the law impliedly gives certain powers to a partner, i.e., the law presumes that every
partner has the power to do certain acts unless negatived by an express agreement.
Sections 19 and 22 deal with the subject of implied authority of a partner. The two sections when
read together provide that the act of a partner which is done to carry on in the usual way,
business of the kind carried on by the firm, binds the firm, provided the act is done in the firm’s
name, or in any manner expressing or implying an intention to bind the firm. Such authority of
a partner to bind the firm is called his implied authority. The implied authority of a partner thus
extends only to such acts, which (i) are common in the type of business carried on by the firm and
(ii) are done by him in the usual way of carrying on the firm’s business. Thus, if it is usual to give

LOVELY PROFESSIONAL UNIVERSITY 157