Page 171 - DMGT407Corporate and Business Laws

Corporate and Business Laws

Notes property. However, if by a contract between the partners, an option has been given to the
continuing partners to purchase the interest of the retired partner and the option is duly exercised,
the retired partner or his estate will not be entitled to any further share of the profits.
Liability of the retired partner: Section 32 provides that a retired partner continues to be liable
for all the acts of the firm done before his retirement unless he is discharged from his liability.
He may be discharged from liability to any third party for the acts of the firm done before his
retirement if (a) there is an agreement made by him with such third party and the remaining
partners. (This implies the principle of novation); (b) there is an implied agreement to the above
effect. Such an agreement may be implied by a course of dealing between such third party and
the remaining partners, after the third party had knowledge of the retirement.
Further, s.32 provides that a retired partner, along with other partners at the time of his retirement,
continues to be liable as partner to third parties for any act done by any of them after the
retirement of the partner until a public notice is given of the retirement. This implies the
principle of holding out. The public notice of the retirement of a partner may be given either by
the retired partner or any of the partners of the reconstituted firm. A retired partner, however,
is not liable for the acts of the firm done after his retirement, provided the persons dealing with
the firm do not know that he was a partner as such. This, in fact, refers to the retirement of a
sleeping or dormant partner.

6.6.3 Expulsion of a Partner

Section 33 provides that a partner may not be expelled from a firm by a majority of partners
except in exercise, in good faith, of powers conferred by the contract between the partners. Thus,
a partner may be expelled from the firm if (i) the power of expulsion is conferred by a contract
between the partners, (ii) the power is exercised by a majority of the partners and (iii) the power
is exercised in good faith. The test of good faith will be satisfied if (i) the expulsion is in the
interest of the partnership, (ii) a notice of expulsion has been served on the partner and (iii) the
partner to be expelled has been given an opportunity of being heard.
In case a partner is expelled without satisfying the conditions above mentioned, the expulsion
would be irregular and he does not cease to be a partner. In such a situation, he may either claim
reinstatement as a partner, or sue for the refund of his share of capital and profits in the firm. The
rights and liabilities of an expelled partner are the same as those of a retired partner.

6.6.4 Insolvency of a Partner

Section 34 provides that where a partner in a firm is adjudicated insolvent, he ceases to be a
partner on the date on which the order of adjudication is passed whether or not the firm is
thereby dissolved.

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Caution It is to be noted that ordinarily but not invariably, the insolvency of a partner
results in dissolution of a firm but the partners may specifically provide that on such a
contingency the firm shall not be dissolved.
Section 34 further provides that the estate of the insolvent partner is not liable for the acts of the
firm done after the date of order of adjudication. It is not mandatory to give a public notice to the
effect that a partner has been adjudged an insolvent. In any case the firm is not liable for any act
of the insolvent partner after the date of order of adjudication.

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