Introduction
Sections 9 to 17 of the Act govern the relations of partners inter se—defining their mutual rights, duties, and liabilities. These provisions ensure transparency, cooperation, and fairness, forming the moral and legal backbone of partnership relations.
This blog examines these provisions under clear headings—Principles Governing Mutual Relations, Duties and Rights of Partners, Partnership Property, and Continuance of Partnership—supported by landmark case law.
Principles Governing Mutual Relations
The relationship between partners is governed by (i) the principle of good faith and (ii) the terms of the partnership contract under Section 11.
- Principle of Good Faith:Partners must act honestly and fairly toward one another, disclosing all material facts relevant to the partnership. The duty of utmost good faith prevents deceit and promotes mutual confidence.
- (Terms of Contract (Section 11)Section 11 allows partners to define their mutual rights and duties through agreement, whether express or implied. However, such contracts cannot override statutory provisions such as Sections 41 (compulsory dissolution) or 69 (effects of non-registration).
In Pabitra Construction Co. v. UCO Bank[1], three partners authorized two to operate a joint bank account. Later, one partner directed the bank to require all three signatures due to disputes. The Calcutta High Court upheld the bank’s action, emphasizing good faith and equal participation, reiterating that transparency and mutual consent govern partnership relations.
Duties Of Partners
Sections 9 to 17 of the Act outline partners’ duties, ensuring trust and accountability.
1. Duties under Section 9
Partners must:
- Conduct business for the greatest common advantage,
- Be just and faithful to each other,
- Render true accounts and full information.
- Duty to act for common advantage:
Partners must act for the firm’s collective benefit. In Bentley v. Craven[2], a partner who supplied sugar from his stock at profit without disclosure had to account for his gain to the firm, reaffirming that personal profit from firm dealings must be shared.
- Duty to be just and faithful:Mutual trust is vital. In Abbot v. Crump[3], a firm was dissolved when one partner committed adultery with another’s wife, as such conduct destroyed mutual confidence.
- Duty to render true accounts and information:Partners must maintain accurate accounts and share all relevant information. In Law v. Law[4], a partner buying out another’s share concealed the firm’s true value; the court held the transaction voidable for nondisclosure.
2. Duty to Indemnify for Fraud (Section 10)
A partner must indemnify the firm for losses caused by fraud. In Campbell v. Campbell[5], managing partners who bought illicit whisky were held liable to indemnify an innocent partner for penalties paid by the firm.
3. Duty to be Diligent and Indemnify for Negligence (Sections 12(b), 13(f))
Partners must act with care. In Cragg v. Ford[6], a partner delayed selling cotton, causing loss; the court held he was not liable since he acted bona fide and without wilful neglect.
4. Duty Not to Compete (Section 16(b))
A partner cannot carry on a competing business without consent; profits earned therefrom belong to the firm. In Pulin v. Mahendra[7], a partner who traded salt for himself while buying for the firm was liable to account for those profits. However, Dean v. MacDowell[8] clarified that involvement in related but non-competing activities is permissible.
5. Duty to Use Firm Property for Firm’s Purpose (Sections 14 & 15)
Firm property must be used exclusively for business purposes unless agreed otherwise. In Addanki Narayanappa v. Bhaskara Krishnappa[9], the Supreme Court held that partnership property, though jointly owned, cannot be claimed individually by any partner and exists only for the firm’s business.
6. Duty to Account for Personal Profits (Section 16)
Partners must account for profits made using firm property or connections. In Bentley v. Craven, the partner’s secret profit was recoverable by the firm.
In Coffey’s Registered Design (Re)[10], a partner who independently designed a brewing container could retain profits since the invention was unrelated to the firm’s business, distinguishing personal initiatives from partnership obligations.
Rights Of Partners
Rights ensure fair participation and prevent exploitation within partnerships.
1. Right to Take Part in Business (Section 12(a))
Every partner has the right to participate in management unless otherwise agreed. Wrongful exclusion entitles a partner to legal remedy.
2. Decision-Making and Consent (Section 12(c))
Ordinary matters are decided by majority; fundamental changes require unanimous consent. In Blisset v. Daniel[11], expulsion of a partner by majority was set aside as it was exercised in bad faith, affirming that majority powers must be used for the firm’s benefit.
3. Right to Inspect Books (Section 12(d))
All partners, including dormant ones, may inspect and copy firm books. In Bevan v. Webb[12], a sleeping partner was allowed access for valuation purposes, emphasizing transparency.
4. Right to Indemnity (Section 13(e))
Partners can claim indemnity for expenses incurred in the ordinary course of business or during emergencies. In Thomas v. Atherton[13], indemnity was denied where the partner acted recklessly beyond the firm’s limits, clarifying that indemnity applies only to proper conduct.
5. Right to Share Profits (Section 13(b))
Partners share profits equally unless otherwise agreed. This equality ensures fairness irrespective of capital contribution or effort.
6. Right to Interest on Capital and Advances (Sections 13(c) & 13(d))
Interest on capital is payable only from profits unless agreed otherwise. Advances beyond capital attract 6% annual interest, promoting financial fairness.
7. Right to Remuneration (Section 13(a))
No partner is entitled to salary for participating in business unless agreed. Remuneration can be allowed by mutual consent to reward special services
Partnership Property
Section 14 defines partnership property as all assets, rights, and interests contributed or acquired for the firm’s business, including goodwill. Although a firm is not a separate legal entity, property brought in or acquired with firm funds is treated as collectively owned by partners.
In Addanki Narayanappa v. Bhaskara Krishnappa[14], the Supreme Court held that firm property vests jointly in partners, who cannot claim specific ownership during the firm’s subsistence.
In S.V. Chandra Pandian v. S.V. Sivalinga Nadar[15], the Court reiterated that partners have undefined shares in firm property during partnership and proportionate shares upon dissolution.
(a) Property Originally Contributed :Assets brought into the firm become firm property unless stated otherwise, ensuring collective ownership.
(b) Property Acquired for Firm :Assets acquired with firm funds belong to the firm, even if purchased in a partner’s name. In Mohan Lal Bahri v. K.L. Bahri[16], property bought using firm money but registered personally was deemed firm property.
(c) Goodwill and Intellectual Property :Goodwill, trademarks, and patents are part of partnership assets. In Trego v. Hunt[17], goodwill was recognized as an intangible but valuable asset jointly owned by partners, reflecting their collective reputation.
(d) Partner’s Personal Property Used by Firm :Use of personal property by the firm does not automatically convert it into firm property. In Miles v. Clarke[18], only stock-in-trade was held joint property, while premises and equipment remained personal. Similarly,Jayalakshmi v. Shanmugham[19] held that personal assets become firm property only if intended so.
(e) Conversion of Joint into Separate Property :If partnership funds are used to buy property in a partner’s name for personal benefit, it remains their property, though they owe the firm for the amount used
Continuance Of Partnership
Section 17 governs partnership continuity in specific situations.
- Change in Constitution (Section 17(1)) :When the constitution changes due to admission or retirement, mutual rights and duties remain the same unless otherwise agreed, ensuring stability.
- Continuation after Expiry (Section 17(2))
A fixed-term firm that continues business after expiration becomes a partnership at will, operating under the same terms as before.
- Additional Undertakings (Section 17(3))
If a firm formed for a specific venture takes up new projects, the same terms apply unless inconsistent with the new business.
In Gillett v. Thornton[20], partners continued business after completing the initial project. When disputes arose, one partner claimed the arbitration clause was void, but the court held it continued to apply, reinforcing continuity of original terms.
Conclusion
The relationship among partners under the Indian Partnership Act, 1932, rests on mutual trust, cooperation, and fidelity. Sections 9–17 codify the principles that ensure harmony and fairness—balancing individual rights with collective responsibilities.
Partners owe duties of good faith, diligence, and loyalty, while enjoying rights of participation, profit-sharing, indemnity, and transparency. Even in modern business contexts involving intellectual property and complex ventures, these foundational principles remain relevant. The Act’s framework—anchored in good faith, equity, and accountability—ensures that partnerships continue to operate with integrity and mutual respect, fostering trust, efficiency, and long-term stability.
[1]AIR 2008 Cal, 103.
[2](1853) 18 Beav. 75:
[3]( 1870 5 Beng LR 109)
[4](1905) 1 Ch. 140.
[5]7 CI & Fiss 166, 1834
[6] (1842) 1 Y & C. Ch. Cas. 280.
[7] AIR 1921 Cal 722
[8] (1878) LR 8 Ch D 345 (CA).
[9] AIR 1966 SC 1300
[10] 1982 FSR 227
[11](1853) 10 Hare 493
[12](1901) 2 Ch 59
[13](1877) LR 10 Ch D 185.
[14] supra
[15] (1993) 1 SCC 589
[16] AIR 1998 All 247
[17] (1896) AC 7.
[18] (1953) 1 WLR 537.
[19] AIR 1988 Ker 128.
[20](1875) LR 19 Eq 599.
Author Name- Ganga Ram Mittal, B.A. LL.B. | University Institute of Legal Studies, Panjab University, Chandigarh
