Reviewed and Validated by: Aamna, Associate
1. Introduction
- The partnership Act came into existence on 1st May 1932, it contains law of partnership.
- It is influenced by the English law, most important change is regarding provision for registration of firms.
- Indian partnership Act is divided into VIII chapters, which contains 72 sections with repeals.
- This chapter covers within Section 21 to 28 , which is in Chapter IV of the Indian partnership Act,1932.
- The 4th chapter of Indian partnership Act deals with Relation of partners to third parties. So, here we are going to examine the role of section 21 to 28 with regard to relation of partners to third parties.
2. Who is a Partner?
- Partnership is defined as Individual who joins with other individuals in an arrangement where gains and losses, risks and rewards, are shared among the partners.
- Section 4 of the Indian Partnership Act, 1932 defines partnership as “the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all”.
2.1. Essentials for being a partner
- There must be at least two persons.
- That it is the result of an agreement.
- That it is organized to carryon a business.
- That the persons concerned agree to share the profits of the business.
- That the business is to be carried on by all or anyone of them acting for all.
2.2. Relation of partners to third parties
Chapter IV of Indian partnership deals with relation of partners to third parties, which contains section 18 to 30. Section 21 to 28 is the landmark section of Indian partnership Act.
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3. Partners Authority In An Emergency
- Sometimes even if a partner does not have either express or implied authority to act on behalf of the firm, his act can bind the firm if the same has been done in a situation of emergency as described in the section 21.
- Section 21 confers an authority on a partner in emergency for doing all such acts for the purpose of protecting the firm from loss as would be done by a person of ordinary prudence in his own case.
- For such an act the firm would be bound towards the third party.
- S13 (e) (ii) says that if a partner makes some payments or incurs liability in doing an act in an emergency, for the purpose of protecting the firm from loss, and he has acted as a prudent man in like circumstances would have acted in his own case, the firm shall indemnify partner for the same.
In the case of Prem Ballabh Khulbe v. Mathura Datt Bhatt , supreme court held that as per Section 9 of the Indian Partnership Act, 1932, a partner must observe the utmost good faith in his dealings with the other partners. He is bound to render accounts of the partnership assets in his hands. But in the absence of special circumstances he cannot be regarded as a kind of trustee for the other partners or liable to render accounts to them in a fiduciary capacity. Further, Section 21 of the Act enumerates the fact that a partner must act in emergency as a normal prudent person would normally do for the benefit of the firm and such acts binds the firm.
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