Central University of South Bihar

Doctrine of Holding out Pratik Kumar1

Abstract
“Research” means to find out something new which is not found yet and examine again about
something. Legal research means research in that branch of law which deals with the principles
of law and legal institution and legal precedent. The importance of legal research based on three
main things. Those are justice, equity and conscience. There are two kinds of legal research. First
one is the Doctrinal method of research and Traditional method of research and second one is
Non-doctrinal or Empirical method of Research. This topic on which the whole project is done
covered the Doctrinal Method of legal Research.

Partnership by Holding Out is also known as partnership by estoppel. Holding out is merely
application of the principle of estoppel which is a rule of evidence wherein a person is prevented
or estoppel from denying a statement he made or existence of facts that he makes another person
believe. In simple terms, if a person represents himself before someone that he is a partner of a
particular firm, he is estopped from denying this representation later on. The doctrine of holding
out has been provided under section 28 of the Indian Partnership Act, 1932.

The rule of agency by Estoppel has been extended to the case of partnership too. Holding out is
merely application of the principle of Estoppel which is a rule of evidence wherein a person is
prevented or ‘estoppel’ from denying a statement he made or existence of facts that he makes
another person believe. Holding out refers to course of act or omission that leads others to
believe that one possesses an authority which in fact one does not possess it. Simply put, if a
person represents that he is a partner of a particular firm, he is estopped from denying this
representation later.

1
CUSB1813125066, B.A.llb, Central University of South Bihar.

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Introduction

Every partner is liable for all the acts of the firm done while he is a partner. Therefore, a person
who is not a partner of the firm can’t be made liable for an act of the firm. In certain cases,
however, a person who is not a partner in the firm may be esteemed to be a partner or held out to
be a partner in the firm for the purpose of his liability toward third party. The basis of liability
of such a person is not that he was himself a partner or was sharing the profits or was taking the
part in the management of the business, but the basis is the application of the estoppel because of
which he is held to be a partner or suppose to be partner by “holding out”.

The doctrine of holding out is a branch of the law of estoppel. According to the law of estoppel,
if a person, by his representation, induces another to do some act which he would not have done
otherwise, then the person making the depictioni is not allowed to deny what he asserted earlier.

Therefore, if a person who is not a partner, by his representation, creates a caricature in the mind
of the third party that he is a partner, on the basis of the third party gives credit to the firm, the
person making such representation will be held out to be partner. In the word of Lord Denman
C.J. :

“ where one by his word or conduct willfully causes another to believe the existence if a
certain state of things, and induces him to act on that belief, so as to alter his own previous
position, the former is precluded from averring against the layer a different state if things as
existing at the same time….”ii

For example, a partnership firm consists of X, Y and Z. A, who is not partner and on the faith of
this representation M gives the credit to the firm. In this case M can make A liable on the basis
of holding out and is estopped from denying that he is a partner in the firm. Partnership by
Holding Out is also known as partnership by estoppel. Holding out is merely application of the
principle of estoppel which is a rule of evidence wherein a person is anticipated or estopped from
denying a statement he made or existence of facts that he makes another person believe. In
simple terms, if a person represents that he is a partner of a particular firm, he is estopped from
denying this representation later on.

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Previous law: This section corresponds to the repealed section 245 and 246 of Indian contract
Act, which ran as underiii(Palok Basu J.).

“245. Responsibility of person leading another to believe him a partner.—A person

who has, by words spoken or written or by his conduct, led another to believe that he is a partner
in a particular firm.

“246. Liability of person permitting himself to be represented as a partner.--- any

one, consenting to allow himself to be represented as a partner, is liable as such to third persons
who, on the faith thereof, give credit to the partnership.

Analogous law:- This section is analogous to the section 14 of United Kingdom Partnership
Act, 1890, which runs in this way:-

Section 14:- Person liable by “holding out”.—(1) A person who by words spoken or written or
by conduct himself represents, or knowingly permits himself to be represented to be partner in a
firm, is liable as a partner in that firm to anyone who has faith on any who has on the faith of any
such representation given to firm, whether the person representing himself or represented to be a
partner does or doesn’t know that the representation has reached the person so giving creditiv.

(2) Where after a partner’s death the business is continued in the old firm name, the continued
use of that name or of the deceased partner’s name as a part thereof shall not of itself make his
legal representative or his estate liable for any act of the firm done after his death.

Holding out :--

1. Anyone who by words spoken or written or by conduct represent himself or knowingly

permits himself to be represented, to be a partner in a firm, is liable as a partner in that
firm to anyone who has on the faith of any such representation given credit to the firm,
whether the person representing himself or represented to be a partner does or does not
know that the representation has reached the person so giving creditv.

2. Where after a partners death the business is continued in the old firm name, the continued
use of that name or of the deceased partners name as a part thereof shall not of itself

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make his legal representative or his estate liable for any act of the firm done after his
death.vi

Essentials of doctrine of holding out:--

Before the provision of Section 28 can be invoked, some essentials conditioned must be
proved to have existed. Those two conditioned are given below:

1. He represented himself or knowingly allowed himself to be represented as a partner.

2. Such representation may be by spoken or written words, by conduct or by knowingly
permitting others to make such representation by words or conduct.
3. The other party on the faith of such representation gave credit to the firm.

For example, M and N are partners in a firm. Another person P manages the firm on their behalf;
places all the orders, makes the payments due etc. If P places an order, M and N will have to pay
for the same as they have allowed P to function as a partner and did not to inform the suppliers or
the customers that P was only a manager. But a person who is aware that P is not a partner can’t
sue M and N to make good losses incurred by dealing with P.

If all the said conditioned are shown to have existed in a case, then the provision of this section
must be invoked. If any one of them is lacking, provision of this can’t applied. Where, on faith of
representation made to the plaintiff, he gave credit to the firm in the sense of that money and
withdraw the deposit and allowed the firm, to make use of that money and enjoy that credit, it
was held that the provision of section 28 of Indian Partnership Act, 1932, could be invoked.

A partner by holding out is liable to the person giving credit, to make good the loss which any
third party may bear or suffer. But he doesn’t gain or obtain any claim over the firm. A person
doesn’t become a ‘real’ partner but he does become liable for remedy to the third party whom he
induced as a partner by holding out and caused such man loss or injury. The real partners of the
firm are safe unless the partner by holding out has acted on their orders or with their permission.

SCARF v. JARDINEvii is an important case for the principle of holding out wherein the
importance of notice of retirement was highlighted. A partner must give notice of his retirement

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from a firm the same way the notice of a new member to the firm is made to the public so that
people know about his status or rather the absence of participation of such retiring person in the
firm. Otherwise, he might be treated as partner by holding out no matter how long back he
retired from the firm without notice.

Thus, the liability of a retired partner to old creditors or customers continues till a notice of his
retirement is given. Similarly, the firm will also be liable for the retired partner, should just a
situation arise, if the notice has not been give. It is immaterial whether the retiring partner gives
the notice or the other partners.

Sub-section- Death of a partner.—

Where, on the death of a partner, the business is continued by the surviving partners under the
old name, the rule doesn’t apply so as to impose liability upon the personal representatives of the
late partner for the transactions of the surviving partner after his death, even as old customers or
the creditors who have no notice of the death of his partner; and on this ground, the court has
refused to restrain the surviving partners from using his name. The legal representatives of the
deceased is not bound by any acknowledgement or payment made toward the subsequent debt to
the deceased, even though it may be said that the surviving partner, as an agent of the firm , had
an implied authority under section 47 of the Indian partnership Act, 1932 to acknowledge to old
debt.viii ( Bangia R.K).

On the death of partner there is automatic dissolution of the firm unless there is contract to the
contrary between the partners. When there is a contract between the partners by the virtue of
which the firm is dissolved, the remaining partner can continue the business – the fact that the
business of the firm is continued in the old firm name, does not make the legal representatives or
estate of the dead partner liable for an act of the firm done after his deathix.

Some cases related to this section.

Munton v. Rutherfordx, In this case one Beckwith published a statement in a newspaper that he
and Mrs. Rutherford had formed a partnership. This statement was False and Mrs. Rutherford did

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not know about these all the things. It was held by the court that Mrs. Rutherford was not liable
as a partner by estoppel or holding out.

British Homes Corporation Ltd. V. Pattersonxi, in this case one of the partners of the firm
obtained a cheque payable to himself and not in the name of the firm. It was held by the court
that for the misappropriation of such cheque which had been received by him in his personal
capacity, the other partner could not be made liable.

Oriental Bank of Commerce v. M\s. S.R Kishore & coxii., a person, who was not a partner not
only represented himself to be a partner, but he signed the partnership deed, actively participated
in various transactions of the firm, and signed various partnership documents from time to time.
It was held by the court he was liable for the act of the firm on the basis of the principle of
“holding out.

Conclusion:

Partnership by holding out means when a person represents himself to be a partner of a firm and
a third party believes in such depiction, the person afterwards can’t deny his liability towards the
third party. Similarly, if a person is representing himself to be a partner, and the firm has
knowledge about such adumbration but did not do anything to stop such adumbrationxiii. So,
when a third party entered into a transaction with such person then firm would be liable for the
act of such person, but the liability would only be limited to such representation and cannot be
unlimited. Moreover, when a person is entered into a partnership by way of holding out, he can’t
claim any rights in the property of the firm and his rights will be limited to such depiction only.
Furthermore, if a third party knew everything about the facts behind the representation still he
entered into transaction with such person then firm would not be liable for such transaction. The
representation of partner may be made by communicated either by words, spoken or written or
either by conduct. Doctrine of holding out also find its prominent place in transfer of property
Act 1882 It is defined under section 41 of TPA Act.

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i
Synonyms of representation
ii
Pickard v. Sears, (1837) 6 A & E. 469. And Wagh v. Carver,(1793) 2 H.B.L. 235.
iii
Law of Partnership by Justice Palok Basu, former judge Allahabad High court
iv
Law of partnership by Justice palok Basu, Former judge Allahabad High court
v
Bare Act , Indian Partnership Act 1932
vi
Bare Act , Indian Partnership Act 1932
vii
(1882) 7 A. C. 345.
viii
Section 28 (2) Of Indian partnership Act
ix
Contract II Dr. R.K Bangia, Allahabad Law Agency
x
12 Mich. 418
xi
(1902) 86 L.T. 826
xii
AIR 1993 Bombay. 290
xiii
The description or portrayal of someone or something in a particular way.

BOOKS:
1. Contract –II, R.K Bangia, Allahabad Law Agency
2. Law of Partnership by Justice Palok Basu, former judge Allahabad High court, LexisNexis.
3. Indian partnership Act 1932, Bare Act, Allahabad Law Agency

Websites
1. www.indiankanoon.com
2. www.lawservices.com

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