Nidhi Kumari1

Rights and duties of partners:

To fundamental principles govern relations of partners to one another. The first principle gives
the partners the free to settle their mutual rights and duties by their own voluntary agreement.
The statement of duties and rights should be prefaced with the contents of section 11 which gives
freedom to partners, subject, of course, to the provisions of the act, to determine their mutual
rights and duties.
Section11- determination of rights and duties of partners by contract between the partners-
Subject to the provision of this act, the mutual rights and duties of the partners of a firm may be
determined by contract between the partners and such contracts may be expressed or may be
implied by a course of dealing.
Determination by contract
The second principle of high importance is that relations of partners tone another are based upon
the fundamental principle of absolute good faith. Mutual trust and confidence among the
partners, therefore, becomes a necessary condition of their relations. Section 9 gives statutory
recognition to this principle by providing that “partners are bound to be just and faithful to each
other”. This duty cannot be excluded by any agreement to the contrary. In Helmore v. Smithi:
“In fiduciary relationship means anything I cannot conceive
stronger case of fiduciary relations than that which exists between partners. Their mutual
confidence is the life blood of the concern. It is because they trust one another that they are
partners in the first place; it is because they continue to the trust one another that the business
goes on.
“Duties of partners”
All the duties of partners emerge from this overriding principle of good faith. The following are
some of them:
• Duty of good faith (Section:9)
• General duties of partners-Each partner owes to the others a duty of honest and good
faith. This requirement of mutual trust arises because they have all voluntarily constituted
one another their agents in relation to the partnership affairs.
1
CUSB1813125060, Section (B), B.A. llb, Central University of South Bihar,
The first and unchanging aspect is the obligation to be honest. But this does not mean that a
partner satisfies the duty by mere honesty; the duty has other characteristic; he may be in breach
of it without being dishonest or negligent, for instance if he acts for an improper motive.
The Second aspect of the duty is the requirement of openness. A partner must conceal nothing
from his partners which is relevant to the firm’s business.
Thirdly, he must act in favour of the firm and not against it. He must not exercise for his own
advantage the powers which he holds as a partner only. He may not put himself in a position
which militates against discharge of his duty to the firm.
Fourthly, he must treat fairly a minority within the firm, for instance when contemplating an
expulsion.
Finally, he must not compete with the firm or make a profit at the
2) Duty to attain greatest common advantage Thus all the endeavours of a partner must be to
secure a maximum profit for the firm. He should not try to make a secret profit for himself at the
expense of the firm. In Bentley v. Cravenii. A partner in a firm of sugars refiners, who had great
skill in buying sugar at the right time, was entrusted to buy sugar for the firm. He supplied sugar
from his personal stock, which he had bought earlier when the prices were low. He charged the
prevailing market price and thus made considerable profit. When his co-partner discovered this,
they brought an action for an account of the profit. The firm was held entitled to that profit.
Similarly, where a partner, authorised to sell joint property for sold it to accompany, in which he
had a large interest, for a much higher price and concealed the excess price, he was held bound to
share it with his co-partner.iii

3) Some aspects of fiduciary obligation: A number of aspects of partner’s fiduciary obligation

have found their way into the provisions of the Act, for example, the duty not to draw any
exclusive advantage by the use of the partnership property or information. the duty not to draw
any benefit by engaging into transaction in rivalry with the firm; the duty not to divert the
business opportunities of the firm to his own advantageiv.
4) Limits on the duty of good faith:
Trustees contrasted
The partner’s duty of good faith is not the same as, or as strict as, the duty imposed by the law
upon a trustee. Thus a partner may for his own benefit use property or information belonging to
the firm provided that its not of value to the firm and he does not use it in competition with the
firm’s business. By contrast a trustee may not use for his own benefit the property or information
of the trust.
A partner’s accountability for his separate business
If a partner carries on any business of the same nature as and competing with that of the firm, he
shall account for and pay to the firm all profits made by him in that business. Transactions in
rivalry with firm The principle is well established by the authorities that “a partner is not to
derive any exclusive advantage by engaging in business.
Transaction in rivalry with the firm
Thus where a firm is constituted to supply goods of a certain kind, a partner cannot carry on a
personal business of supplying the same stuff. It is also well established that “a partner is not
allowed in transacting the partnership affairs to carry on for his own sole benefit any separate
trade or business which, were it not for his connection with then partnership, he would not have
been in a position to carry on”. In Palin v.Mahindrav. A partner was founded between certain
persons for importing salt from foreign countries and to resale the same in Chittagong. One of
the partners, while operating to buy salt for the firm bought some quantity for himself and resold
on his personal account. He was held liable to account for this profit to his co-partners, as the
opportunity to make it came his way while he was on the business of the firm. A partner may,
however, carry on any personal work which is outside the scope of the partnership business. In
Aas v. Benhavi. A partner in a firm of ship-brokers’ helped the formation of a company for
building ships. In so doing he used information which he had acquired as member of the firm. He
received remuneration for his services and subsequently joined the company as a director at a
salary. He was sued for an account of these earnings. But it was held not liable as the formation
of the company and the business of a shipbuilding company were something entirely beyond the
scope of the partnership.

Restriction on carrying on any other business : Ordinarily this kind of agreement, being in
restraint of trade, is void under section 27 of the contract Act. But section 11 expressly declares
that such an agreement such be valid, “notwithstanding anything contained inspection 27 of the
contract Act, 1872”.If a partner carries on any personal business in breach of this kind of
agreement, he may not be liable to account for his profits, but his co-partners may apply under
section44 (d) for dissolution of the firm on the ground of persistence breach of agreement.
5) Due diligence [section-12(b) and 13(f)]
Section 12(b) declares that-Every partner is bound to attend diligently to his duties in the
conduct of the business. In order to supplement this provision section 13(f) provides: A partner
shall indemnify the firm for any loss caused to it by his wilful neglect in the conduct of the
business of the firm. “Negligence” means absence of care according to circumstances and “wilful
negligence” has been described as “culpable negligence” if the partner is guilty of this degree of
negligence and consequently the firm suffers a loss, he would be bound to indemnify the firm for
the same. Buthe will not be liable for “mere errors of judgement”, or for acts done in good faith.
A problem of this kind arose in Cragg v. Fordvii.The plaintiff and the defendant were in business
in partnership. Their business was in dissolution. The defendant, being the managing partner the
conduct of dissolution was left to him. He was advised by the plaintiff to dispose of immediately
certain bales of cotton which constituted a part of the company’s assets. But the defendant said
that that should be do neat the end of the dissolution. By that time prices of cotton went down
materially and the goods realised much less then they would done otherwise. The court held that
it was not “wilful neglect”. The defendant has no reason to anticipate the sudden fall in prices.
The principle of this case has been followed by the Patna High Court in SasthiKenkar v.
Gobindaviii. In the suit for dissolution of a partnership and accountants, the defendants, who were
managing partners, were charged with negligence and contribution was failed to sue certain firms
for the price of coal supplied and consequently one of the claims become time barred and other
was lost due to the debtor’s insolvency. They were held liable for the claim which had become
time-barred. For the other claim the court held that the firm was an old customer and the
defendants themselves learned it too late that it had become insolvent.

Duty to indemnify for fraud [section 10]

Every partner shall indemnify the firm for loss caused to it by his fraud in the conduct of the
business of the firm. This section is another aspect of the basic duty of partners to the conduct
themselves fairly and honestly both towards their co-partners and persons dealing with the firm.
Where a partner falters from the path and loss is caused to the firm, he will exclusively liable for
the same. In Campbell v.Campbellix. one of the partners of a distillery, who did not take part in
the conduct of business, had to pay penalties which were levied upon the firm in consequences of
the purchase of illicit whisky. The purchases were affected by the managing partners and the
plaintiff partner had no knowledge of them. They were held liable jointly and severally to
indemnify him against the amount so paid and interest on it. It was immaterial that the loss was
caused by acts of illegal nature, for the plaintiff had not taken any part in them, not done
anything which could be regarded as acquiescence, knowledge or consent.
Duty to render true account [section-9]
Partners are bound to each other by the principle of utmost good faith(uberrimae fidei). This
entails a duty of the partners towards each other to make a full and frank discloser of facts
affecting the affairs of the firm. Impartial recognition of this principle section 9 makes it a duty
of the partners to render true accounts to every other partner. This principle was laid in. A
partner has sold his share in the assets of the firm to his co-partner and discovered subsequently
that material information had been concealed from him. He would have been entitled to set aside
the sale but for the fact with knowledge of the concealment and without insisting upon full
discloser, he entered into an agreement to modify the original bargain. The court found that the
matter which escaped consideration was no consequence to the firm.

Proper use of property [section 15]

Application of the property of the firm-
subject to contract between the partners, the property of the firm shall be held and used by the
partners exclusively for the purpose of the business. The section makes it a duty of the partners
that the property of the firm shall be held and used by them exclusively for the purpose of the
business of the firm.
Nature of liability for misappropriation -The failure of a partner to submit an account of his
doings in reference to the property of the firm may make him liable to an action, but not to a
charge of criminal misappropriation of property. The reason was stated by the Supreme Courtin
Velji Raghavji v. State of Maharashtrax – the appellant was the working partner of a firm. It was
agreed among the partners that he should carry on the work of realising the dues of the
partnership. On the allegation that he misappropriated certain sums and also failed to depositing
the bank some collections, he was convicted for the offence of criminal breach of trust under
section 409, IPC. The Supreme Court acquitted him. Even if there was a mandate to the appellant
with respect to some dues to collect and deposit them in bank, failure to do so would not
constitute the offence, as the appellant was also authorised by the partners to spend the money
for the business of the partnership.
Duty to account for personal profit [section 16]
Personal profits earned by partners-
Subject to contract between the partners,
1)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 the profit
and pay it to the firm.
2)If a partner carries on any business of the same nature as and competing with that of the firm,
he shall account for and pay to the firm all profits made by him in that business.
Duty not to use firm property for private business.
In Gardner v. mcCutchexi. on the captain of a ship, which was owned by him and his co-partner,
made considerable profit by making certain contracts, while the ship was operating under charter
parties. He was held liable to account for such profit.
Information received as partner
The duty of a partner as to the exploitation of information received by him as a partner was thus
stated in Aas v. Benhamxii. To the same effect is Coffey’s Registered Design, . The firm was
trading in home brewing materials. It was buying and selling products manufactured by others. It
was not manufacturing such product itself. A partner of his own initiative developed a design for
a container for brewing beer. He was allowed to enjoy the benefits of his invention and not to
share them with his co-partners because his invention had nothing to do with the scope of the
partnership business. Right of partners Mutual rights and duties of partners depend upon the
provisions of their agreement. But subject to their agreement the law confers the following rights
upon all partners:

Right to take part in business [section 12(a)]: Every partner has a right to take part in the
conduct of the business of the firm. The privilege of participation in business must be used for
promoting the interest of the firm and not for damaging it. Partnership agreement usually provide
for the exclusion of this right in the case of some partners.
Majority rights [section 12(c)]
When every partner has a right to be consulted in the formulation of business policy, differences
of opinion among the partners may arise.“12(c) any differences arising as to ordinary matters
connected with the business may be decided by a majority of the partners, and every partner shall
have the right to express his opinion before the matter is decided, but no change may be made in
the nature of the business without the consent of all the partners;
Resolving differences of opinion:
A difference of opinion may relate either to
(1)An ordinary matter
(2) A fundamental matter.
If the partners are divided over an ordinary matter connected with the business, the same may be
settled by a majority of the partners. But every partner shall be given the right to express his
opinion before the matter is decided. All matters arising in connection with the execution of the
agreed business of the firm fall in this category and may be carried through by majority opinion.
But where the difference of opinion relates to a matter of fundamental importance, consent of all
the partners becomes necessary. Fundamental matters include the question of any alteration of,
or addition to, the business of the firm and the admission of a new partner. The partnership deed
may, however, provide that in all matters majority opinion shall prevail. The manner in which
majority powers should be exercised was explained in Blisset v. Danielxiii. The plaintiff was
working in partnership with certain persons. It was proposed to appoint one of the partner’s son
as a co-manager of the firm. The plaintiff objected. The aggrieved father complained to his
partners behind the back of the plaintiff and persuaded them to sign and serve upon the plaintiff a
notice of expulsion. This was done in the exercise of a power which authorised a majority to
expel any partner without giving the reason.
Access to books [s. 12(d)]
Every partner has a right to have access to and to inspect and copy any of the books of the firm.
A partner may exercise this right himself of by agent, but either can be restrained from making
use of the knowledge thus gained against the interest of the firm. A partner can have the account
inspected through an agent and need not to do it. For example, where a sleeping partner wanted
to sell his interest to the other partners and authorised an expert vaguer to inspect accounts to
ascertain the value of his interest, it was held that the other partner could not object to it, unless
they could show some reasonable grounds for their objection such as, for example, protection of
trade secrets.
Right to indemnify [section 13(e)]
The firm shall indemnity a partner in respect of payments made and liabilities incurred by him:
1.In the ordinary and proper conduct of the business, and
2.In doing such act, in an emergency, for the purpose of protecting the firm from loss, as would
be done by a person of ordinary prudence, in his own case, under similar circumstances.
Two kinds of indemnity:
In the first place, a partner is entitled to recover from the firm any expenses incurred by him “in
the ordinary and proper conduct of the business”. In Thomas v. Athertonxiv. T, the managing
partner of acolliery, received notice from L, an adjoining owner, that the workings were being
carried on beyond the boundary. T insisted that he was entitled to the disputed ground, and
carried on his working. The matter,having been referred to attribution, he was held liable to pay
damages for the trespass. His claim for contributions from his co-partners failed as the loss was
not suffered in the ordinary and proper conduct of the business “He worked beyond the limits of
the partnership colliery without proper inquiry as to limits and had acted with gross negligence
and recklessness is continuing his working after notice and without consulting his partner,when it
was evident that his right to work in the disputed area was extremely doubtful. ”The second kind
of indemnity is recoverable when a partner has done an act involving expenditure in order to
protect the property of the firm a lossthreatened by an emergency. It is necessary that the partner
concernedshould have acted as a reasonable person would have acted in his owncase.24The right
to indemnity is not lost by the dissolution of the firm and it also does not matter that there is or
has been no settlement of accounts.25Right to profits [section 13(b)]Unless otherwise agreed,
partners are entitled to share equally in the profits earned by the firm. Similarly, they are bound
to contribute equally in the losses sustained in the course of the business of the firm. This would
be so even where there is disproportionate capital contribution or some of the partners render
extraordinaryservices.26

Right to interest [section 13(c) and (d)] : If a partner has advanced, for the purpose of the firm
business, a sum of money beyond the capital he has agreed to subscribe, he is entitled to interest
on the advance at the rate of 6 percent per annum.13(d) a partner making, for the purpose of the
business, any payment of advance beyond the amount of the capital he has agreed to subscribe, is
entitled to interest thereon at the rate of six percent per annum.
Right to remuneration [section 13 (a)]
Unless otherwise agreed, partners are not entitled to receive salary or remuneration for taking
part in the conduct of the business. Section 13(a)so provides: A partner is not entitled to receive
remuneration for taking part in the conduct of the business. The partnership agreement may,
however, provide for the payment of remuneration to working partners. But even so a firm
cannot be regarded as an employer of a partner. A contract of service stipulates two different
persons whereas a firm and its partners are one and the same thing. The so-called remuneration
paid to the partners is in reality a distribution of profits. It has been observed that in the united
states, great Britain and Australia, a partner is not treated as an employee of his firm because he
receives a wage or remuneration for work done for the firm. Even where a partner renders extra-
ordinary services, in the absence of an agreement, he cannot claim remuneration for such
services. The Sind high court acted upon the same principle in a case where a licensed partner
and the other unqualified partner was doing nothing. Even so no remuneration was allowed to the
qualified partner.“It is well known principle that under ordinary circumstances the contractor
partnership excludes any implied contract for payment for services. In the absence of an
agreement one partner cannot charge his co-partners with any sum for compensation in the form
of salary or otherwise, even where the services rendered by the partners were exceedingly
unequal.”
i
(1886) 35 CH D 436 at 444.
ii
(1853) 18 eav 75:104 RR 373
iii
Dunne v. English, 18 Eq 524 (1874)
iv
Section 16 and Russel v. Austwick, )1826( 1 Sim 52
v
(1921) 34 Cal Lj 405
vi
(1891) 2 ch 244
vii
1 Y CCC P280
viii
AIR 1919 Pat 386
ix
7 Cl & Fiss 166: )1834( 12 (city of seas) 573, Scot
x
AIR 1965 SC 1433: )1965( 2 SCR 429
xi
(1891) 2 Ch 244:65 LT 25 CA
xii
(1972) 1 WLR 443
xiii
(1853) 10 Hare 493: 90 RR 454
xiv
(1877) 10 Ch D `185

Bibliography and References.

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