Relations of partners: rights and duties - Contract II

On this page

1. The deed and section 11
2. General duties: section 9
3. Other duties
4. Rights of partners: sections 12 and 13
5. Property of the firm: section 14
6. Kinds of partners
7. Problem
How this is examined

Cases checked to exist. Read the judgment before quoting a holding.

Every case cited here has been checked to exist — the citation resolves and names the right parties. The propositions attributed to each case have not been verified line by line against the judgment. Case names link through to the full judgment: read it before quoting a holding in an examination answer, and never carry a proposition from notes into court on trust.

Subject to contract. Sections 9 to 17 govern the partners' relations among themselves. Most of them apply only where the partnership deed says nothing different (section 11). Section 9 is the exception in spirit: the duties of good faith and accounting are the basis of the relationship and an agreement cannot strip them away.

1. The deed and section 11

Section 11(1) lets the partners fix their mutual rights and duties by contract, express or implied by a course of dealing, and vary them with the consent of all. Section 11(2) saves an agreement that a partner shall not carry on any business other than that of the firm while he is a partner, notwithstanding section 27 of the Contract Act. The rules that follow are the default rules that apply where the deed is silent.

2. General duties: section 9

Partners are bound:

to carry on the business of the firm to the greatest common advantage;
to be just and faithful to each other; and
to render true accounts and full information of all things affecting the firm to any partner or his legal representative.

The relationship is fiduciary. A partner may not take a secret advantage at the expense of the others, and in dealings between themselves the partners owe the utmost good faith.

3. Other duties

To indemnify for fraud (section 10). Every partner must indemnify the firm for any loss caused to it by his fraud in the conduct of the business. The firm is liable to outsiders for the fraud (sections 26 and 27); section 10 shifts the loss to the partner who committed it.
To attend diligently (section 12(b)). Every partner is bound to attend diligently to his duties in the conduct of the business.
To indemnify for wilful neglect (section 13(f)). A partner must indemnify the firm for loss caused by his wilful neglect in the conduct of the business.
To account for personal profits (section 16(a)). 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 must account for it and pay it to the firm.
Not to compete (section 16(b)). If a partner carries on a business of the same nature as and competing with that of the firm, he must account for and pay to the firm all profits made by him in that business.
To use firm property exclusively for the firm (section 15). Subject to contract, the property of the firm is to be held and used by the partners exclusively for the purposes of the business.

4. Rights of partners: sections 12 and 13

Subject to contract between the partners:

To take part in the business (section 12(a)). Every partner has a right to take part in the conduct of the business.
To be consulted (section 12(c)). Differences on ordinary matters are decided by a majority, but every partner has the right to express his opinion before the decision. No change in the nature of the business can be made without the consent of all the partners.
To have access to books (section 12(d)). Every partner may have access to and inspect and copy any of the books of the firm. After his death the right passes to his legal representative (section 12(e)).
No remuneration (section 13(a)). A partner is not entitled to remuneration for taking part in the business.
Equal share (section 13(b)). Partners share profits equally and contribute equally to losses sustained by the firm. Unequal capital does not by itself mean unequal shares.
Interest on capital (section 13(c)). Where a partner is entitled to interest on capital, it is payable only out of profits.
Interest on advances (section 13(d)). A partner who makes a payment or advance beyond the capital he agreed to subscribe is entitled to interest at six per cent per annum.
Indemnity (section 13(e)). The firm must indemnify a partner for payments made and liabilities incurred in the ordinary and proper conduct of the business, and in doing such act, in an emergency, for protecting the firm from loss as would be done by a person of ordinary prudence in his own case.

Section 17 continues these rights and duties after a change in the constitution of the firm, after the expiry of a fixed term where the business is carried on, and where the firm undertakes additional adventures.

5. Property of the firm: section 14

Subject to contract, the property of the firm includes all property, rights and interests in property originally brought into the stock of the firm or acquired, by purchase or otherwise, by or for the firm or for the purposes and in the course of its business, and includes the goodwill of the business. Unless a contrary intention appears, property bought with money belonging to the firm is deemed to have been acquired for the firm.

In Addanki Narayanappa v. Bhaskara Krishtappa, 1966 INSC 24, AIR 1966 SC 1300, the Supreme Court held that even immovable property brought in by a partner becomes the property of the firm, and that while the firm subsists no partner can claim any specific item; his interest is a right to a share of the profits and, on dissolution, to a share of the surplus after the debts are paid. That interest is movable property, so a document relinquishing it needs no registration as a transfer of immovable property.

6. Kinds of partners

Active (working) partner. Takes part in the conduct of the business. He must give public notice on retirement to escape liability for later acts (section 32(3)).
Dormant or sleeping partner. Shares profits and losses but takes no active part and is not known to the public as a partner. He is liable for the debts of the firm while a partner, but need not give public notice on retirement (section 45(1) proviso and section 32(4)).
Nominal partner. Lends his name to the firm without capital or a share of profits. He is liable to third parties as a partner.
Partner by estoppel or holding out (section 28). One who by words or conduct represents himself, or knowingly permits himself to be represented, as a partner is liable to anyone who on the faith of that representation gave credit to the firm.
Minor admitted to the benefits (section 30). A minor cannot be a partner, but with the consent of all partners he can be admitted to the benefits of partnership; his share is liable for the firm's acts, but he is not personally liable. He must elect within six months of attaining majority or of learning of his admission, whichever is later.
Sub-partner. A person with whom a partner agrees to share his own share of profits. He is not a partner of the firm, has no rights against it, and is not liable for its debts.
Partner in profits only. One who by agreement shares profits but not losses. He is still liable to third parties for the debts of the firm.

Trap. “Partners share equally” is a default rule under section 13(b), not a rule of law. If the deed gives shares of 50, 30 and 20, the deed governs. Write “subject to contract” whenever you state a section 12 or 13 rule.

7. Problem

A, B and C are partners in a firm dealing in textiles. Without telling the others, A buys cloth for the firm from a supplier and takes a personal commission of Rs 40,000 from the supplier. A also starts his own textile shop in the same market. B and C want the money.

Issue. Whether A must account to the firm for the commission and for the profits of his own shop.

Law. Section 9 imposes the duty to be just and faithful; section 16(a) requires a partner to account for any profit derived from a transaction of the firm; section 16(b) requires him to account for profits of a competing business of the same nature.

Application. The commission came to A from a transaction of the firm. His shop is of the same nature as the firm's business and competes with it in the same market.

Conclusion. A must pay the Rs 40,000 and the profits of his shop to the firm, to be shared among all partners. B and C may also sue for dissolution on the ground of misconduct or persistent breach of the agreement under section 44(c) or (d).

How this is examined

“Explain the rights and duties of partners” was set in January 2026 and recurs. Arrange the answer as duties (section 9, 10, 12(b), 13(f), 15, 16) and rights (sections 12 and 13), with the words “subject to contract” at the start. A short note may be set on kinds of partners, property of the firm, or the position of a minor partner. The secret profit problem is answered as above.