Duties of Partners

GENERAL DUTIES OF PARTNERS (SECTION 9):

Section 9 states three sub-sections which provide with three different duties of  partners under the Indian Partnership Act. Section 9 sub-section 1 states that it is the duty of the partners to act for the common advantage of that firm. So, the partners shall work to secure maximum profits for the firm.No secret profits at the expense of the firm should be secured by the partner. There was a partnership in a motor manufacturing firm. One partner was skilled in buying and selling motor tools.

So, he was entrusted with the task of buying and selling tools. Though, the partner sold the motor from his own stock and then, gained profit. When the partners discovered this fact, they brought an action to recover profits earned by the partner. It was hel that secret profits cannot be made in a firm and thus, the firm was held entitled for profits that were earned by the partner.

Section 9 sub-section 2 states that it is the duty of the partners to be faithful to each other.Sub-section 3 of section 9 ststes that partners are bound to disclose and provide full information about the things that affect the firm to any partner or his legal representatives. So,this means that a partner shall not conceal things from the other co-partners in the relation to the business of the firm. The court held that if the partner is in possession of some extra information then it is his duty to deliver it to the co-partners. If a partner enters into a contract with other co-partners without furnishing them the material details which is known to him but not his co-partners then such a contract is voidable.

(SECTION 10) DUTY TO INDEMNIFY FOR THE LOSS CAUSED BY FRAUD 

Each partner should indemnify the firm for any kind of loss caused to it by the fraud in the conduct of the business of the firm. The liability to indemnify for fraud cannot be excluded by entering into an agreement to the contrary because entering into any such agreement is opposed according to public policy.

https://thelegallock.com/contract-of-guarantee-sec-126

Duty to act in good faith

The partners have to act in good faith for the greater common advantage. The partner has to work to get more profit for the company. The partner  cannot receive secret profits at any cost. A partner have to provide real accounts and complete information on all matters affecting the company to any partner or his legal representative. This is an absolute condition and is not possible for any partner to contract himself even by an agreement with other partners. Destiny continued even after the partnership gets ceased. The partners are indebted to the ex-partner along with the legal representatives of that partner.

In Bentley v. Craven it was stated that there has a partnership in a sugar refining company. One of the partners specializes in buying and selling sugar. Therefore, he was entrusted with the task of buying and selling sugar. However, the partner sold the sugar from his own stock and thereby made a profit. When the partners discovered this fact, they took action to recoup the profits the partner had earned. The court held that the partner could not make any secret profits and company is entitled to recover the secret profits earned by that partner.

Duty to Render the true accounts

In this act it is stated the partners are committed to the disclosing and providing of complete information about the matters which affect the organization to any partner or his or her legal representatives. The partner should not hide things from other co-partners regarding the business of the company. Each and every partner can access the accounts of that company.

(SECTION 11) DETERMINATION OF THE RIGHTS AND THE DUTIES OF PARTNERS BY CONTRACT BETWEEN THE PARTNERS 

Own terms and conditions can be formed by the partners with respect to the functioning in their partnership deed. These are governed by the existing contract between the partners  which may be implied or expressed by the course of dealing.

Section 11 sub-section 1 states that the mutual rights and the duties of the partners of a firm might be determined by a contract between the partners and such contract may be express or may be implied by a course of dealing. It further provides that the mutual rights and mutual duties which may have been agreed upon by the partners may be subsequently varied by the consent of all the partners and such consent may be expressed or may be implied by a course of dealing.

This section incorporates the general principle that the mutual rights and duties of the partners may be determined by a contract between them. They might themselves decide that how much investment or labor is to be put by whom, or whether a partner will be entitled to any remuneration, apart from sharing the profits, or what will be the profit-sharing ratio, etc.

Section 11 sub-section 2 clearly provides that, not with anything contained in section 27 of the Indian Contract Act, the contract between the partners might provide that a partner shall not carry on any business other than that of a firm while he is serving as a partner. But, Section 27 of the Indian Contract Act states that an agreement in restraint of trade is void, but such an agreement entered into between the partners as stated above will be valid.

https://www.mca.gov.in/Ministry/actsbills/pdf/Partnership_Act_1932.pdf

Author: Poojitha Polichetty

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