IMPLIED AUTHORITY OF A PARTNER - INDIAN PARTNERSHIP ACT, 1932

IMPLIED AUTHORITY OF A PARTNER - INDIAN PARTNERSHIP ACT, 1932

INTRODUCTION:

The Indian Partnership Act, 1932 passed by the legislation accepted it on 8th?April 1932 and came into force on 1st?October 1932. The ideas of partnership were first brought under the Indian contract act, 1872 under chapter XI (section 239-266) in an arranged form based on the operation and practice of traders and mercantile people of India according to English Principles of law. With the expansion of trade and commerce in India, it was perceived that these sections were inadequate and hence a need for a distinct Partnership Act was felt.

Consequently, the Indian Partnership Act, 1872 comprising the Partnership laws were revoked (these were based on the rules contained in the Report of Indian Law Commission lead over by Lord Romilly in 1866.The current Indian Partnership Act, 1932 is based on the English Partnership Act, 1890 with modifications.

Section 4 of the Indian Partnership Act, 1932, defines partnership as follows:

Partnership is the relation between two or more persons who have agreed to share the profits of a business carried on by all or anyone of them acting for all.

The English Partnership Act, 1890, defines partnership as “the relation which subsists between persons carrying on business in common with a view of profit.”

Sir Fredrick Pollock defines ‘Partnership’ as – ‘the relation which subsists between person who have agreed to share the profits of a business carried on by all or any of them on behalf of all of them.’

DEFINITION:

‘Implied Authority of a Partner’ means the authority of a partner to bind the firm by his acts done in the usual way of the business carried on by the firm.

Sec- 18 of the act says that every partner is the agent of the firm for the purposes of the business of the firm and bind the firm provided-

1. He does the act for carrying on, in the usual way, the partnership business as carried on by the firm and
2. The act is done in the name of the firm.

Whether a given act was done by a partner in carrying on the business in the usual way is a question to be discovered by the nature of the business and by the practices of persons engaged in it.[1]

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TYPES OF AUTHORITY OF A PARTNER:

The capacity of a partner to bind the firm by his acts is what the authority of partners means. Therefore, these authorities are divided into two types namely:

1. EXPRESS AUTHORITY:

When the partnership agreement expressly gives the authority to a person to act in a partnership business, then it is called express authority.

1. IMPLIED AUTHORITY:

If there is no partnership agreement or if that partnership agreement is silent as to the authority of a partner to act, then implied authority is inferred by the act of the partner done to carry on the business in the usual way.[2]

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CONDITIONS FOR VALID IMPLIED AUTHORITY:

If the following conditions are satisfied, then the implied authority of a partner binds the firm:

1. The act must have been within the scope of partnership and it must relate to the normal business of the firm.
2. The act must be such as is done within the scope of business of the firm in the usual way.
3. The act must be done in the name of the firm or in any other manner expressing or implying an intention to bind the firm.

In the case of?M. Rajagopal vs K.S. Imam Ali, AIR 1981 KERALA 36: The court held that when a partner signed a prenote describing himself as proprietor of the firm, then there is no liability to the firm.

In?B.N. Narasimhulu Chetty vs. Ratakonda Krishna Murthy, AIR 1986 AP 177:

The court held that when a promissory note evidently required the endorsement of all the partners, then an endorsement by one partner alone is not within his implied authority.[3]

ACTS WITHIN IMPLIED AUTHORITY:

Decided case laws have repeatedly held that the following acts are within the scope of implied authority and hence bind the firm.

1.?Purchasing and selling goods in the usual course of business.

2.?Receiving payments from customers and dealers and payment to the suppliers in the usual course of business.

3.?Drawing, accepting, endorsing bills and other negotiable instrument in the name of the firm.

4.?Engaging a lawyer to defend an action against the firm.

5.?Buying or hiring on credit the kind of goods that are used in the firm’s business.

In?Tomlinson vs. Broadsmith, (1896) 1 QB 386:?the court held that it is within the scope of a partner’s authority to defend an action brought against the firm and to engage a lawyer for the purpose.[4]

Also, in?Keighley, Maxsted and Co., vs. Durant, 1901 AC 240:?the court held that even though an act may have been done without express authority of a partner does not empower him to do the following acts. These acts are otherwise called ultra vires acts and they do not bind the firm.

1. Submit a dispute relating to the business of the firm to arbitration.

2. Open a bank account on behalf of the firm in his own name.

3. Compromise or relinquish any claim.

4. Withdraw a suit or proceeding filed on behalf of the firm.

5. Admit any liability in a suit or proceeding against the firm.

6. Acquire immovable property or behalf of the term.

7. Transfer immovable property belonging to the firm.

8. Enter into partnership on behalf of the firm.

PARTNER’S IMPLIED AUTHORITY IN AN EMERGENCY: (SEC. 21 OF INDIAN PARTNERSHIP ACT, 1932)

In an emergency, a partner has authority to do certain acts provided.

1. They are done to protect the firm from loss
2. The partner acts as a prudent person would act under similar circumstances in his own case.

Though such acts bind the firm, they do not form part of the partner’s implied authority.

E.g., A partner receives vegetables at Vizag to be re-transported to the buyer at Chennai.?

The vegetables are in such a bad condition that they will not bear the journey to Chennai without getting spoilt. Now the partner can sell the goods at Vizag itself.[5]

IMPLIED AUTHORITY WITH THIRD PARTY:

?????Any third party while dealing with a partner believes that he is dealing with the firm.

A partner may act beyond his authority, but if the third-party acts in good faith thinking that the partner is acting within his ostensible or apparent authority, then the firm is liable for such partner’s act.

The following acts bind the firm as against the claim by third parties:

1. EXTENSION AND RESTRICTION OF A PARTNER’S IMPLIED AUTHORITY: (SEC. 20 OF INDIAN PARTNERSHIP ACT, 1932)

In the firm partners may by contract between partners, extend or restrict the implied authority of any partner.

In spite of any such restriction, any act done by a partner on behalf of the firm which falls within his implied authority binds the firm which falls within his implied authority binds the firm, unless the person with whom he is dealing knows of the restriction or does not know or believe that partner to be a partner.

1. An admission on representation made by a partner concerning the affairs of the firm is evidence against the firm, if it is made in the ordinary course of business. (Sec. 23 of Indian Partnership Act, 1932)

2. Notice to a partner who habitually acts in the business of the firm of any matter relating to the affairs of the firm operates as notice to the firm, except in the case of a fraud on the firm committed by or with the consent of that partner. (Sec. 24 of Indian Partnership Act,1932)

3. Every partner is liable jointly with all the other partners and also severally for all acts of the firm done while he is a partner. (Sec. 25 of Indian Partnership Act,1932)

1. Liability of the firm for wrongful acts of partner:

If by the wrongful act or omission of a partner who is acting in the normal course of business of the firm or with the authority of his partners and by his acts, if any loss or injury is caused to any third party or any penalty is incurred, then firm is liable.

1. Liability of firm for misappropriation: (Sec. 27 of Indian Partnership Act, 1932)

A firm is liable to make good the loss when-

1. A partner acting within the scope of his apparent authority receives money or property from a third party and misapplies it.
2. The firm in the course of its business receives money or property from a third party and the same is misapplied by any of the partners while it is in the custody of the firm.?[6]

CONCLUSION:

From the above article the basic idea of a partner’s implied authority within the reach of the Indian partnership act, is that there are no set of rules consigned for the determination of the same.

Despite, section 19 of the Indian Partnership Act, 1932 widely defines, “Implied authority” and entrusts, restrictions on a partner’s implied authority, it is unlimited.

Although, by various judgements and precedents, many limitations have been entrusted so as to regulate the implied authority of a partner.

Thus, to conclude, that the establishment of a person’s implied authority differs in various circumstances and is contingent on numerous factors.

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[1]?What is the Implied Authority of a Partner? PreserveArticles.com: Preserving Your Articles for Eternity, https://www.preservearticles.com/education/what-is-the-implied-authority-of-a-partner/21268 (last visited Feb 28, 2022)

[2]?Tezpuronline.co.in, https://www.tezpuronline.co.in/attendence/classnotes/files/1589465014.pdf (last visited Feb 28, 2022)

[3]?Mca.gov.in, https://www.mca.gov.in/Ministry/actsbills/pdf/Partnership_Act_1932.pdf (last visited Feb 28, 2022)

[4]?What is the Implied Authority of a Partner? PreserveArticles.com: Preserving Your Articles for Eternity, https://www.preservearticles.com/education/what-is-the-implied-authority-of-a-partner/21268 (last visited Feb 28, 2022)

[5]https://www.toppr.com/guides/business-laws/the-indian-partnership-act/relation-of-partners-to-third-parties/#:~:text=If%20a%20partner%20does%20an,Indian%20Partnership%20Act%2C%201932)%3A (last visited Feb 28, 2022)

[6]?Extension and Restriction of a Partner’s Implied Authority – iPleaders, https://blog.ipleaders.in/extension-restriction-partners-implied-authority/ (last visited Feb 28, 2022)

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Author:?

ADITHYA NARAYANAN

3rd?YEAR BBA-LLB

SRI DHARMASTHALA MANJUNATHESHWARA LAW COLLEGE,

MANGALORE, KARNATAKA