Relations Of Partners To One Another MCQ Quiz - Objective Question with Answer for Relations Of Partners To One Another - Download Free PDF

The correct answer is option 3.

Key Points

• Section 10 says DUTY TO INDEMNIFY FOR LOSS CAUSED BY FRAUD- Every partner shall indemnify the firm for any loss caused to it by his fraud in the conduct of the business of the firm.

Additional Information

Section 11- Determination of rights and duties of partners by contract.
Section 12- The conduct of the business.
Section 13- Mutual right and liabilities.
Section 14- The property of the firm. 

The correct answer is Holding Out.

Key Points

• Section 28 of The Partnership Act, 1932, provides for Holding Out.
• It states that: (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 credit.
  (2) Where after partner's death the business 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.  

The correct answer is Section 17.

Key Points

• Section 17 of The Partnership Act, 1932, provides for the Rights and Duties of Partners After a change in the firm.
• It states that: Subject to contract between the partners, -
  (a) where a change occurs in the constitution of a firm, the mutual rights and duties of the partners in the reconstituted firm remain the same as they were immediately before the change, as far as may be;
  (b) AFTER THE EXPIRY OF THE TERM OF THE FIRM.
  where a firm constituted for a fixed term continues to carry on business after the expiry of that term, the mutual rights and duties of the partners remain the same as they were before the expiry, and so far as they may be consistent with the incidents of partnership-at-will; and
  (c) WHERE ADDITIONAL UNDERTAKINGS ARE CARRIED OUT.
  where a firm constituted to carry out one or more adventures or undertakings carries out other adventures or undertakings, the mutual rights and duties of the partners in respect of the other adventures or undertakings are the same as those in respect of the original adventures or undertakings.

The correct answer is Option 4.

Key Points

• Section 11: DETERMINATION OF RIGHTS AND DUTIES OF PARTNERS BY CONTRACT BETWEEN THE PARTNERS. 
  • In Ramkumar Agarwal v. Shyam Sundar Shaw (AIR 1966 SC 1887), it was held that the mutual rights and duties of partners can be determined by contract between the partners. The contract may be expressed or implied by a course of dealing, and may be varied by the consent of all the partners. Hence statement 4 is incorrect. 
• Section 14:THE PROPERTY OF THE FIRM​.
  • In Brij Mohan v. Lala Ram Lal (AIR 1960 All 123), where it was held that if a partnership deed contains a clause giving one partner the right to expel another partner, such clause is void as it is against the provisions of Section 14 of the Indian Partnership Act, which recognizes the principle of mutual agency in a partnership. Hence statement 2 is correct.
• Section 12: THE CONDUCT OF THE BUSINESS. 
  • In Gajanan Moreshwar v. Moreshwar Madan (AIR 1971 SC 1369), it was held that every partner has a right to take part in the conduct of the business, but must also attend diligently to his duties. Differences arising in ordinary matters can be decided by a majority of the partners, but no change can be made in the nature of the business without the consent of all the partners.  Hence statement 3 is correct.
• Section 15:APPLICATION OF THE PROPERTY OF THE FIRM.
  • In Kishanlal v. Shankarlal (AIR 1960 Raj 135), it was held that the property of the firm shall be held and used by the partners exclusively for the purposes of the business, subject to any contract between the partners. The property of the firm cannot be used for the private purposes of any partner without the consent of all the partners.  Hence statement 1 is correct.

The correct answer is Option 3.

Key PointsSection 12: THE CONDUCT OF THE BUSINESS.

• Every partner has a right to take part in the conduct of the business, but they are bound to attend diligently to their duties.
• Differences arising in ordinary matters connected with the business may be decided by a majority of the partners.
• However, no change may be made in the nature of the business without the consent of all the partners.
• Each partner has the right to access and inspect the books of the firm. 
• In the case of Jugal Kishore v. Jyoti (AIR 2009 P&H 123), the court held that a partner has a right to access the books of the firm, but they cannot use them for any ulterior motive.
• In this case, one partner had accessed the books of the firm to obtain confidential information and then used that information to compete with the firm. The court held that the partner had breached his duty of good faith towards the firm. 

The correct answer is  Fraud 

Key Points Section 10 establishes the obligation for each partner in a firm to indemnify the firm against any losses resulting from their fraudulent actions in the management of the firm's business.

The correct answer is option 4.Key Points

• Section 7 under Indian Partnership Act deals with partnership at will.
• It states where no provision is made by contract between the partners for the duration of their partnership, or for the determination of their partnership, the partnership is 'partnership at will'.

Additional Information

• ​Section 4 deals with definition of " Partnership", "partner", firm" and "firm name"-
• It says "Partnership" is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. 
• Section 5 deals with partnership not created by status
• It states the relation of partnership arises from contract and not from status. and, in particular, the members of a Hindu undivided family carrying on a family business as such, or a Burmese Buddhist husband and wife carrying on business as such, are not partners in such business.

Explanation: Section 9: Changes in designated partners—A limited liability partnership may appoint a designated partner within thirty days of a vacancy arising for any reason and provisions of sub-section (4) and sub-section (5) of section 7 shall apply in respect of such new designated partner: Provided that if no designated partner is appointed, or if at any time there is only one designated partner, each partner shall be deemed to be a designated partner.

The correct answer is Holding Out.

Key Points

• Section 28 of The Partnership Act, 1932, provides for Holding Out.
• It states that: (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 credit.
  (2) Where after partner's death the business 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.  

The correct answer is Option 4.

Key PointsSection 19:- IMPLIED AUTHORITY OF PARTNER AS AGENT OF THE FIRM. 

• (1) Subject to the provisions of section 22, the act of a partner which is done to carry on, in the usual way, business of the kind carried on by the firm, binds the firm.  The authority of a partner to bind the firm conferred by this section is called his "implied authority". 
• (2) In the absence of any usage or custom of trade to the contrary, the implied authority of a partner does not empower him to - 
  • (a) submit a dispute relating to the business of the firm to arbitration, 
  • (b) open a banking account on behalf of the firm in his own name, 
  • (c) compromise or relinquish any claim or portion of a claim by the firm, 
  • (d) withdraw a suit or proceeding filed on behalf of the firm, 
  • (e) admit any liability in a suit or proceeding against the firm, 
  • (f) acquire immovable property on behalf of the firm, 
  • (g) transfer immovable property belonging to the firm, or 
  • (h) enter into partnership on behalf of the firm.  

Additional Information

• Section 20: EXTENSION AND RESTRICTION OF PARTNER'S IMPLIED AUTHORITY. 
  • ​The partners in a firm may, by contract between the partners, extend or restrict the implied authority of any partner. 
  • Notwithstanding any such restriction, any act done by a partner on behalf of 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.  
• Section 21: PARTNER'S AUTHORITY IN AN EMERGENCY. 
• Section 22: MODE OF DOING ACT TO BIND FIRM. 
  • In order to bind a firm, an act or instrument done or executed by a partner or other person on behalf of the firm shall be done or executed in the firm-name, or in any other manner expressing or implying an intention to bind the firm.  

The correct answer is option 3.

Key Points

• Section 10 says DUTY TO INDEMNIFY FOR LOSS CAUSED BY FRAUD- Every partner shall indemnify the firm for any loss caused to it by his fraud in the conduct of the business of the firm.

Additional Information

Section 11- Determination of rights and duties of partners by contract.
Section 12- The conduct of the business.
Section 13- Mutual right and liabilities.
Section 14- The property of the firm. 

The correct answer is Section 17.

Key Points

• Section 17 of The Partnership Act, 1932, provides for the Rights and Duties of Partners After a change in the firm.
• It states that: Subject to contract between the partners, -
  (a) where a change occurs in the constitution of a firm, the mutual rights and duties of the partners in the reconstituted firm remain the same as they were immediately before the change, as far as may be;
  (b) AFTER THE EXPIRY OF THE TERM OF THE FIRM.
  where a firm constituted for a fixed term continues to carry on business after the expiry of that term, the mutual rights and duties of the partners remain the same as they were before the expiry, and so far as they may be consistent with the incidents of partnership-at-will; and
  (c) WHERE ADDITIONAL UNDERTAKINGS ARE CARRIED OUT.
  where a firm constituted to carry out one or more adventures or undertakings carries out other adventures or undertakings, the mutual rights and duties of the partners in respect of the other adventures or undertakings are the same as those in respect of the original adventures or undertakings.

The correct answer is Option 4.

Key Points

• Section 11: DETERMINATION OF RIGHTS AND DUTIES OF PARTNERS BY CONTRACT BETWEEN THE PARTNERS. 
  • In Ramkumar Agarwal v. Shyam Sundar Shaw (AIR 1966 SC 1887), it was held that the mutual rights and duties of partners can be determined by contract between the partners. The contract may be expressed or implied by a course of dealing, and may be varied by the consent of all the partners. Hence statement 4 is incorrect. 
• Section 14:THE PROPERTY OF THE FIRM​.
  • In Brij Mohan v. Lala Ram Lal (AIR 1960 All 123), where it was held that if a partnership deed contains a clause giving one partner the right to expel another partner, such clause is void as it is against the provisions of Section 14 of the Indian Partnership Act, which recognizes the principle of mutual agency in a partnership. Hence statement 2 is correct.
• Section 12: THE CONDUCT OF THE BUSINESS. 
  • In Gajanan Moreshwar v. Moreshwar Madan (AIR 1971 SC 1369), it was held that every partner has a right to take part in the conduct of the business, but must also attend diligently to his duties. Differences arising in ordinary matters can be decided by a majority of the partners, but no change can be made in the nature of the business without the consent of all the partners.  Hence statement 3 is correct.
• Section 15:APPLICATION OF THE PROPERTY OF THE FIRM.
  • In Kishanlal v. Shankarlal (AIR 1960 Raj 135), it was held that the property of the firm shall be held and used by the partners exclusively for the purposes of the business, subject to any contract between the partners. The property of the firm cannot be used for the private purposes of any partner without the consent of all the partners.  Hence statement 1 is correct.

The correct answer is Option 3.

Key PointsSection 12: THE CONDUCT OF THE BUSINESS.

• Every partner has a right to take part in the conduct of the business, but they are bound to attend diligently to their duties.
• Differences arising in ordinary matters connected with the business may be decided by a majority of the partners.
• However, no change may be made in the nature of the business without the consent of all the partners.
• Each partner has the right to access and inspect the books of the firm. 
• In the case of Jugal Kishore v. Jyoti (AIR 2009 P&H 123), the court held that a partner has a right to access the books of the firm, but they cannot use them for any ulterior motive.
• In this case, one partner had accessed the books of the firm to obtain confidential information and then used that information to compete with the firm. The court held that the partner had breached his duty of good faith towards the firm. 

The correct answer is Option 1.

Key PointsSection 14 mentions that for the purpose of deeming an acquired property by a firm as a partnership property, such acquisition shall also include acquisition made for the purposes of goodwill of the firm’s business. Therefore, it is necessary to appreciate the meaning of Goodwill.

The term goodwill is defined nowhere in the Indian Partnership Act, 1932. 

• According to Lindley, the term goodwill is generally used for denoting the benefit arising from the connection and reputation, and its value is what can be received for the chance of being able to keep and improve the connection.

Example: 

• A is a buyer, wanting to avail a legal service. He has 2 options: firm Y & firm Z. Firm Z has a better reputation compared to Firm Y. Therefore, A is more likely to go to Firm Z for availing the legal service. So, firm Z has better goodwill over firm Y and is likely to make a higher amount of profit. This goodwill of firm Z is intangible partnership property.

Additional Information

• Section 11: Determination of rights and duties of partners by contract between the partners.
• Section 12: The conduct of the business.
• Section 13: Mutual rights and liabilities