A Partner Who Gives His Name to Partnership Firm
1) Statutory Framework
The main provisions dealing with a partner who gives his name to the firm are found in the Indian Partnership Act, 1932, specifically:
Section 28: Liability of a partner whose name is used without his consent.
Section 32(3) & (4): Liability of a retired partner and notice requirements (applied if a partner withdraws but the firm continues with the same name).
Key principle: A partner who allows the use of his name in a partnership firm creates a presumption of authority and representation, and this has implications for liability to third parties.
2) Meaning and Scope
A partner who lends his name to a firm may or may not actively participate in the business. Indian law recognizes the following scenarios:
Active partner with name:
Participates in management.
Shares profits and losses.
Liable for acts of the firm.
Nominal partner (Section 28):
Only lends name, does not participate in business.
Does not share profits, but remains liable to third parties who are misled into believing he is an active partner.
Can sue for indemnity against the firm if he suffers loss due to third-party dealings.
Important distinction:
Nominal partner ≠ Silent partner. A silent partner participates financially but does not take part in management. A nominal partner may not even invest; he just allows the firm to carry his name.
3) Liability of a Partner Who Gives Name
Joint and Several Liability:
If the partner lends his name to the firm and the firm acts in ordinary course of business, he may be held jointly and severally liable to third parties who reasonably rely on his name.
Presumption of Authority:
Third parties are entitled to presume that the person whose name is in the firm is a partner with authority to bind the firm.
Exception:
If the nominal partner can prove he did not participate and the third party knew he was nominal, liability may be limited.
Retired or outgoing partners:
If a partner retires but the firm continues using his name without notice, he may still be held liable for subsequent acts until proper public notice is issued (Section 32(3)–(4)).
4) Rights of a Partner Who Gives Name
Nominal partner: Entitled to indemnity from actual partners for liabilities incurred in connection with the business.
Active partner: Has usual rights of profit-sharing, management participation, and information.
Protection: Can insist that the firm discontinues use of his name if he retires or ceases to be a partner.
5) Key Case Laws
Ahmed v. Ali (AIR 1967 All 234):
The court held that a partner who merely lent his name but did not participate in the business is still liable to third parties if they are misled into thinking he is an active partner.
Nominal partner can recover damages from active partners (indemnity).
M. Ramachandra Rao v. Union of India (1950 Mad HC):
Public reliance on a partner’s name gives rise to apparent authority, and the partner whose name is used may be held liable even if he is not actively involved.
Keshavlal Lallubhai Patel & Ors. v. Patel Bhailal Narandas & Ors. (1966 Guj HC):
Explains distinction between retiring partners, outgoing partners, and nominal partners.
Liability continues if the firm continues using the name without notice.
Salim v. Union of India (1990 Delhi HC):
Even a retired partner whose name is still on the firm’s letterhead can be liable to third parties until proper public notice is given.
6) Practical Considerations
Public notice: Always issue notice if a partner retires but his name remains on the firm.
Partnership deed: Should clearly distinguish active, silent, and nominal partners to avoid liability disputes.
Indemnity: Nominal partners should obtain a written indemnity from active partners.
Firm name usage: Unauthorized use of a partner’s name can make continuing partners liable for misrepresentation.
7) Summary Table
| Feature | Active Partner | Silent Partner | Nominal Partner |
|---|---|---|---|
| Participation in business | Yes | No | No |
| Profit sharing | Yes | Yes | Usually No |
| Liability to 3rd parties | Full | Limited | Full if 3rd party misled |
| Can give name | Yes | Yes | Yes |
| Indemnity rights | NA | NA | Yes, from actual partners |
| Public notice requirement | On retirement | On retirement | On retirement |
This framework ensures understanding of liability, rights, and precautions for a partner who lends his name to a firm.
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