Liability of a partner for acts of the firm
⚖️ Liability of a Partner for Acts of the Firm
1. Legal Basis
Governed by Indian Partnership Act, 1932: Sections 18, 19, 20, 25 primarily.
A partnership is defined under Section 4 as a relation between persons who carry on a business in common with a view to profit.
Partners act as agents of the firm and can bind the firm and other partners in certain circumstances.
2. Principle
Every partner is jointly liable for all acts of the firm done in the course of business of the partnership.
The firm itself can sue or be sued through its partners.
Liability may be joint or joint and several depending on the act.
3. Types of Liability
(A) Liability for Acts of the Firm (Section 19)
Partners are jointly liable for acts done in the ordinary course of business of the firm or with the authority of the other partners.
Example: If a partner purchases goods on credit for the firm, all partners are liable to pay.
Case Law:
K. Shanmugham Chetty v. A. Raman & Co. (1947) – Partner acted within scope of business → firm liable.
(B) Liability for Misapplication of Property (Section 20)
If a partner fraudulently misapplies money or property of the firm, all partners are jointly and severally liable to compensate.
Example: Partner A takes firm money for personal use → all partners may be liable to creditor.
Case Law:
Gian Singh & Co. v. Union Bank (1953) – Firm liable for partner’s fraudulent act.
(C) Liability for Acts Beyond Authority (Section 19 & 25)
Acts outside the scope of business require express or implied authority from other partners.
If done without authority, the firm is not liable, but the acting partner may be personally liable.
Case Law:
S.P. Jain v. M. Krishnamurthy (1964) – Partner exceeded authority → firm not liable, partner liable personally.
(D) Liability in Tort (Section 20)
Partner liable for tortious acts done in the ordinary course of business.
Example: Negligence in delivery of goods causing loss → firm liable.
Case Law:
Chandrasekharan v. State Bank of India (1971) – Firm liable for torts committed by partner in business operations.
(E) Liability for Contracts
Firm is bound by contracts entered into by any partner in the ordinary course of business, with apparent authority.
Third parties relying in good faith can hold all partners liable.
Case Law:
Mercantile Bank v. V. Rajagopalan (1960) – Third party reliance on apparent authority → firm liable.
4. Summary of Liability
| Type of Act | Authority | Liability | Illustration / Case Law |
|---|---|---|---|
| Ordinary business transactions | Actual or apparent authority | Joint & several liability of partners | K. Shanmugham Chetty v. A. Raman & Co. |
| Fraudulent misapplication of firm property | Without authority | Joint & several | Gian Singh & Co. v. Union Bank |
| Act outside business / beyond authority | No authority | Only acting partner liable | S.P. Jain v. M. Krishnamurthy |
| Tort committed in course of business | Implied authority | Firm liable | Chandrasekharan v. SBI |
| Contract by partner | Apparent authority | Firm liable to third party | Mercantile Bank v. V. Rajagopalan |
5. Key Points
All partners are jointly liable for acts done in ordinary business.
Authority matters: actual vs. apparent.
Torts and frauds: liability can be joint and several.
Third parties can hold firm and partners liable if they rely in good faith.
✅ In short:
A partner acts as an agent of the firm; if he acts within the scope of business or with authority, all partners share liability. If he acts beyond authority, only he is personally liable
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