Mode of doing act to bind firm
⚖️ Mode of Doing an Act to Bind the Firm
1. Legal Basis
Governed by Section 19 of the Indian Partnership Act, 1932.
Every partner is considered an agent of the firm for the purpose of the firm’s business.
Acts done by a partner in the ordinary course of business or with authority of the other partners can bind the firm.
2. Principle
An act done by a partner in the ordinary course of the partnership business, or with the authority of the co-partners, binds the firm and all partners, even if it benefits only one partner, unless the act is unauthorized or illegal.
3. Modes of Binding the Firm
(A) By Partners Acting in Ordinary Course of Business
Acts that are necessary for carrying on partnership business.
Examples:
Partner buying goods for the firm.
Partner paying expenses for firm’s operations.
Firm is bound jointly and severally.
Case Law:
K. Shanmugham Chetty v. A. Raman & Co. (1947) – Act within ordinary business binds all partners.
(B) By Partners Acting with Authority
Acts outside ordinary course may bind the firm if partners authorize it explicitly or impliedly.
Authority can be:
Express authority – Partners give permission to act.
Implied authority – Authority inferred from partnership agreement or previous conduct.
Case Law:
S.P. Jain v. M. Krishnamurthy (1964) – Act beyond ordinary business but with express authority binds firm.
(C) By Third Parties Relying on Apparent Authority
A partner may appear to have authority from conduct or agreement.
Third parties dealing in good faith can hold firm liable.
Even if the partner exceeds authority, firm may still be bound under apparent authority principle.
Case Law:
Mercantile Bank v. V. Rajagopalan (1960) – Firm liable due to apparent authority of partner.
(D) Acts Binding Firm Even if Not Beneficial
Acts done in the ordinary course bind the firm even if they only benefit the acting partner, unless fraudulent.
Case Law:
Gian Singh & Co. v. Union Bank (1953) – Firm liable for partner’s act benefiting self if done in ordinary business.
(E) Acts Not Binding the Firm
Acts outside ordinary course and without authority do not bind the firm.
Partner may be personally liable for unauthorized acts.
Case Law:
S.P. Jain v. M. Krishnamurthy (1964) – Partner acted without authority → firm not liable.
4. Summary Table – Modes of Doing Acts to Bind the Firm
| Mode | Explanation | Effect / Case Law |
|---|---|---|
| Ordinary Course of Business | Act necessary for carrying on business | Binds firm jointly & severally (K. Shanmugham Chetty) |
| With Authority (Express/Implied) | Partners authorize act outside ordinary business | Binds firm (S.P. Jain v. M. Krishnamurthy) |
| Apparent Authority | Third party relies in good faith | Binds firm (Mercantile Bank v. Rajagopalan) |
| Benefit to Single Partner | Act done in ordinary course | Firm still bound unless fraudulent (Gian Singh & Co. v. Union Bank) |
| Unauthorized / Illegal Act | No authority, outside business | Does not bind firm; partner liable personally (S.P. Jain) |
✅ In short:
To bind the firm, an act must be done by a partner either in the ordinary course of business, with authority of co-partners, or appearing to have authority to a third party acting in good faith.
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