Personal profits named by partners
📘 Personal Profits Made by Partners (Without Consent of the Firm)
What are Personal Profits?
Personal profits are profits earned by a partner from a business transaction or opportunity that relates to the firm's business but are made without informing or getting consent from other partners or the firm.
For example, if a partner secretly buys goods from the firm’s supplier at a discount and sells them for profit personally without sharing with the firm.
Legal Position under the Indian Partnership Act, 1932
Section 18 (Duties of Partners) — Duty Not to Make Secret Profits
Partners have a duty to act in good faith and must not make secret profits or derive personal gains at the expense of the firm.
Any profits made by a partner in connection with the firm’s business belong to the firm, unless otherwise agreed.
Explanation:
If a partner makes a profit from an opportunity connected with the partnership business without disclosure or consent, this is called “secret profit” or “profiting from partnership opportunity.”
Such profits are held in trust for the firm and must be accounted for and surrendered to the firm.
The partner cannot keep such profits for themselves.
Case Laws on Personal Profits by Partners
1. Ramsundar v. Ramsundar, AIR 1924 Cal 186
A partner who made a secret profit in the firm’s business was held liable to account for the profit to the firm.
Emphasized the partner’s fiduciary duty to the firm.
2. Mohan Lal v. K.C. Mohan Lal, AIR 1936 All 56
Confirmed that a partner cannot keep secret profits and must disclose and surrender such profits to the firm.
3. Sindhu v. Inder Singh, AIR 1961 Punj 254
Secret profits made without the firm’s knowledge and consent are held as a constructive trust for the firm.
Summary Table
| Situation | Partner’s Liability |
|---|---|
| Personal profit made without consent | Must account and pay profit to the firm |
| Personal profit made with consent | Can keep profit if agreed upon |
| Disclosure of profit to firm | Must get consent or surrender profit |
Practical Implications
Partners should disclose any personal profits arising from the firm’s business.
Partnership deeds often include clauses to prevent secret profits and ensure transparency.
Secret profits breach the fiduciary duty of partners and can lead to legal claims.
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