The conduct of the business
Conduct of the Business under the Indian Partnership Act, 1932
📘 Legal Framework
The conduct of the business of a partnership firm is primarily governed by Sections 18, 19, and 20 of the Indian Partnership Act, 1932.
These sections outline the rights, duties, and limitations on partners in managing the business and representing the firm.
🔍 What is “Conduct of Business”?
It refers to how the day-to-day operations, management decisions, and contracts on behalf of the firm are carried out by the partners.
📜 Key Provisions:
1. Section 18: Partner’s Authority to Bind the Firm
Every partner is an agent of the firm and has the authority to bind the firm by acts done in the usual course of the business of the firm.
Example: If the business is a manufacturing unit, a partner can buy raw materials in the ordinary course of business.
If a partner acts outside the scope of the business or authority, the firm is not bound by such acts.
2. Section 19: Mutual Rights and Duties of Partners
Partners must conduct the business to the greatest common advantage.
They must carry on the business to the benefit of all partners.
Every partner has a right to take part in the conduct of the business unless otherwise agreed.
3. Section 20: Restrictions on Partner’s Authority
A partner must not exceed the authority given by the firm.
If a partner acts without the consent of other partners and outside the usual course of business, the firm is not bound.
🧩 Practical Implications
Ordinary Business: Partners can make decisions and enter contracts that are usual and necessary for running the business.
Extraordinary Business: Major decisions (e.g., selling firm property, taking loans) usually require consent of all partners or as per agreement.
Conduct must be with mutual good faith — no partner can act in a way that harms the firm or other partners.
🧑⚖️ Case Laws
🔹 Lahiri v. Lahiri (AIR 1914 Cal 693)
Held that acts done by a partner in the ordinary course of business bind the firm, even if other partners are unaware.
🔹 Khemchand Lal v. Chief Controller of Imports & Exports (AIR 1963 SC 1456)
A partner’s act beyond the authority and business scope does not bind the firm.
🔚 Summary Table
| Aspect | Explanation |
|---|---|
| Partner’s Authority | Can bind firm only in usual course of business |
| Major Decisions | Require consent/all partners or as per deed |
| Acting Outside Authority | Does not bind the firm |
| Duty of Partners | Conduct business in good faith for common benefit |
📌 Important Tip:
Always define in the partnership deed:
What constitutes the business of the firm,
Powers of individual partners,
Decision-making procedure for major business acts.
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