Liability of the firm for wrongful acts of a partner
Liability of the Firm for Wrongful Acts of a Partner under the Indian Partnership Act, 1932
1. Basic Principle
The firm is liable for wrongful acts committed by a partner if those acts are done in the ordinary course of the firm's business or with the authority of the other partners (Section 19).
2. When is the Firm Liable?
| Situation | Liability of the Firm |
|---|---|
| Wrongful acts committed by a partner in the ordinary course of business | Firm is liable to third parties for such acts. |
| Wrongful acts done with the authority of other partners, even if outside ordinary business | Firm is liable. |
| Wrongful acts done outside the scope or without authority | Firm is not liable; partner personally liable. |
3. Types of Wrongful Acts Covered
Fraud
Negligence
Misrepresentation
Fraudulent misapplication of money or property received
Conversion or wrongful disposition of firm property
4. Firm's Liability for Fraud
If a partner commits fraudulent acts in the ordinary course of business or with authority, the firm is liable.
However, if fraud is outside the scope of business and without consent, the firm is not liable.
5. Examples
| Scenario | Is the Firm Liable? |
|---|---|
| Partner sells goods fraudulently on behalf of the firm | Yes, firm liable to third party. |
| Partner secretly embezzles money without firm knowledge | No, firm not liable; partner personally liable. |
| Partner makes false representations in the course of business | Yes, firm liable for partner’s acts. |
6. Summary Table
| Partner’s Act | Firm’s Liability |
|---|---|
| Act done in ordinary course of business | Firm liable |
| Act done with authority outside business | Firm liable |
| Act done without authority and outside business | Firm not liable |
| Fraud committed in course of business | Firm liable |
| Fraud committed without firm knowledge | Firm not liable; partner liable |
RELATED Blog
comments