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CMA Intermediate · Business Laws and Ethics · Indian Partnership Act, 1932

A retiring partner wants to be discharged from liability to a creditor for firm debts incurred before retirement. Under the Indian Partnership Act, 1932, how may this discharge be achieved?

The retiring partner can be discharged by an agreement with the creditor and the partners of the reconstituted firm. That agreement may be implied from a course of dealing between the creditor and the new firm after the creditor knew of the retirement. Retirement or notice alone does not discharge past liability.

  1. AAutomatically on retirement, since the debts relate to a past period
  2. BBy an agreement made by him with the creditor and the partners of the reconstituted firm, which may be implied from a course of dealing after the creditor knew of the retirementCorrect
  3. COnly by a court order
  4. DBy giving public notice alone

Explanation

Section 32(2) allows discharge from liability for earlier acts through an agreement between the retiring partner, the third party and the partners of the reconstituted firm. The agreement may be implied from a course of dealing between the creditor and the reconstituted firm after the creditor knew of the retirement. Public notice affects later acts, not earlier debts.

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