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CS Professional · CSR and Social Governance · Partnership Firms

Anita rescinds her partnership contract in a firm because partners Dev and Esha fraudulently misrepresented the firm's finances. A third partner, Farid, was innocent. The firm has debts. Against whom is Anita entitled to be indemnified against all the debts of the firm?

Anita is entitled to be indemnified against all the firm's debts by Dev and Esha, the partners guilty of the fraud or misrepresentation. Section 52(c) places this burden only on the guilty partners, not on the innocent partner Farid.

  1. ADev and Esha, the partners guilty of the fraudCorrect
  2. BAll three other partners equally
  3. CFarid alone, as the only partner with clean hands
  4. DNo partner, since indemnity arises only for losses to the firm

Explanation

Section 52(c) entitles the party rescinding to be indemnified by the partner or partners guilty of the fraud or misrepresentation against all the debts of the firm. Farid was innocent, so he is not liable under this clause. Indemnity of the firm under Section 10 is a different matter.

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