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CA Intermediate · Corporate and Other Laws · The Limited Liability Partnership Act, 2008

Asha, Bhavna and Charu are partners of Lotus Designs LLP, Pune. Charu, without any authority from the LLP, signs a contract with a supplier, and the supplier knows she has no authority to act for the LLP. Later the LLP refuses to honour the contract. What is the legal position under the LLP Act, 2008?

The LLP is not bound by the contract. A partner is the LLP's agent, but the LLP is not liable for an act done without authority when the third party knows of the lack of authority. Since the supplier knew Charu had no authority, the LLP can refuse to honour it.

  1. AThe LLP is bound because every partner is an agent of the LLP
  2. BThe LLP is not bound, since Charu had no authority and the supplier knew itCorrect
  3. CThe LLP is bound, but only to the extent of the contributions of the other partners
  4. DThe LLP is bound if the contract is for the LLP's usual business, even if the supplier knew of the lack of authority

Explanation

A partner is the agent of the LLP, but the LLP is not bound by an act of a partner who has no authority to act in the matter if the other party knows this or does not know or believe her to be a partner. Here the supplier knew Charu lacked authority, so the LLP is not bound. Option D is wrong because knowledge of the lack of authority removes the LLP's liability even for usual-business acts.

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