Skip to content

CA Foundation · Business Laws · The Indian Partnership Act, 1932

Chetan, Deepa and Elias are partners sharing profits equally, with no agreement on interest on advances. Chetan lends Rs 2,00,000 to the firm over and above his capital, to meet a business need. What interest is the firm bound to pay Chetan on this loan?

The firm must pay Chetan interest at 6% per annum. When a partner advances money beyond his capital for the firm's business, the Act entitles him to simple interest at that rate in the absence of a contrary agreement.

  1. ANo interest, because partners cannot lend to the firm
  2. BInterest at 6% per annumCorrect
  3. CInterest at 12% per annum
  4. DInterest at the bank rate prevailing

Explanation

Where a partner makes an advance beyond his agreed capital for the firm's business, he is entitled to interest at 6% per annum, unless otherwise agreed. The rate is fixed by the Act and is not 12% or the bank rate. Partners can validly lend to the firm.

Did you get it right without looking?

One question tells you little. A timed set on The Indian Partnership Act, 1932 shows your real accuracy, how long you take and where you lose marks.

Practise The Indian Partnership Act, 1932Free diagnostic mock

More The Indian Partnership Act, 1932 questions