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

Farhan and Geeta are partners in a firm dealing in spices. Farhan secretly sells the firm's goods to a company he owns, at the price he fixes, and keeps a profit of Rs 40,000 for himself. Geeta discovers this. What is Geeta's remedy?

Geeta can require Farhan to account for the Rs 40,000 and pay it to the firm. A partner must account for any secret benefit obtained from firm transactions without the others' consent. The money belongs to the firm, not to Geeta alone.

  1. AShe can claim that Farhan account for and pay the Rs 40,000 to the firmCorrect
  2. BShe can only dissolve the firm without any claim on the profit
  3. CShe has no remedy since the sale was at market price
  4. DShe can claim the Rs 40,000 for herself alone

Explanation

A partner must account to the firm for any benefit derived without the consent of the other partners from a transaction concerning the firm. So Farhan must pay the profit to the firm, not to Geeta personally. Option d is wrong because the amount belongs to the firm, to be shared as per profit ratio.

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