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

Harsh and Indu are partners in a firm that sells electronics. Harsh carries on a similar electronics business on his own without Indu's consent and earns Rs 1,20,000 from it, while incurring no loss to the firm. Which statement correctly states the position?

Harsh must account for the Rs 1,20,000 and pay it to the firm. The Act requires a partner who carries on a competing business without consent to hand over the profits earned, whether or not the firm actually suffered any loss.

  1. AHarsh may keep the profit because the firm suffered no loss
  2. BHarsh must account for and pay to the firm the Rs 1,20,000 profitCorrect
  3. CHarsh must pay Indu half of the profit personally as a penalty
  4. DHarsh must pay the firm only the loss it suffered, which is nil

Explanation

A partner who carries on a competing business of the same nature must account for and pay to the firm all profits made in that business. It does not matter that the firm suffered no loss, so option a and d are wrong. The payment goes to the firm, not to Indu personally.

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