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

In a partnership between Vikram and Divya, Vikram contributes Rs. 5,00,000 as capital and Divya contributes Rs. 3,00,000. The partnership deed is silent on whether interest should be paid on capital contributions. Can Vikram demand interest on his capital?

No, Vikram cannot demand interest on his capital. The Indian Partnership Act provides that interest on capital is payable only if the partnership deed expressly permits it. Silence in the deed means no interest is due, regardless of the size of the capital contribution.

  1. AYes, Vikram can demand interest at 12% per annum as per the Act
  2. BNo, because the Act does not provide for interest on capital unless the deed expressly provides for itCorrect
  3. CYes, but only if the firm's annual profit exceeds Rs. 10,00,000
  4. DNo, but Vikram can withdraw his capital in proportion to his contribution

Explanation

The Indian Partnership Act does not provide for automatic interest on capital contributions. Interest on capital is payable only if the partnership deed expressly provides for it. In the absence of such a provision, capital remains non-interest bearing. This is an important default rule under the Act—partners cannot claim interest on capital merely because they have contributed more than others. Divya is entitled to equal treatment in this regard unless the deed states otherwise.

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